[Senate Hearing 112-790]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-790

 
                  THE ENDANGERED MIDDLE CLASS: IS THE
      AMERICAN DREAM SLIPPING OUT OF REACH FOR AMERICAN FAMILIES?

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

   EXAMINING THE MIDDLE CLASS, FOCUSING ON IF THE AMERICAN DREAM IS 
              SLIPPING OUT OF REACH FOR AMERICAN FAMILIES

                               __________

                              MAY 12, 2011

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland        MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico            LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington             RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont         JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania   RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina         ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon                 JOHN McCAIN, Arizona
AL FRANKEN, Minnesota                PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado          LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island     MARK KIRK, Illinois           
RICHARD BLUMENTHAL, Connecticut      

                                       

                      Daniel Smith, Staff Director

                  Pamela Smith, Deputy Staff Director

     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)

  
?



                            C O N T E N T S

                               __________

                               STATEMENTS

                         THURSDAY, MAY 12, 2011

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     3
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia...    43
Kirk, Hon. Mark, a U.S. Senator from the State of Illinois.......    44
Blumenthal, Hon. Richard, a U.S. Senator from the State of 
  Connecticut....................................................    45
Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon......    46
Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee    48
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................    50
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas.......    51
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    53

                               Witnesses

Reich, Robert B., Chancellor's Professor of Public Policy, 
  Goldman School of Public Policy, University of California, 
  Berkeley, CA...................................................     7
    Prepared statement...........................................     9
Boushey, Heather, Ph.D., Senior Economist, Center for American 
  Progress, Washington, DC.......................................    17
    Prepared statement...........................................    19
Luttig, J. Michael, General Counsel and Executive Vice President, 
  Boeing Company, Chicago, IL....................................    22
    Prepared statement...........................................    24
Fox, Sarah M., Legal Counsel, AFL-CIO, Bethesda, MD..............    35
    Prepared statement...........................................    38

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Response to questions of Senator Harkin by J. Michael Luttig.    74
    Response to questions of Senator Enzi by:
        Secretary Reich..........................................    75
        Heather Boushey..........................................    76
    Response to questions of Senator Blumenthal by:
        Secretary Reich, Heather Boushey and Sarah Fox...........    77
        Heather Boushey..........................................    78

                                 (iii)

  


                  THE ENDANGERED MIDDLE CLASS: IS THE
      AMERICAN DREAM SLIPPING OUT OF REACH FOR AMERICAN FAMILIES?

                              ----------                              


                         THURSDAY, MAY 12, 2011

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:15 a.m. in Room 
430, Dirksen Office Building, Hon. Tom Harkin, chairman of the 
committee, presiding.
    Present: Senators Harkin, Enzi, Merkley, Franken, 
Whitehouse, Blumenthal, Alexander, Isakson, Roberts, and Kirk.

                  Opening Statement of Senator Harkin

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will please come to order.
    This is another in a series of hearings that we are holding 
on, ``The Endangered Middle Class: Is the American Dream 
Slipping Out of Reach for American Families? ''
    As I have traveled through Iowa and across the country I 
have heard more and more from middle class families who feel 
their dream, American dream is slipping away. I just received a 
letter from one of my constituents who wrote,

          ``My own disposable income has disappeared and I am 
        not alone. Where I once joined friends occasionally for 
        a lunch out, that no longer happens. I don't buy new 
        clothes. I don't travel. My friends and neighbors, 
        formerly middle class all, are in the same boat. We are 
        the new poor.''

    Unfortunately she said she is not, by any means alone. 
Take, for instance, the town of Webster City, IA. Webster City, 
IA, small town, middle class families, work hard, play by the 
rules, sacrifice for their children. It is a town where a 
decent, middle class way of life is threatened. Recently in 
Webster City the Electrolux plant that had been the town's 
economic engine for 80 years closed its doors. Production moved 
to Juarez, Mexico. In the final round of layoffs in March, 500 
Iowans lost their middle class jobs. This most recent factory 
closing comes on the heels of 222 plant closings in my State 
last year, destroying nearly 12,000 good paying jobs.
    The American dream used to mean something, that if you put 
in a hard days work you could expect good American wages, 
decent benefits and a better life for your kids. Today we are 
in danger of losing that dream and our middle class. For the 
first time in history the majority of Americans believe their 
kids will have fewer opportunities than they had. Now Americans 
don't expect to be rich or privileged, but they do expect to be 
treated fairly. And they deserve to have the opportunity to 
build a better life for their children, again, these are in 
jeopardy.
    It wasn't always like this. In the decades after World War 
II a rising tide lifted all boats. Worker productivity and 
family income grew together at about 2 percent annually. This 
chart shows that in those years, down from about 1947 up to 
about 1970, that the two went together at about 2 percent a 
year.
    From about 1947 to 1977 the blue bars show that the share 
of the national wealth was fairly distributed, about 2.5 
percent across the board for every quintile. But as you can see 
now, from 1977 until now, the red bars show what has happened, 
that more of the wealth has gone only to the top quintile and 
down at the bottom they haven't even grown at all, they have 
actually lost.
    These are the two pictures. The blue bars are what happened 
during the Great Prosperity, as Secretary Reich has pointed 
out, as he has stated, but during the last 30 years the share 
of wealth has only basically gone to the top quintile.
    As productivity has continued to climb and Americans have 
worked harder than ever, middle class incomes have stagnated, 
wages and salaries fell to the lowest share of total national 
income since 1929, in the last 10 years. Corporate profits have 
skyrocketed, income and wealth at the very top has surged, but 
Americans haven't shared in this prosperity.
    Families in Webster City and across the country are under 
enormous strain because of the changes in our economy. Their 
paychecks aren't keeping pace with the soaring costs of 
everyday expenses, like education and housing, gas. Jobs are 
insecure. Savings and pensions have disappeared. People are 
profoundly worried about the future.
    Now when I talk to business owners today one of the things 
I hear is that they aren't hiring new workers because they 
don't know whether the workers can buy the things they make. 
These are smart business people, they will readily expand and 
invest if they sense demand, but demand is weak. Unless middle 
class families have the resources available to purchase gas and 
pay rent and buy groceries and clothes and new cars and things 
like that, our economy is going to suffer and be driven by boom 
and bust cycles on Wall Street.
    Let me state what I think is a simple truth. We can't have 
a strong economy unless we have a strong middle class to make 
and buy the every day items a family needs to live a decent 
life. Now it is true that our economy has undergone fundamental 
changes in recent years but I don't think these changes should 
be viewed as the inevitable result of forces beyond our 
control, things like new technology and globalization. While 
these forces have presented challenges we have also made 
deliberate policy choices that have hurt the middle class. 
Ordinary Americans know this is true. Again, one of my 
constituents just put this in a letter to me, ``Why is 
Washington determined to make the rich richer and to turn its 
back on the middle class? ''
    For years our economy has operated on the flawed premise 
that if we just let powerful corporations basically do whatever 
they want to reap huge profits, then everyone will prosper. 
Many people here in Washington bought into this vision that if 
corporate profits surged and the rich got richer they would 
magically create jobs and prosperity would trickle down to 
everyone else. Instead what we got was the Great Recession, 
falling real incomes and a real unemployment rate close to 16 
percent.
    The only problem was it didn't work. Instead a few powerful 
people gamed the system and got very, very rich at the expense 
of the middle class. And they used their influence to change 
the rules so they could bust unions, refuse to pay their fair 
share of taxes and collect big bailouts while leaving ordinary 
working people to suffer the consequences of an unstable and 
dangerous economy.
    I don't believe we can keep moving down this same failed 
path. If we do, frankly we may not have a middle class two 
decades from now. We have to look closely at what went wrong 
and how we can make smarter policy choices to restore the 
fundamental promise of the American dream that if you work hard 
and play by the rules you should be able to build a better life 
for you and your family.
    One of those smarter policy choices is to restore the voice 
of working Americans by strengthening workers' rights and 
defending the agency that protects those rights, the National 
Labor Relations Board. Recently the dedicated career employees 
who impartially administer the law through this important 
agency have come under a vicious and unfair political attack 
for carrying out their duties under the law.
    Also, something is seriously out of whack when a Midwestern 
governor vilifies teachers and other public employees as, ``the 
privileged elite.'' This is an unfortunate distraction. These 
kinds of things won't help the people of Webster City or any 
middle class community suffering across the country.
    The fact is, unions have played a critical role in building 
the middle class in this country by standing up for good 
American wages, decent benefits and a 40-hour work week. This 
again is a track. If you look at the red line, it is the middle 
class share of national income. You can see it going down. The 
green line is the percent of workers covered by collective 
bargaining agreements, going down. And union membership the 
blue line. They all track each other. By giving workers the 
opportunity to negotiate their pay and benefits, the same 
opportunity that corporate executives already have, unions will 
help restore and rebuild the middle class.
    But restoring the right to form unions is only one of many 
steps to put our country back on track. I look forward to 
hearing more from our witnesses today about the causes of the 
crisis facing the middle class and how we can move forward to 
build better opportunities in the future. One thing I am 
certain of, there can be no sustainable economic recovery 
without the recovery of the middle class and I hope today's 
hearing can help start us down that path at really looking, 
realistically, at what we need to do to rebuild the middle 
class in America. I look forward to a lively discussion.
    Senator Enzi.

                       Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman and good morning. I 
am pleased that we are holding this hearing on the middle class 
and the American dream. Central to achieving the American dream 
is one element, a job. As I travel around Wyoming and the rest 
of the country, I hear one refrain more than any other. Where 
are the jobs?
    As this chart shows, unemployment has remained around 9 
percent since May 2009 reaching a high of 10\1/10\th percent in 
October 2009. The last 2 months have been the first time in 
almost 2 years that it has decreased below 9 percent and job 
creation numbers were finally where they should be for an 
actual recovery. Let me just say, I was very pleased to see 
those numbers. I understand they have increased a little bit 
now, though.
    But the so-called true unemployment rate or U.S. rate has 
reached almost 18 percent. This figure includes underemployed 
individuals who are working part-time but would like to work 
full-time and those who have left the labor force entirely 
because they simply have given up on the search for employment. 
You can't blame the American people for being frustrated. 
Although we have heard a lot of talk about job creation, often 
this Administration's actions have been counterproductive and 
come at a steep cost to our growing debt and deficit.
    One of the first actions was the enactment of the stimulus 
bill in February 2009, a bill I did not support. To date, this 
bill cost more than a trillion dollars, when you add in 
interest, and was primarily a spending bill funding pet 
projects but creating few jobs. Two years later some of that 
money still hasn't been distributed, even though it was 
supposed to be timely, targeted and shovel ready.
    The American people were promised that the passage of the 
stimulus bill would keep unemployment below 8 percent. As you 
can see from this chart, that was not the case. The red line 
was where it actually went, the blue line is where it was 
projected to go with the stimulus. However, the bill did 
considerably add to the national debt and is one of the reasons 
it jumped from 10.6 trillion in January 2009 to more than 14.3 
trillion today. That is a 35 percent increase.
    For over a year the Administration and the Democrat 
majority in Congress focused, like a laser, on the healthcare 
law that will drive up costs and paralyze employers who are 
uncertain of their future obligations. They enacted a financial 
services reform bill that failed to ease the flow of credit to 
the small businesses that are the Nation's economic engine. The 
Administration has adopted an energy policy that will result in 
increased prices for Americans by limiting the use of the 
Nation's cheapest, most abundant energy source, coal. The 
President's decision to allow the EPA to regulate greenhouse 
gasses under the Clean Air Act will kill jobs throughout the 
country. Additional job-crushing regulations are in the works 
and the continued threat of tax increases will continue to 
paralyze our job creators.
    Meanwhile, the Workforce Investment Act, WIA, which would 
help Americans retrain for good jobs in this modern economy, 
continues to languish. The findings of the National Deficit 
Commission are being ignored and a major credit rating company 
lowered its outlook for the U.S.A. from stable to negative. I 
was in China recently and the China bondholders, the 
government, brought up the debt and deficit everywhere we went.
    Instead of taking actions to create a positive job growth 
environment, this Administration has taken some steps that 
actually discourage and prevent job growth. One of the driving 
forces behind these actions is the ideology that every employee 
should be a union member, paying union dues. It has become 
increasingly clear that when some members of the Administration 
say they want good jobs for everyone, they mean only union 
jobs.
    Let me be clear, I fully support the National Labor 
Relations Act and the right of employees to collectively 
bargain when they freely choose to do so. What I do not support 
is government stepping in to limit employees' ability to 
exercise their right not to form or join a union. We have seen 
rulemaking from the National Mediation Board, changing the way 
election results are counted to favor unions and actions by 
both the Department of Labor and the National Labor Relations 
Board, that limit the information provided to employees to 
exclude their right to refrain from union political activities.
    The President issued Executive orders aimed at boosting 
unionization among Federal contractors and most importantly, we 
have seen dozens of decisions from the National Labor Relations 
Board limiting the ability of employers to make their case to 
employees and restricting the ability of workers to decertify 
their union. These government-sponsored efforts to increase 
union density have done nothing to create jobs, and in some 
cases they have been counterproductive to that goal.
    For example, on April 20, 2011 the National Labor Relations 
Board acting general counsel filed a complaint against the 
Boeing Company alleging the company committed an unfair labor 
practice by opening a new production line for the 787 
Dreamliner aircraft at a nonunion plant in South Carolina. The 
complaint argues that Boeing is opening the South Carolina 
production line in retaliation for past strikes in Washington 
State by the machinists union and seeks to have the second 
production line moved out of South Carolina to Washington 
State.
    The outrage over this agency's attempt to intervene in a 
U.S. company's legitimate business decision and take jobs away 
from South Carolina has been very widespread. I am pleased that 
we were able to have a representative from Boeing here today, 
J. Michael Luttig. Judge Luttig is the general counsel and 
executive vice president of Boeing and prior to that served as 
a Federal judge in the Fourth Circuit Court of Appeals for 15 
years. We thank you for appearing here today.
    The Boeing story illustrates this Administration's focus on 
favoring unions at the cost of creating the kind of middle 
class jobs we all want. In early 2009, Boeing announced that it 
was going to build a second production line for 787 Dreamliners 
in order to meet increased demand. The existing collective 
bargaining agreement between Boeing and the Union did not 
require union consent if the company sought to open new 
worksites outside of Washington. Still, Boeing voluntarily 
entered into discussions with the machinists union about 
bringing the second production line to Washington State. No 
agreement was reached and Boeing announced that it would locate 
its second production line at a facility it had recently 
purchased in South Carolina. The employees at this facility had 
been represented by the International Machinists Union, but in 
September 2009 they exercised their legal right to decertify 
their union by a vote of 199 to 68 in a secret ballot election.
    Boeing moved forward with plans to expand their 
manufacturing in the United States in the middle of a deep 
recession. They hired over 1,000 new employees in South 
Carolina and invested millions of dollars in the plant facility 
there. At the same time, production and hiring were also 
increasing in Puget Sound. Boeing created over 2,000 new union 
jobs in the Puget Sound area since 2009, again, all during the 
height of a recession. The jobs they created are among the 
highest paid aerospace workers in the United States.
    Mr. Chairman, this company deserves our congratulations and 
respect not demonization.
    But, 17 months after Boeing announced the second production 
line and just 3 months before production was set to begin, the 
National Labor Relations Board acting general counsel issued 
this complaint and an accompanying press release trumpeting 
that action. Employers across the country have been greatly 
disturbed by this complaint and the possibility that a 
government bureaucrat serving in an acting capacity could 
direct U.S. companies about where to locate facilities, what 
work to do there and who to hire. It sounds like China, not the 
United States.
    This is not the way to encourage new job creation in the 
United States or even keep the jobs we currently have. This 
complaint has also raised considerable concern that the 
National Labor Relations Board is now targeting the 22 Right-
to-Work States which have been an engine of new job creation 
and attracted many foreign companies to manufacture in the 
United States. Many States that did not have a wide 
manufacturing base historically have found a path to 
significant new job creation by offering high-skilled job 
training for its workforce and attracting foreign employers.
    I will join my colleagues in fighting any attempts to deter 
investment in Right-to-Work States in order to prop up union 
bosses.
    Freedom is the quintessential American value. Freedom to 
build a new plant, to create a new job, to join a union, to 
reject a union. All of these choices are threatened by the 
National Labor Relations Board complaint. While I hope the 
complaint will ultimately not be successful as it works through 
the process, it will create a chilling effect nationwide.
    With last month's positive job numbers, I hope we are truly 
at the brink of an actual recovery that will create more jobs 
and get this country back on track. Job creators are trying to 
do their part, but as the National Labor Relations Board 
complaint against Boeing shows, this Administration has yet to 
get the message. We have heard speeches and seen opinion 
pieces, it is time to see action and real changes in policy. 
New job creation is the key to preserving this country, to 
preserving the middle class, and to preserving the American 
dream for future generations.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Enzi.
    Now we will proceed to our witnesses. We will just go from 
my left over to the right in sequence. We will ask you each to 
make a statement of about 7 minutes. I have put the clock at 7 
minutes. If you could sum up your testimony in that period of 
time, then we can get into a more open discussion.
    First it is my distinct honor to introduce Robert Reich our 
former 22d Secretary of Labor under President Clinton. He is 
currently the chancellor's professor of public policy at the 
Goldman School of Public Policy at the University of 
California. In addition to his time in the Clinton 
administration he has served in two other presidential 
administrations. Mr. Reich was the 2003 recipient of the Vaclav 
Havel Vision Foundation prize for his work on economic and 
social thought. He is the author of 12 books, I haven't read 
them all, a couple of them. But his most recent book called 
``Aftershock: The Next Economy in America's Future,'' I 
recommend to all. As the New York Times book review said, 
``Important and well executed. Reich is fluent and fearless,'' 
and there is no doubt about that.
    A long time friend and someone who is a keen observer and 
interpreter of the economy in this country, our former 
Secretary of Labor, Secretary Reich, welcome and please 
proceed.
    By the way, all of your statements will be made a part of 
the record in their entirety and we are just asking you to kind 
of sum them up.
    Secretary Reich.

STATEMENT OF ROBERT B. REICH, CHANCELLOR'S PROFESSOR OF PUBLIC 
    POLICY, GOLDMAN SCHOOL OF PUBLIC POLICY, UNIVERSITY OF 
                    CALIFORNIA, BERKELEY, CA

    Mr. Reich. Mr. Chairman, Ranking Member, members of the 
committee, thank you for having this hearing. And as you 
suggest, Mr. Chairman, I am going to submit for the record my 
formal remarks and keep my informal remarks down to under 7 
minutes.
    Let me just say that we are in a recovery but it is the 
most lopsided recovery I can remember. The gross domestic 
product, GDP, is now higher than it was before the Great 
Recession. What we hear from the Wall Street Journal recently 
is that corporate executive pay is up 11 percent last year. The 
stock market is doing very well, the stock market is almost 
back up to what it was before. Corporate profits are very high, 
in fact big American corporations are sitting on almost $2 
trillion of cash. They are not investing it in new job 
creation, they don't need tax cuts, there is just not enough 
demand for the products and services that they otherwise would 
be creating.
    The fundamental problem here is not so much that the 
economy is not expanding, the economy is expanding. The problem 
is that the average working person in this country is not 
getting very much out of this expansion. Yes, new jobs are 
being created but most of those new jobs are in health, in 
retail, restaurants, surface transportation. These jobs don't 
pay very much. And this is part of a pattern.
    Mr. Chairman, you mentioned it in your beginning 
statements, we have seen, over the last 30 years that the 
American middle class, including what we used to call the 
working class, that is the bottom 90 percent of Americans in 
terms of their income, they are not getting ahead, even before 
the Great Recession. We saw that over the last 30 years, 
adjusted for inflation, the typical American worker in that 
bottom 90 percent ended up the 30 years earning $280 a year 
more than 30 years before. That is a 1 percent gain over 30 
years.
    The American economy expanded dramatically. The American 
economy almost doubled in size, but the typical American worker 
did not benefit. What did the typical American family do to 
maintain their living standards? First of all, women went into 
paid work, because male wages were starting to drop, again 
adjusted for inflation. But there is a limit to how many women 
with young children can go into paid work. In the 1960s only 12 
percent of American women, with young children, and we are 
talking about children under 6, were in the workforce. By the 
1990s I remember looking at the data when I was Secretary of 
Labor, we had 55 percent of American women with young children 
in the workforce, propping up family wages. I wish I could 
attribute this to the wonderful professional opportunities open 
to women, but most of the reason that women with young children 
went into the workforce was because male wages were dropping.
    And then the second coping mechanism many families used 
when that one was exhausted was for everybody to work longer 
hours. By the last 1990s when we had that wonderful economic 
boom that I, as Secretary of Labor, take full credit for.
    [Laughter.]
    The typical American was working 350 hours more a year than 
the typical European, more hours even than the extraordinarily 
industrious Japanese. But there is a limit to how many hours 
people could work, even when times are good.
    And so it was the third coping mechanism American families 
used when wages were flat, well they went into debt. Housing 
prices were going up and they could easily refinance their 
homes or they could use their homes as collateral for new 
loans. In fact, between 2002 and 2007 American families 
extracted about $2.3 trillion from their homes. And that was 
enough to keep things going. But, when the housing bubble 
burst, that was the end of that last coping mechanism.
    And so one of the problems Americans are having right now, 
and it is a problem for the American economy overall, is that 
there is not enough money in the middle class and the working 
class to keep the economy going. And this is a fundamental 
problem. It is a problem that we can no longer disguise.
    Now I do understand concerns that people have about budget 
deficits. Obviously those are real problems, we have got to do 
something about those over the long-term. But when you see what 
has happened to American incomes over the last 30 years, flat, 
you see what is happening with the American economy, doubled in 
size, you have got to wonder where did all that money go. Well, 
the simple answer is it went to the top. Thirty years ago the 
top 1 percent of Americans, by income, were taking home roughly 
9.5 percent of total national income. By 2007, just before the 
great crash of 2008, they were taking home 23.5 percent of 
total national income. Their income as a total percentage of 
total national economy almost doubled. In fact the top .1 of 1 
percent of Americans saw their portion of the American total 
income triple over those years. And so, people who say we can't 
increase taxes on the top in order to deal with the long-term 
budget deficit, I frankly don't know what they are talking 
about.
    Mr. Chairman, members of this committee, I envy you in a 
sense that we have a lot of work to do, you have a lot of work 
to do. Your work over the last 30 years, not all of you, but 
this committee's work has been central to reviving the American 
economy. Central, and it will be in the future, central to 
reviving the economy because human resources, education and 
healthcare and the other things you deal with are so central to 
the American economy.
    But let me just add one final point because Senator Enzi 
raised it and I think it needs to be responded to. Thirty years 
ago 35 percent of Americans were members of labor unions in the 
private sector. And that was such a large percentage that even 
in the nonunionized sector of the economy employers provided 
the prevailing wages in those labor contracts because employers 
were afraid, obviously, that if they didn't they would be 
unionized next. And it was the right thing to do.
    Employers of big corporations only had about 30 times, in 
terms of their pay, CEO pay, was only about 30 times greater 
than the average worker. Now where are we? In the private 
sector fewer than 8 percent of private sector workers are 
unionized and CEO pay is greater than 300 times that of the 
average worker. The lines are diverging and people know this 
out there in the country.
    People are upset, they are frustrated, they are worried, 
they feel like the game is stacked against them. And hopefully 
this committee, this committee's work, Congress' work, the 
Administration's work can put this right.
    We, in the Clinton administration, are on the right track, 
I am sure and convinced we were on the right track, we just did 
not have a chance to finish the agenda we started. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Reich follows:]

                 Prepared Statement of Robert B. Reich

    Mr. Chairman and members of the committee, the jobs and wage crisis 
of the American middle class began decades before the Great Recession. 
It was hidden from view by households borrowing against their homes 
and, before that, by millions of women entering the paid workforce to 
prop up declining male wages. The crisis contributed to the severity of 
the Great Recession and is a principal reason why America is having 
such difficulty emerging from it.
    If the American dream is to be restored, this long-term crisis must 
be understood, and policies adopted to reverse it.
    Let me explain.\1\
---------------------------------------------------------------------------
    \1\ Sources for the following can be found in my most recent book, 
Aftershock: The Next Economy and America's Future (Alfred A. Knopf, 
2010, Vintage paperback, 2011).
---------------------------------------------------------------------------
                    THE GREAT PROSPERITY: 1947-1977

    How did we go from the Great Depression to 30 years of Great 
Prosperity? And from there, to 30 years of stagnant incomes and 
widening inequality, culminating in the Great Recession? And from the 
Great Recession into such an anemic recovery?
    During three decades from 1947 to 1977, the Nation implemented what 
might be called a basic bargain with American workers. Employers paid 
them enough to buy what they produced. Mass production and mass 
consumption proved perfect complements. Almost everyone who wanted a 
job could find one with good wages, or at least wages that were 
trending upward. During these three decades everyone's wages grew--not 
just those at or near the top.
    Government enforced the basic bargain in several ways. It used 
Keynesian policy to achieve nearly full employment. It gave ordinary 
workers more bargaining power. It provided social insurance. And it 
expanded public investment. Consequently, the portion of total income 
that went to the middle class grew while the portion going to the top 
declined. But this was no zero-sum game. As the economy grew almost 
everyone came out ahead, including those at the top.
    The pay of workers in the bottom fifth grew 116 percent over these 
years--faster than the pay of those in the top fifth (which rose 99 
percent), and in the top 5 percent (86 percent). By the late 1940s, the 
Nation was ``more than halfway to perfect equality,'' as the National 
Bureau of Economic Research wryly observed.
    Productivity also grew quickly, defying the predictions of those 
who said wide inequality was necessary for rapid growth. Labor 
productivity--average output per hour worked--doubled. So did median 
incomes. Expressed in 2007 dollars, the typical family's income rose 
from about $25,000 to $55,000. The basic bargain was cinched.
    The middle class had the means to buy, and their buying created new 
jobs. As the economy grew, the national debt shrank as a percentage of 
it. ``We're all Keynesians now,'' Richard Nixon purportedly proclaimed 
in 1971.\2\ By then even Nixon had accepted government's ability to 
keep people employed when consumers and businesses did not spend 
enough, by filling the breach.
---------------------------------------------------------------------------
    \2\ In fact, Nixon didn't actually say this although he is widely 
credited with it. He said ``I am now a Keynesian in economics.''
---------------------------------------------------------------------------
    The Great Prosperity also marked the culmination of a 
reorganization of work that had begun during the Depression. Employers 
were required by law to provide extra pay--time-and-a-half--for work 
stretching beyond 40 hours a week. This created an incentive for 
employers to hire additional workers when demand picked up. Employers 
also were required to pay a minimum wage, which improved the pay of 
workers near the bottom as demand picked up. When workers were laid 
off, usually during an economic downturn, government provided them with 
unemployment benefits, usually lasting until the economy recovered and 
they were rehired. Not only did this tide families over but it kept 
them buying goods and services--an ``automatic stabilizer'' for the 
economy in downturns.
    Perhaps most significantly, government increased the bargaining 
leverage of ordinary workers. They were guaranteed the right to join 
labor unions, with which employers had to bargain in good faith. By the 
mid-1950s more than a third of all American workers in the private 
sector were unionized. And the unions demanded and received a fair 
slice of the American pie. Non-unionized companies, fearing their 
workers would otherwise want a union, offered similar deals. UAW 
president Walter Reuther, among others, explicitly invoked the basic 
bargain: ``Unless we get a more realistic distribution of America's 
wealth, we won't get enough to keep this machinery going.'' As 
employers boosted wages, the higher wages did indeed keep the machinery 
going by giving average workers more money to buy what they produced.
    The result was that as corporations did better, so did all their 
employees. A college sociology textbook of 1956 entitled The American 
Class Structure noted that ``[t]he trend of income distribution has 
been toward a reduction in inequality. Owners have been receiving a 
smaller share relative to employees; professionals and clerks have been 
losing some of their advantages over operatives and laborers.'' \3\ 
Americans also enjoyed economic security against the risks of economic 
life--not only unemployment benefits but also, through Social Security, 
insurance against disability, loss of a major breadwinner, workplace 
injury, and inability to save enough for retirement. In 1965 came 
health insurance for the elderly and the poor (Medicare and Medicaid). 
Economic security proved the handmaiden of prosperity. In requiring 
Americans to share the costs of adversity it enabled them to share the 
benefits of peace of mind. And by offering peace of mind, it freed them 
to consume the fruits of their labors.
---------------------------------------------------------------------------
    \3\ J. Kahl, The American Class Structure (New York: Holt, 
Rinehart, 1956), pp. 109-10.
---------------------------------------------------------------------------
    The government sponsored the dreams of American families to own 
their own home by providing low-cost mortgages and interest deductions 
on mortgage payments. In many sections of the country government 
subsidized electricity and water to make such homes habitable. And it 
built the roads and freeways that connected the homes with major 
commercial centers. The interstate highway system--40,000 miles of 
straight four-lane freeways to replace the old two-lane Federal roads 
that meandered through cities and towns--became the single most 
ambitious public works program in American history. Begun under Dwight 
Eisenhower and justified in the halls of Congress as a means of 
speeding munitions across the Nation in the event of war, it did much 
more than that--generating sprawling suburbs and shopping malls, 
boosting auto sales, vastly enlarging the construction industry, 
creating an entire trucking industry, and radically reducing the cost 
of transporting and distributing goods across America.
    Government also widened access to higher education. The GI Bill 
paid college costs for those who returned from war. The expansion of 
public universities--whose tuitions averaged about 4 percent of median 
family incomes during the Great Prosperity in contrast to the 20 
percent then demanded by private universities--made higher education 
affordable to the American middle class. Consequently, college 
enrollments surged. By 1970, 70 percent of the Nation's 4-year students 
were in public universities and colleges. The Federal Government, 
especially the Defense Department, also underwrote a growing portion of 
university research, especially in the sciences.
    Notwithstanding all this, the Nation also found the time and money 
in these years to rebuild Western Europe and Japan--spending billions 
of dollars to restore foreign factories, roads, railways, and schools. 
The effort proved an astounding success. The years 1945 to 1970 
witnessed the most dramatic and widely shared economic growth in the 
history of the world, which contributed to America's Great Prosperity. 
In helping restore the world's leading economies and thus keep 
communism at bay, the new global system of trade and assistance created 
vast new opportunities for American corporations--far richer, larger, 
and more technologically advanced than any other--to expand and 
prosper.
    Government paid for all of this with tax revenues from an expanding 
middle class with rising incomes. Revenues were also boosted by those 
at the top of the income ladder whose marginal taxes were far higher. 
The top marginal income tax rate during World War II was over 68 
percent. In the 1950s, under Dwight Eisenhower, whom few would call a 
radical, it rose to 91 percent. In the 1960s and 1970s the highest 
marginal rate was around 70 percent. Even after exploiting all possible 
deductions and credits, the typical high-income taxpayer paid a 
marginal Federal tax of over 50 percent. But contrary to what 
conservative commentators had predicted, the high tax rates did not 
reduce economic growth. To the contrary, they enabled the Nation to 
expand middle-class prosperity and fuel growth.
    Support for the government's new role was founded in the crucible 
of the Great Depression and World War II, in whose wake Americans 
shared a larger sense of common purpose. We were all in it together, 
rising or falling together, connected to one another in ways we had 
barely noticed before the Depression. None of us could prosper unless 
prosperity was widely shared. The historian James Truslow Adams coined 
the phrase ``the American dream,'' and defined it as ``a better, 
richer, and happier life for all our citizens of every rank.''
    America of the era still harbored vast inequalities, of course. But 
the Nation responded to the reality of unequal opportunity with court 
decisions and legislation designed to overcome racial and gender 
discrimination, and with public investments in education intended to 
enable many more of our young to get ahead regardless of circumstance. 
The Great Prosperity significantly expanded the American middle class. 
And it proved that widely-shared income gains were not incompatible 
with widespread economic growth; they were, in fact, essential to it.

                  THE MIDDLE CLASS SQUEEZE, 1977-2007

    During the Great Prosperity of 1947-77, the basic bargain had 
ensured that the pay of American workers coincided with their output. 
In effect, the vast middle class received an increasing share of the 
benefits of economic growth. But after that point, the two lines began 
to diverge: Output per hour--a measure of productivity--continued to 
rise. But real hourly compensation was left in the dust, as you can see 
below.



    It's easy to blame ``globalization'' for the stagnation of middle 
incomes, but technological advances has played as much if not a greater 
role. Factories remaining in the United States have shed workers as 
they automated. So has the service sector. Remember bank tellers? 
Telephone operators? The fleets of airline workers behind counters who 
issued tickets? These and millions of other jobs were lost to 
automation. Any routine job that requires the same steps to be 
performed over and over can potentially be done anywhere in the world 
by someone working for a fraction of an American wage or by automated 
technology. By the late 1970s, all such jobs were on the endangered 
species list. By now they are nearly extinct.
    But contrary to popular mythology, trade and technology have not 
reduced the overall number of American jobs. Their more profound effect 
has been on pay. Rather than be out of work, most Americans have 
quietly settled for lower real wages, or wages that have risen more 
slowly than the overall growth of the economy per person. Although 
unemployment following the Great Recession remains high, jobs are 
slowly returning. But in order to get them, many workers have to accept 
lower pay than before.
    Starting more than three decades ago, trade and technology began 
driving a wedge between the earnings of people at the top and everyone 
else. The pay of well-connected graduates of prestigious colleges and 
MBA programs--the so-called ``talent'' who reached the pinnacles of 
power in executives suites and on Wall Street--has soared. But the pay 
and benefits of most other workers has either flattened or dropped. And 
the ensuing division has also made most middle-class American families 
less economically secure.
    The real puzzle is why so little was done in response to these 
forces conferring an increasing share of economic growth on a small 
group at the top and leaving most other Americans behind. With the 
gains from that growth, the Nation could, for example, have expanded 
our educational system to encompass early-childhood education and have 
better equipped our public schools. It could have supported affordable 
public universities, created more job retraining, and better and more 
extensive public transportation.
    In addition, the Nation could have given employees more bargaining 
power to get higher wages, especially in industries sheltered from 
global competition and requiring personal service. We could have 
enlarged safety nets to compensate for increasing anxieties about job 
loss--unemployment insurance covering part-time work, wage insurance if 
pay dropped, transition assistance to move to new jobs in new 
locations, insurance for entire communities that lose a major employer 
so they can lure other employers. We could have financed Medicare for 
all. Regulators could have prohibited big, profitable companies from 
laying off a large number of workers all at once; required them to pay 
severance--say, a year of wages--to anyone they let go; and train them 
for new jobs. The minimum wage could have been linked to inflation.
    We could have raised taxes on the rich and cut them for poorer 
Americans--including payroll taxes, capital-gains taxes, and estate 
taxes. America could have attacked overseas tax havens by threatening 
loss of U.S. citizenship to anyone who keeps their money abroad in 
order to escape U.S. taxes. We could have expanded public investments 
in research and development, and required any corporation that 
commercialized such investments to create the resulting new jobs in the 
United States. And we could have insisted that foreign nations we trade 
with establish a minimum wage that's half their countries' median wage. 
That way, all citizens could share in gains from trade, setting the 
stage for the creation of a new middle class that in turn could 
participate more fully in the global economy.
    In these and many other ways, government could have enforced the 
basic bargain. But it did the opposite. Starting in the late 1970s, and 
with increasing fervor over the next three decades, it deregulated and 
privatized. It slashed public goods and investments--whacking school 
budgets, increasing the cost of public higher education, reducing job 
training, cutting public transportation, and allowing bridges, ports, 
and highways to corrode. It shredded safety nets--reducing aid to 
jobless families with children, tightening eligibility for food stamps, 
and cutting unemployment insurance so much that by 2007 only 40 percent 
of the unemployed were covered. It halved the top income tax rate from 
the range of 70 to 90 percent that prevailed during the Great 
Prosperity of 28 to 35 percent; allowed many of the Nation's rich to 
treat their income as capital gains subject to no more than 15 percent 
tax; and shrunk inheritance taxes that affected only the top-most 1.5 
percent of earners. Yet at the same time, America boosted sales and 
payroll taxes, both of which took a bigger chunk out of the pay of the 
middle class and the poor than of the well-off.
    We allowed companies to break the basic bargain with impunity--
slashing jobs and wages, cutting benefits, and shifting risks to 
employees (from you-can-count-on-it pensions to do-it-yourself 401 
(k)s, from good health coverage to soaring premiums and deductibles). 
Companies were allowed to bust unions and threaten employees who tried 
to organize (by 2010, fewer than 8 percent of private-sector workers 
were unionized). And nothing impeded CEO salaries from skyrocketing to 
300 times that of the average worker (from 30 times during the Great 
Prosperity), while the pay of financial executives and traders rose 
into the stratosphere. We stood by as big American companies became 
global companies with no more loyalty or connection to the United 
States than a G.P.S. satellite. Now, firms such as Caterpillar, GE, and 
Oracle and other so-called ``American'' firms are selling more outside 
the United States than in it, and are creating more jobs outside the 
United States as well.
    Most telling of all, Washington deregulated Wall Street while 
insuring it against major losses. In so doing, it allowed finance--
which until then had been the servant of American industry--to become 
its master, demanding short-term profits over long-term growth, and 
raking in an ever-larger portion of the Nation's profits. Between 1997 
and 2007, finance became the fastest-growing part of the U.S. economy. 
Two-thirds of the growth in the Gross National Product was attributable 
to the gains of financial executives, traders, and specialists. By 
2007, financial companies accounted for over 40 percent of American 
corporate profits and almost as great a percentage of pay, up from 10 
percent during the Great Prosperity. Henry Ford's legacy was a company 
that no longer made its money off selling cars; in 2007, Ford's 
financial division accounted for almost half of the company's earnings.
    As the financial economy took over the real economy, Treasury and 
Fed officials grew in importance. The expectations of bond traders 
dominated public policy. And the stock market became the measure of the 
economy's success--just as it had before the Great Depression.
    We in the Clinton administration tried our best to reverse course. 
We raised the minimum wage and guaranteed workers time off from their 
jobs for family or medical emergencies. We tried for universal health 
care. We offered students from poor families access to college, and 
expanded a refundable tax credit for low-income workers. We tied 
executive compensation to company performance. All these were helpful 
but frustratingly small in light of the larger backward lunge.
    Federal Reserve Chief Alan Greenspan insisted that President 
Clinton cut the Federal budget deficit rather than deliver on his more 
ambitious campaign promises, and Greenspan reciprocated by reducing 
interest rates. This ushered in a strong recovery. By the late 1990s 
the economy was growing so fast and unemployment was so low that 
middle-class wages started to rise a bit for the first time in two 
decades. But because the rise was propelled mainly by an upturn in the 
business cycle rather than any enduring change in the structure of the 
economy, it turned out to be temporary. Once the economy cooled, family 
incomes were barely higher than where they had been before.

                           WHY DIDN'T WE ACT?

    Why didn't America counteract the market forces that were shrinking 
the middle class's share of the American pie? Answers to these 
questions offer clues about when and how the pendulum will swing in the 
other direction.
    Some argue there was simply no need for government intervention. 
The economy did better on its own, without so much government and with 
lower taxes on the rich. They point to the great expansion of the 1980s 
and the long recovery of the 1990s, and to the wildly exuberant bull 
market of the era. They blame the Great Recession on Alan Greenspan, 
who by 2002 reduced interest rates so low that too many people got 
loans who had no business getting them. And, of course, they blame 
those who did the borrowing.
    This argument is bunk. It equates the stock market with the 
economy, and turns a blind eye to the revocation of the basic bargain--
a revocation resulting in stagnating wages, increased insecurity, and 
widening inequality. The argument refuses to acknowledge the 
consequences for an economy when the middle class lacks the means to 
buy what it produces.
    Others see the reversal of the pendulum as the inevitable result of 
declining confidence in government. After all, they say, the era began 
with the Vietnam War and continued with the Watergate scandal. It 
culminated in the tax revolts double-digit inflation of the late 
1970s--which candidate Ronald Reagan blamed ``not on Americans living 
too well but on government living too well.''
    Confidence in government did drop, but proponents of this view have 
cause and effect backwards. The tax revolts that thundered across 
America starting in the late 1970s were not so much ideological revolts 
against government--Americans still wanted all the government services 
they had before, and then some--as against paying more taxes on incomes 
that had stagnated. Inevitably, government services deteriorated and 
government deficits exploded, confirming the public's growing cynicism 
about government's capacity to do anything right.
    The real reason for the reversal of the pendulum was political. As 
income and wealth became more concentrated in fewer hands, politics 
reverted to what former Federal Reserve Chair Marriner Eccles described 
in the 1920s when people ``with great economic power had an undue 
influence in making the rules of the economic game.'' With hefty 
campaign contributions, and platoons of lobbyists and PR flacks, the 
rich pushed legal changes that enabled them to accumulate even more 
income and wealth--including tacit permission to bust unions, slash 
corporate payrolls, and reduce benefits; lower taxes for themselves; 
and deregulation of Wall Street. Since so much of their wealth depends 
on the performance of the stock market, they particularly wanted to 
free up the Street to put greater pressure on companies to perform. The 
plan worked. The Dow Jones Industrial Average took off--rising tenfold 
between 1980 and 2000.
    The rich and powerful also had substantial influence ``in 
conditioning the attitude taken by people as a whole toward [the] 
rules,'' as Eccles described the pre-Depression years. They generously 
financed think-tanks, books, media, and ads designed to persuade 
Americans that free markets always know best. Ronald Reagan, Margaret 
Thatcher, Alan Greenspan, Milton Friedman, and other apostles of free-
market dogma reiterated a simple story: The choice was between a free 
market and big government. Government was the problem. Free markets 
were the solution.
    But how could the public have been so gullible as to accept this 
story? After all, America had gone through a Great Depression and 
suffered the consequences of an unfettered market and unconstrained 
greed. Even Marriner Eccles, chairman of the Federal Reserve Board, saw 
that left to its own devices markets concentrate wealth and income--
which is disastrous to an economy as well as to a society. Americans 
had also experienced the Great Prosperity, which depended so obviously 
on public goods, safety nets, and public investment. Now that the basic 
bargain was coming apart once again, the need for them was even 
greater.
    One way to understand the paradox is loss of generational memory. 
While the trauma of the Great Depression echoed in the memories of 
people who came to adulthood in the 1930s (and who carried its lessons 
into the forties and fifties), their children became adults during the 
Great Prosperity. And their grandchildren, born during the Great 
Prosperity, had no actual, palpable memory of their grandparents' 
experience. So when this last generation became adults (from around the 
end of 1970s onwards), all they recalled was the failure of government 
and the apparent success of the market. This made them particularly 
susceptible to the seductive rants of the free-marketeers who wanted to 
blame government for the economy's failings. They had no clear memory 
of a society whose members were all in it together. They witnessed 
instead an economy in which, increasingly, each of us was on his own.

     HOW AMERICANS KEPT BUYING ANYWAY: THE THREE COPING MECHANISMS

    Americans also accepted the backward swing of the pendulum because 
they mitigated its effects. Starting in the late 1970s, the American 
middle class honed three coping mechanisms, allowing it to behave as 
though it was still taking home the same share of total income as it 
had during the Great Prosperity, and to spend as if nothing 
substantially had changed. Not until these coping mechanisms became 
exhausted in the Great Recession would the underlying reality be 
exposed.
    Coping mechanism # 1: Women move into paid work. Starting in the 
late 1970s, and escalating in the 1980s and 1990s, women went into paid 
work in greater and greater numbers. For the relatively small sliver of 
women with 4-year college degrees, this was the natural consequence of 
wider educational opportunities and new laws against gender 
discrimination that opened professions to well-educated women. But the 
vast majority of women who migrated into paid work did so in order to 
prop up family incomes, as households were hit by the stagnant or 
declining wages of male workers.
    This transition of women into paid work has been one of the most 
important social and economic changes to occur over the last four 
decades. It has reshaped American families and challenged traditional 
patterns of child-rearing and child care. Its magnitude has been 
extraordinary. In 1966, 20 percent of mothers with young children 
worked outside the home. By the late 1990s, the proportion had risen to 
60 percent. For married women with children under the age of 6, the 
transformation has been even more dramatic--from 12 percent in the 
1960s to 55 percent by the late 1990s.
    Families seem to have reached the limit, however--a point of 
diminishing returns where the costs of hiring others to see to the 
running of a household or to take care of the children, or both, 
exceeds the apparent benefits of the additional income.
    Coping mechanism # 2: Everyone works longer hours. By the mid-2000s 
it was not uncommon for men to work more than 60 hours a week, and 
women to work more than 50. Professionals put in more ``billable'' 
hours. Hourly workers relied on overtime. A growing number of people 
took on two or three jobs, each demanding 20 or more hours. All told, 
by the 2000s, the typical American worker worked more than 2,200 hours 
a year--350 hours more than the average European worked, more hours 
even than the typically industrious Japanese put in. It was many more 
hours than the typical American middle-class family had worked in 
1979--500 hours longer, a full 12 weeks more.
    Here too, though, Americans seemed to have reached a limit. Even if 
they can find the work, they can't find any more time.
    Coping mechanism #3: Draw down savings and borrow to the hilt. 
After exhausting the first two coping mechanisms, the only way 
Americans could keep consuming as before was to save less and go deeper 
into debt. During the Great Prosperity the American middle class saved 
about 9 percent of their after-tax incomes each year. By the late 1980s 
and early 1990s, that portion had been whittled down to about 7 
percent. The savings rate then dropped to 6 percent in 1994, and on 
down to 3 percent in 1999. By 2008, Americans saved nothing. Meanwhile, 
household debt exploded. During the Great Prosperity debt had averaged 
around 50 to 55 percent of after-tax income. That included what people 
owed on their mortgages. But starting in 1980 debt took off. In 2001, 
Americans owed as much as their entire after-tax income that year. But 
the borrowing didn't even stop there, especially after the Federal 
Reserve Board lowered interest rates and made borrowing easier. By 
2007, the typical American owed 138 percent of their after-tax income.
    Mortgage debt exploded. As housing values continued to rise, homes 
doubled as ATMs. Consumers refinanced their homes with even larger 
mortgages and used their homes as collateral for additional loans. As 
long as housing prices continued to rise, it seemed a painless way to 
get additional money (in 1980 the average home sold for $62,000; by 
2006 it went for $245,000). Between 2002 and 2007, American households 
extracted $2.3 trillion from their houses, putting themselves ever more 
deeply into the hole.
    Eventually, of course, the debt bubble burst. With it, the last 
coping mechanism ended.
    It has been easy to place blame ever since. Some observers blame 
consumers for borrowing too much. Others fault banks for lending so 
carelessly. Others blame foreign lenders--especially the Chinese--who 
were happy to send so much money our way. Or they blame the Federal 
Reserve, which made borrowing too easy by lowering interest rates too 
much. Or they blame regulators who didn't adequately oversee the banks 
that did the lending.
    All of this misses the point. The huge amount of debt that middle-
class consumers took on was the last of a series of coping mechanisms, 
undertaken because median wages had stopped growing and the proportion 
of total income going to the middle continued to shrink. The only way 
most Americans could keep consuming as if wages hadn't stalled was for 
women to move into paid work, for everyone to put in more hours and, 
finally, for households to take on more debt. But each of these 
mechanisms reached its inevitable limit. And when the debt bubble 
burst, most Americans woke up to a startling reality: They could no 
longer afford to live as they had been living; nor as they thought they 
should be living, given the growth in the economy; nor as they expected 
to be living, given how their pay used to grow when the economy grew; 
nor as they assumed they could be living, given the lavish lifestyles 
of people at the top of the income ladder.

                  THE FUTURE WITHOUT COPING MECHANISMS

    The fundamental economic challenge ahead is to restore the vast 
American middle class. That requires resurrecting the basic bargain 
linking wages to overall gains, and providing the middle class a share 
of economic gains sufficient to allow them to purchase more of what the 
economy can produce.
    It is both an economic challenge and a moral challenge. The Nation 
cannot achieve nearly full employment, a higher median income, and 
faster growth without a reorganization of the economy on a scale 
similar to that which occurred during and after the Great Depression.
    The Great Recession accelerated the structural change in the 
economy that began in the late 1970s. More companies have found ways to 
cut their payrolls for good--discovering new ways to use software and 
computer technologies to substitute for employees. The spread of such 
technologies around the world has simultaneously made many more workers 
in Asia and Latin America almost as productive as Americans, and the 
Internet has allowed more work to be efficiently outsourced to them. 
Consequently, large numbers of Americans will not be rehired unless 
they are willing to settle for lower wages and benefits.
    The official unemployment numbers hide the extent to which 
Americans are already on this path. Among those with jobs, a growing 
percent have accepted lower pay as a condition for keeping them. Or 
they have lost higher-paying jobs and are now in new ones paying less. 
Eventually jobs will return, but if the trend continues more people 
will be working for pay they consider inadequate, more working families 
will be at or near poverty, and inequality will have widened.
    Nor will households be able to borrow as before. Banks and other 
lenders that got burned will be far more careful in the future. 
Furthermore, lending standards have tightened, and bank regulators and 
new regulations will require prudence. Housing values will not regain 
their speculative peak for a long time--which means homeowners cannot 
use their homes as sources of easy money through home equity loans and 
refinancing deals. A large number of Americans are paying off, paying 
down, or walking away from trillions of dollars of outstanding loans--
in a vast ``deleveraging'' of household finances that is likely to 
continue for years. At the same time, tens of millions of boomers are 
approaching retirement with nest eggs that have shrunk to the size of 
peanuts, and must save in earnest.
    Where will demand come from without a buoyant American middle 
class? Absent their spending, companies have little incentive to buy 
new equipment or software, new commercial buildings or factories; 
entrepreneurs have little incentive to embark on new research and 
develop new products and services. Government can fill the gap for a 
time, but government cannot continue indefinitely to stimulate the 
economy with deficit spending or by printing money. Nor can we rely on 
exports to fill the shortfall. Exports will remain a relatively small 
proportion of our economy. Other economies--even the Chinese--are 
relying on net exports to maintain their employment. It is impossible 
for every large economy, including the United States, to become a net 
exporter.
    Hence our challenge. As we should have learned from the Great 
Prosperity--the 30 years after World War II when America grew because 
most Americans shared in the Nation's prosperity--we cannot have a 
growing and vibrant economy without a growing and vibrant middle class.

    The Chairman. Thank you, Secretary Reich.
    Now we will turn to Heather Boushey a senior economist at 
the Center for American Progress where her research focuses on 
employment, social policy and family economics. She holds a 
Ph.D. in economics from the New School for Social Research and 
was previously an economist at the Joint Economic Committee.
    Ms. Boushey, welcome and again your statement will be made 
a part of the record in its entirety and if you could please 
sum it up. Please proceed.

 STATEMENT OF HEATHER BOUSHEY, Ph.D., SENIOR ECONOMIST, CENTER 
             FOR AMERICAN PROGRESS, WASHINGTON, DC

    Ms. Boushey. Thank you. Thank you, Chairman Harkin and 
Ranking Member Enzi for inviting me to talk to you today.
    My name is Heather Boushey and I am a senior economist with 
the Center for American Progress Action Fund.
    Undermining the economic vitality of the middle class is 
bad for families, especially as it has led to not only 
declining incomes but also to rising hours of work and greater 
economic insecurity. The evidence in front of us also points to 
the conclusion that the middle class matters for economic 
growth and economic stability. A solid and growing middle class 
strengthens our economy and leads to more stable growth. 
Policies that focus on building, supporting and expanding 
opportunity for the middle class are not only good for families 
but good for our businesses and our economy overall.
    To understand how the middle class matters for families we 
must begin by asking where economic growth comes from. Supply-
siders believe that the key to economic growth is to increase 
the supply of goods and services and to spur investment 
government should limit taxation and regulation. But this 
argument starts in the middle not the beginning of the story, 
and therefore supply-
siders get the story fundamentally wrong. Firms won't invest if 
they don't see a willing and able customer to buy their goods 
or services. Ask any business owner, will you open a new 
factory, purchase inventory for a retail store or add another 
employee if you don't see customers? In fact, having a deep 
market with demand from a strong middle class is what tells 
businesses where there are profitable opportunities to invest. 
In short, demand drives growth.
    The false logic behind the supply-side economics is that 
lowering wages is the key to economic growth. In fact, lowering 
wages and a hollowed out middle class means that consumers can 
demand less and less each year, this puts the brake on growth 
unless another source of demand is found.
    Over the past few decades America's middle class has found 
innovative ways to cope with an increasingly low-wage economy. 
Over the 1980s and 1990s families put more adults into the 
labor force--the labor force participation rate of wives, and 
as Secretary Reich had said, especially mothers rose 
remarkably. In fact, it is only because of the additional 
earnings of wives that married couples have seen any income 
growth at all since the mid-1970s. The hollowing out of middle 
class jobs made it necessary for middle class families to have 
two breadwinners, not just one.
    While women certainly have more economic opportunity than 
in prior generations, families now struggle with how to provide 
care for the young, the aged and the ill, given that many work 
in inflexible workplaces. Working families need workplace 
flexibility, including predictable hours that work for 
families, paid sick days for a worker's illness or to care for 
a sick family member and paid family leave to provide care 
during longer illnesses or when a new child comes into the 
family.
    To deal with falling incomes, especially over the 2000s, 
families took on increasing levels of debt. Family debt rose 
from about 60 percent of annual income in the 1980s to a 
whopping 130 percent in December 2007. Over the 2000s greater 
indebtedness allowed families to continue to spend even as 
their incomes fell. But as we now know, it also increased the 
fragility of the U.S. economy.
    Our Nation's leaders used to understand the critical role 
of the middle class in our economy. In 1914 Henry Ford began 
paying his workers the then princely sum of $5 a day. He did 
this to reduce turnover on his assembly line. He also saw this 
as a win-win. He embraced the idea that paying workers a 
livable wage meant that he was helping to create a solid 
consumer base, a large middle class that would create deep 
markets for the goods and services that he and others produced. 
Paying decent wages became so thoroughly embedded in the 
popular imagination as the driver of economic growth, that 
President Franklin D. Roosevelt said that, ``A sounder 
distribution of buying power,'' was a reason to enact the Fair 
Labor Standards Act, which included the minimum wage, into law.
    There are other reasons that the middle class is good for 
growth. The middle class invests in human capital which is a 
key driver of economic growth and contributes to higher labor 
productivity. Stagnant incomes, however, limit families' 
ability to invest in education, reducing productivity. The 
middle class is also a platform for entrepreneurism and 
innovation. With the economic security of a middle class 
family, individuals have the means and the security to take on 
risks. But greater economic inequality and insecurity limits 
the capacity of ordinary people to become entrepreneurs or 
followup on an invention or innovative idea.
    The decline of a broad middle class has implications for 
the poorest among us as well. With fewer middle class jobs what 
hope do the poor have for working their way up into the middle 
class?
    Now, we have lived through a great experiment in supply-
side economics. For years we have been told that growth in 
income and equality and having more rich people wasn't taking 
something away from the rest of us, it was a reward for the 
best and the brightest who would then reinvest in our economy. 
But we now know the truth. A strong middle class is important 
because it allows a decent standard of living for most of our 
Nation's families and because it creates a stable market for 
businesses to invest. I encourage you to focus on policies that 
will rebuild our middle class, to strengthen our families and 
our economy.
    I also want to make a point on the issue about allowing 
workers to bargain collectively without fear of retaliation. 
The growth of unions in this country helped create the middle 
class and policies that allow workers the right to collectively 
bargain, the right to make that decision, without fear that 
their company is going to retaliate against them, is an 
important step toward ensuring that we can have a middle class 
in the future.
    Thank you for focusing on these issues.
    [The prepared statement of Ms. Boushey follows:]

              Prepared Statement of Heather Boushey, Ph.D.

    Thank you, Chairman Harkin and Ranking Member Enzi, for inviting me 
to talk to you about the importance of a broadly prosperous middle 
class to the future of our Nation. My name is Heather Boushey and I'm 
senior economist at the Center for American Progress Action Fund.
    This hearing could not be timelier. Our country has experienced a 
widening income gap and a hollowing out of our middle class since the 
late 1970s and these trends threaten our Nation's economic growth and 
stability.
    Many academics, pundits and politicians point to rising income 
inequality as a social concern or a concern for the viability of our 
democracy. Economists, on the other hand, tend to posit that such 
income gaps between the wealthy and the rest of the citizens in 
developed countries are not incompatible with economic growth and thus 
not a key economic concern. The economic argument goes like this--
focusing on income equality for equality's sake, or because high 
inequality leaves too many in poverty, or because the wealthy are 
pulling so far out ahead of the middle class misses the point that, in 
fact, this may be good for the economy as those at the top of the 
income scale can make the economy grow if they invest their additional 
income.
    Empirical reality, however, has come into direct conflict with this 
argument.
    Beginning in the 1970s, with the decline in union membership across 
our Nation and the arrival of products made by cheaper workers abroad, 
businesses began relentless efforts to cut labor costs in union and 
non-union manufacturing operations across our country. Middle class 
families struggled to cope, with women entering the labor market in 
droves to make up for lackluster single-wage earner's income growth.
    This lack of broad-based income growth for the American middle 
class was clearly exacerbated by the Great Recession. The factors that 
led to the recession were many of the same ones that led to higher 
income inequality in the previous decades. While the jury is still out 
on whether rising inequality was a causal factor in creating the 
conditions for the still-existing economic crisis for our middle class, 
there is no question that the wealthy took greater and greater shares 
of our Nation's income in the 2000s and right up to today--and then 
failed to reinvest it in renewed economic growth.
    At the same time, middle-class incomes failed to keep pace with the 
cost-of-living, requiring families to increasingly live on credit just 
to maintain the lifestyle of their parents, send their kids to college, 
and take care of their aging parents. The lack of income growth for the 
broad middle class had devastating consequences for the U.S. economy 
when the housing market collapsed--almost taking our financial markets 
with it.
    Unless we focus wholeheartedly on policies aimed at rebuilding our 
middle class, our economy will remain fragile and millions will 
continue to fall down the income ladder. In the remainder of my 
testimony, then, I will make two key points.
    First, the evidence in front of us points to the conclusion that 
the middle class matters for economic growth and economic stability. 
Not having a solid and growing middle class weakens our economy and 
leads to slower, more fragile growth.
    Second, undermining the economic vitality of the middle class is 
bad for families, especially as it has led to not only declining 
incomes but also to sharply rising hours of work and greater economic 
insecurity.
    Policies that focus on building, supporting, and expanding 
opportunity for the middle class will not only be good for families, 
but good for our businesses and our economy overall as well.

                 WHERE DOES ECONOMIC GROWTH COME FROM?

    To understand how the middle class matters for our economy, we have 
to begin with the question where does economic growth come from?
    Supply-siders argue that economic growth comes from increasing the 
supply of goods and services, which means expanding the capacity to 
invest. Supply-siders thus believe that the key to growth is for 
government to reduce taxes and limit regulation to spur investment.
    It is true that investment is the key to growth. But this argument 
starts in the middle, not the beginning of the story. The supply-siders 
get the story fundamentally wrong because firms won't invest if they 
don't see a willing and able customer to buy their goods or services. 
Ask any business owner: Will you open a new factory, purchase inventory 
for a retail store, or add another employee if you don't see customers?
    In fact, having a deep market with demand from a strong middle 
class is what tells businesses where there are profitable opportunities 
to invest.
    This, by the way, is the problem our economy continues to face 
today. Small businesses report that their single largest concern is 
poor sales. They say this is more of a problem than regulations, taxes, 
inflation, or the cost of labor.\1\
---------------------------------------------------------------------------
    \1\ William C. Dunkelberg and Holly Wade. ``NFIB Small Business 
Economic Trends.'' (Washington, DC: National Federation of Independent 
Business, 2011), available at http://www.nfib.com/Portals/0/PDF/sbet/
sbet201104.pdf.
---------------------------------------------------------------------------
    And, in here lies the crux of the issue: Supply alone does not 
create growth; it must be balanced by demand. Supply-side policies have 
led us to where we are today: Unbalanced growth and a crisis-prone 
economy.
    It is demand for goods and services, backed up by an ability to pay 
for them, which drives economic growth. The hollowing out of our middle 
class limits our Nation's capacity to grow unless firms can find new 
customers.
    Today, many believe that to be competitive, employers must always 
focus on reducing costs. This is a supply-side argument: If employers 
keep more of the money, they will have more to invest. The false logic 
behind our ``Wal-Mart'' economy is that lowering wages is the key to 
growth.
    In fact, lowering wages and a hollowed out middle class means that 
consumers can demand less and less each year. This puts a brake on 
economic growth, unless another source of demand is found.
    Of course, many U.S. firms do business in countries around the 
world and may not care one iota about whether U.S. consumers can afford 
to buy their wares. But we, as a nation, need to care.
    Over the past few decades, the middle class found innovative ways 
to cope with the Wal-Mart economy. Over the 1980s and 1990s, as I noted 
earlier, families put more adults in the labor force, with the labor 
force participation rate of wives and mothers rising remarkably.\2\
---------------------------------------------------------------------------
    \2\ Bureau of Labor Statistics. 2011. ``Current Population Survey, 
Table A-1.'' (http://bls.gov/webapps/legacy/cpsatab1.html [May 09, 
2011]).
---------------------------------------------------------------------------
    In fact, it is only because of the earnings of wives that married 
couples have seen any income growth. From the late 1940s through the 
mid-1970s, married-couple families with and without a working wife saw 
their income rise at about the same pace, about 3 percent per year 
after inflation.\3\ But since the mid-1970s, married couples with a 
stay-at-home wife experienced no increase in income, after inflation, 
while those with a working wife watched their income grow by less than 
a percent per year--not impressive, but not backsliding.
---------------------------------------------------------------------------
    \3\ U.S. Census Bureau. 2009. ``Income, Poverty, and Health 
Insurance Coverage in the United States: Table F-7.'' (http://
www.census.gov/hhes/www/income/data/historical/families/index.html [May 
9, 2011]).
---------------------------------------------------------------------------
    Working more means families have less time together and less time 
to care for one another. This is a net loss for the typical middle 
class family, who works longer than their parents, but has seen slower 
income gains than their parent's generation.
    Families also began taking on increasing levels of debt. Up until 
the 1980s, family debt was about 60 percent of annual income.\4\ But as 
middle class incomes began falling, the share of debt rose enormously, 
so much so that debt was a whopping 130 percent of income by December 
2007. With wage growth not keeping pace with inflation, and with 
falling asset values slamming middle class families at the onset of the 
housing and financial crises at the end of the last decade, even as 
families try to pay off debt, debt continues to be at near-historic 
highs.
---------------------------------------------------------------------------
    \4\ Christian Weller and Jessica Lynch. ``Household Wealth in 
Freefall: Americans' Private Safety Net in Tatters.'' (Washington, DC: 
Center for American Progress, 2009), available at http://
www.americanprogress.org/issues/2009/04/pdf/wealth_declines.pdf.
---------------------------------------------------------------------------
    Over the 2000s, the median family saw their income fall from the 
economic peak in 2000 to the peak in 2007, a first in the post-World 
War II. Since consumption is about 70 percent of the total U.S. 
economy, this lack of income growth would have reduced our economic 
growth if families had not borrowed to make ends meet.\5\
---------------------------------------------------------------------------
    \5\ Bureau of Economic Analysis. 2011. ``National Income and 
Product Accounts Table 1.1.6.'' (http://bea.gov/national/nipaweb/
TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=2009&
LastYear=2011 [May 9, 2011]).
---------------------------------------------------------------------------
    Indebtedness, however, especially in light of the lack of income 
growth, increased the fragility of the U.S. economy.
    The idea that the middle class was important to our economy was one 
American business leaders used to understand. In 1914, Henry Ford 
announced that he'd begin paying his workers the then-princely sum of 
$5 a day.\6\ He did this because at the time, the assembly line was not 
a good job and turnover was exceptionally high. By offering workers a 
better wage, Henry Ford was taking the ``high road'' to economic 
development.
---------------------------------------------------------------------------
    \6\ Ford Motor Company. 2011. ``Henry Ford's $5-a-Day Revolution.'' 
(http://corporate.ford.com/about-ford/heritage/milestones/5dollaraday/
677-5-dollar-a-day [May 9, 2011]).
---------------------------------------------------------------------------
    It wasn't until later that Ford embraced the idea that paying 
workers a live-able wage also meant that they could become his consumer 
base. But today, that's the notion we associate with Fordism: The win-
win concept that if you create a solid consumer base--a large middle 
class--then you'll have deep markets for the goods and services 
produced.
    Paying decent wages became so thoroughly embedded in the popular 
imagination as a driver of economic growth that President Franklin D. 
Roosevelt was able to say that ``a sounder distribution of buying 
power'' was a key reason to enact the Fair Labor Standards Act into 
law, which established the minimum wage.\7\
---------------------------------------------------------------------------
    \7\ ``I came to the conclusion that the present-day problem calls 
for action both by the government and by the people, that we suffer 
primarily from a failure of consumer demand because of lack of buying 
power. Therefore it is up to us to create an economic upturn. . . . I 
am again expressing my hope that the Congress will enact at this 
session a wage and hour bill putting a floor under industrial wages and 
a limit on working hours--to ensure a better distribution of our 
prosperity, a better distribution of available work, and a sounder 
distribution of buying power (emphasis added).'' Franklin Delano 
Roosevelt, ``Fireside Chat 12: On the Recession,'' (Miller Center for 
Public Affairs University of Virginia, 1938).
---------------------------------------------------------------------------
    Decades of empirical research demonstrates that the middle class is 
good for growth. The middle class invests in human capital--they learn, 
work and spend--which are key drivers of economic growth and 
contributors to higher labor productivity.
    Today, stagnant incomes not only limit our economy's capacity to 
grow, it limits families' ability to invest in education and improve 
our Nation's stock of human capital, which reduces our Nation's 
productivity.
    Indeed, the hollowing out of the middle class actually reduces the 
incentives for young people to get a higher education. Among 25- to 34-
year-old men, one-in-five (19.4 percent) who has a college degree 
actually earns less than the average male high school graduate--and yet 
is saddled with debt (as are his parents) from the cost of education. 
This is also the case for women, although less so, as one-in-seven 
women with a college degree (14.0 percent) earns less than the typical 
female high school graduate.\8\
---------------------------------------------------------------------------
    \8\ John Schmitt and Heather Boushey, ``The College Conundrum: Why 
the Benefits of a College Education May Not Be So Clear, Especially to 
Men'' (Washington, DC: Center for American Progress, 2010).
---------------------------------------------------------------------------
    Then there's the loss of the middle class as a platform for 
entrepreneurship and innovation. With the economic security of a 
middle-class family, individuals have the means and the security to 
take on risks. But greater economic inequality and insecurity limits 
the capacity of ordinary people to become entrepreneurs or follow-up on 
an invention or innovative idea are increasingly limited. With a 
hollowed-out middle class, families have less access to resources that 
could float an entrepreneur while her vision takes shape.
    The decline of a broad middle class has real implications for the 
poorest among us as well. With fewer middle-class jobs, what hope do 
the poor have for working their way up into the middle class? \9\
---------------------------------------------------------------------------
    \9\ David H. Autor, ``The Polarization of Job Opportunities in the 
U.S. Labor Market: Implications for Employment and Earnings'' 
(Washington: MIT Department of Economics, National Bureau of Economic 
Research, 2010).
---------------------------------------------------------------------------
    Certainly, economic competitiveness requires that firms produce the 
highest quality products for the lowest price. This is a key feature of 
a capitalist mode of production. However, in the Wal-Mart economy, when 
every employer focuses solely on reducing wages at the expense of all 
else, this has devastating consequences for the economy overall.
    My generation lived through a great experiment in supply side 
economics. The result? Our Nation experienced more growth in income 
inequality than any other developed nation. For years we were told that 
this was OK, that having more rich people wasn't taking away from the 
rest of us, it was a reward for the best and the brightest, who would 
then reinvest in our economy.
    What we now know is that a strong middle class creates stable 
markets for businesses to invest. The decline of America's middle class 
entails real hardships for families and limits opportunity. But, it 
also appears that the demise of our middle class is a part of what ails 
our economy overall.
    Thank you for your attention to this matter. I encourage you to 
focus on policies that will rebuild our middle class, to strengthen our 
families and our economy.
    Thank you.

    The Chairman. Thank you, Ms. Boushey. Bou-shee or Bou-shay?
    Ms. Boushey. Bou-shay.
    The Chairman. Bou-shay. Thank you, Ms. Boushey.
    Next we have J. Michael Luttig, he is the executive vice 
president and general counsel at the Boeing Company. He joined 
Boeing after having served for 15 years on the U.S. Court of 
Appeals for the Fourth Circuit, to which he was appointed in 
1991. Prior to his appointment Mr. Luttig served as Assistant 
Attorney General of the United States.
    Welcome, Mr. Luttig. And again your statement will be made 
a part of the record and if you could sum it up for us we would 
be appreciative. Thank you.

 STATEMENT OF J. MICHAEL LUTTIG, GENERAL COUNSEL AND EXECUTIVE 
          VICE PRESIDENT, BOEING COMPANY, CHICAGO, IL

    Mr. Luttig. Thank you, Chairman Harkin and Ranking Member 
Enzi, it is a privilege to be here today.
    I have been invited by the committee to discuss a complaint 
recently filed by the acting general counsel of the National 
Labor Relations Board against my company, the Boeing Company. 
That complaint challenges a decision to build a new final 
assembly line in South Carolina for the company's revolutionary 
new airplane, the 787 Dreamliner.
    The legal and public policy issues raised by the NLRB's 
complaint are enormously consequential, indeed profound. If the 
principle of law the NLRB seeks is ultimately validated by the 
Federal courts, the effect will be that no company with a 
unionized workforce, in a non-Right-to-Work State, will be 
permitted to locate additional work in another State. But I 
urge this be understood as well, neither will companies be 
willing to locate new production facilities in non-Right-to-
Work States because they will not, thereafter, be free to 
locate additional work outside of those States.
    The implications of this extraordinary and unprecedented 
action against my company, for the particular subject on which 
the committee has convened today are self-evident. This one 
action by the NLRB puts at risk thousands of American jobs. If 
enforced against companies across the company it will put at 
risk literally hundreds of thousands of jobs that would 
otherwise be created for America and for American workers.
    I would be pleased to discuss any of these larger issues 
presented by the NLRB's complaint. I will begin, however, with 
the narrower question of the propriety of that complaint.
    The 787 Dreamliner is the world's most efficient, 
technologically advanced passenger airplane in aviation 
history. It is also the fastest selling airplane in history. 
Almost 850 of this historic new airplane have already been 
ordered and demand for the airplane grows daily.
    As you are aware, the Boeing Company is America's largest 
exporter and most of this enormous order book will be exported 
to countries and to customers around the world. At a time when 
American companies are locked in a fierce, global competition 
with overseas competitors, the Dreamliner is a testament to the 
preeminent skill and promise of American manufacturing and the 
American worker.
    It was this demand that promoted and necessitated Boeing's 
decision to build a second final assembly line. While Boeing's 
contract with the IAM gave the company the unfettered right to 
place new work wherever it chooses, we engaged in discussions 
with our union in an effort to reach agreement to locate the 
second line in Washington State. When these discussions were 
unsuccessful, Boeing made the considered business judgment to 
place the second line in South Carolina. Our decision was based 
on a host of business considerations including the desirability 
of geographic diversity for our commercial operations, the 
national security benefits of a multiple site airplane 
production capability, the comparative labor costs of the 
competing States, the significant financial incentives that 
Boeing was offered by the State of South Carolina and as well, 
production stability for the 787's global production system.
    Boeing has since spent hundreds of millions of dollars to 
build this massive, state-of-the-art final assembly facility in 
South Carolina which promises to create thousands upon 
thousands of new jobs and in short order. It is the location of 
this billion dollar airplane production facility that the NLRB 
seeks to prevent.
    The complaint filed by the board's acting general counsel 
alleges that Boeing located its facility in South Carolina in 
order to retaliate against the IAM for its history of repeated 
strikes. Of course this claim is preposterous on its face. No 
company commits billions of dollars of capital to build a 
massive production facility out of spite. And as I have been 
detailed in a separate letter to the general counsel, not one 
of the statements by our executives cited in support of this 
claim even remotely evidences such retaliation.
    In an unprecedented remedy the complaint would order Boeing 
to locate and build its second final assembly line instead in 
Washington State and this, Senators, a year and a half after 
Boeing broke ground on its new facility and only weeks before 
the doors are to open for final assembly in the State of South 
Carolina.
    The general counsel's complaint represents a radical 
departure from long and clearly established Federal labor law 
in numerous respects. The NLRB has never before charged a 
violation of this sort where union workers did not lose jobs, 
wages, benefits or otherwise have the terms and conditions of 
their employment affected in any way whatsoever. Since the 
decision to open the second line, Boeing has actually added 
over 2,000 union jobs in the State of Washington.
    The board has never before charged an employer with 
engaging in conduct that is ``inherently destructive,'' of 
union rights whereas here such conduct is expressly permitted 
in the collective bargaining agreement. The board has never 
before asserted that an employer's decision to anticipate the 
economic affect of potential future strikes constitutes an 
unfair labor practice. And the board has never before ordered 
an employer actually to construct or expand a facility in a 
particular State in what is frankly a breathtaking substitution 
of the board for management in the running of an American 
company.
    The implications of the NLRB's complaint are sweeping, not 
just for Boeing, not just for the States of Washington and 
South Carolina. If this complaint prevails it will effectively 
prevent employers with unionized workforces from expanding into 
Right-to-Work States, but it will also effectively prevent them 
from expanding into other non-Right-to-Work States. It will 
just as certainly discourage businesses from choosing to locate 
in non-Right-to-Work States in the first place. And it promises 
to quicken what is already a troubling flight of American 
business and American jobs out of this country and to countries 
overseas.
    For all of these reasons this action should be a matter of 
utmost concern to all States, to all American businesses, to 
all employees, whether represented or not, and to both the 
Congress and the Administration. The NLRB's complaint is both 
legally unfounded and it is irresponsible. It should never have 
been brought. If it is allowed to proceed it will disserve the 
interest of both represented employees and unrepresented 
employees alike, it will disserve the companies and businesses 
that employ and hope to employ these workers, it will disserve 
non-Right-to-Work States as it will also disserve Right-to-Work 
States. And in the end this complaint will greatly disserve a 
country that is struggling to recover from prolonged recession 
and in desperate need of economic growth and the concomitant 
job creation that will power that recovery, if recovery is to 
come.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Luttig follows:]

                Prepared Statement of J. Michael Luttig

    Thank you Chairman Harkin, Ranking Member Enzi and members of the 
Senate Committee on Health, Education, Labor, and Pensions, for 
inviting me to testify before the committee today.
    The complaint filed by Acting General Counsel Lafe Solomon of the 
National Labor Relations Board (``NLRB'') against ``The Boeing 
Company'' that is at issue before the committee arises from Boeing's 
selection of North Charleston, SC, as its location for a second final 
assembly facility for the 787 Dreamliner. The Dreamliner is Boeing's 
revolutionary new wide-body commercial airplane that will be 
significantly more energy efficient than comparably sized airplanes, 
with advanced electric systems. The assembly of the 787 began (and 
continues) in Everett, WA, at the site where Boeing builds its other 
twin-aisle commercial airplanes, including the 747 and the 777. In 
response to extraordinary customer demand for the 787, Boeing decided 
in 2008 to create significant new production capacity by establishing a 
second 787 assembly line.
    The decision to place the second line in North Charleston was one 
of the more important decisions in Boeing's recent history, and was 
made only after extensive deliberation by the company's senior 
management. Boeing was predisposed to place the second assembly line in 
Everett, where the company could draw upon a pre-existing, skilled 
workforce and benefit from the lower construction costs of expanding 
its existing footprint. But there were also good reasons to consider 
locating the second assembly line in North Charleston. South Carolina 
offers an exceptional business environment for manufacturing companies, 
which in this case included a significant package of financial 
incentives in its effort to persuade Boeing to build the new line 
there. Further, North Charleston would provide Boeing, for the first 
time, with desirable geographical diversity for its commercial 
airplanes operations. Boeing's desire to protect the future stability 
of the Dreamliner's global production system was also a significant 
factor in its decisiomaking process. An International Association of 
Machinists and Aerospace Workers (``IAM'') strike in 2008 shut down 787 
production, costing the company more than a billion dollars and 
damaging Boeing's reputation for reliability with its airline 
customers, suppliers, and investors.
    Boeing's collective bargaining agreement with IAM authorizes it to 
place work at locations of its choosing. The Company, however, 
recognized the potential advantages of locating the second line in 
Everett and invited the IAM to discuss the issue during the time that 
Boeing was evaluating several key issues that would ultimately frame 
the business decision as to where to place the second line. Boeing's 
intense discussions with the IAM continued for more than a month, and 
focused on Boeing's interest in obtaining a long-term contract, with a 
no-strike clause, which would ensure future production stability for 
the 787. The IAM, however, would not agree to a long-term extension of 
the collective bargaining agreement unless Boeing would agree to 
material changes in the contract, including significant guaranteed wage 
and benefit increases, an assurance that all future commercial aircraft 
work be placed in the Puget Sound area, and a commitment that Boeing 
would remain neutral in future IAM organizing efforts in other parts of 
the country. Those conditions were unacceptable to Boeing. At about the 
same time that the IAM provided Boeing with its final position, South 
Carolina confirmed Boeing's eligibility for several hundred million 
dollars in incentives were it to locate its second line in North 
Charleston. Weighing the business case presented by the two 
alternatives, Boeing decided to build the second line in North 
Charleston.
    Contrary to what Acting General Counsel Solomon's complaint 
asserts, Boeing's conduct in selecting South Carolina for the second 
line did not violate the NLRA for two independently sufficient reasons. 
First, the law unambiguously requires a showing of an adverse 
employment action caused by the challenged action. Again contrary to 
what the acting general counsel says in the complaint, Boeing's 
decision concerned the placement of new work, not the movement of 
existing work to North Charleston. No IAM member in Puget Sound was (or 
will be) laid off, or saw (or will see) a reduction in his or her 
benefits, as a result of the company's decision. And Boeing's right to 
place new production capacity at a location of its choosing is not only 
permissible under settled Board doctrine; it is expressly authorized by 
Boeing's collective bargaining agreement with the IAM, and has been for 
over 45 years. Far from any IAM member suffering an adverse employment 
action from Boeing's decision to place the second line in Charleston, 
Boeing has already hired new employees and plans to hire additional 
employees in the Puget Sound area as the rate of production of the 787 
and other airplanes increases over time. The new employees will become 
members of the IAM bargaining unit in the Puget Sound area. That even 
more IAM employees might have been hired, if all production were in 
Everett, could not possibly result in an adverse employment action with 
respect to any current IAM member.
    Second, even if the Board were to conclude--contrary to clear 
precedent and supported by none--that locating the second 787 final 
assembly line in North Charleston somehow resulted in an adverse 
employment action, the Board would still be required to establish that 
Boeing's actions were ``inherently destructive'' of protected activity, 
or that Boeing was motivated by anti-union animus. Neither conclusion 
can plausibly be drawn from the facts. Boeing was predisposed to place 
the second line in Everett, and it would have done so had the business 
case been superior (or at least equal) to locating the new facility in 
North Charleston. While Boeing did consider the need for future 787 
production stability in making its decision, that was only one factor 
in the decision process. Even if analyzed in isolation (which is 
certainly not the test), that business consideration was entirely 
consistent with settled precedent. The Board and the Supreme Court have 
long held that an employer is fully entitled to make business decisions 
that may blunt the effectiveness of future strikes. And, as Boeing's 
choice of production sites is explicitly allowed by the IAM's 
collective bargaining agreement, that consequence cannot reasonably be 
viewed as inherently destructive toward the Union.
    Nor can it be credibly claimed that Boeing's actions and business 
decisions show anything resembling anti-union animus. Quite the 
contrary: The placement of the 787 second line was a multibillion-
dollar decision--one that Boeing must live with for decades to come. 
The decision was about economic reality and the future of the company. 
Indeed, the company's decision to negotiate with the IAM as part of the 
decisionmaking process--a step the company was not required to take 
under its collective bargaining agreement--as well as Boeing's plan to 
expand work for IAM members in the Puget Sound area shows that Boeing 
was and is trying to work with the IAM, not to punish it, as the 
complaint incorrectly alleges.
    For these reasons, which are discussed in detail below, the unfair 
labor practices alleged in the complaint make no sense on the facts and 
constitute a sweeping departure from clearly established law. The 
theory espoused by the complaint is tantamount to a claim that no 
American corporation may permissibly decide to locate future work at 
any location other than the one where union work is currently being 
performed, and never in a Right-to-Work State.

                                   I.

    Among other products, Boeing makes large jet airplanes for 
customers around the world. Boeing is the Nation's largest exporter 
with $29 billion in overseas sales in 2009.
    Boeing's latest generation of commercial aircraft is the 787 
Dreamliner. Built with lightweight composite materials, the 787 is one 
of the most fuel-efficient, technologically advanced passenger 
airplanes in the world. In addition to novel materials and 
technologies, the 787 is manufactured through a new production process 
involving a global supply chain. In 2003, when selecting the site for 
the first Dreamliner final assembly line, Boeing considered several 
possibilities. In addition to Everett, WA, where the first line 
ultimately was placed, Boeing seriously considered other locations, 
including the Charleston, SC area. In choosing the site for final 
assembly, Boeing considered a variety of factors, including 
construction costs, labor costs, supply chain logistics, and the 
overall business climate. After weighing these factors carefully, 
Boeing chose Everett, and began operation of the first Dreamliner final 
assembly line there in 2007.
    The 787 became the fastest-selling airplane in aviation history. 
Since the 787 was first announced, customers have placed orders for 
almost 850 airplanes valued at a list price of up to $150 billion. This 
has produced a backlog of orders extending through approximately 2020. 
At the same time, Boeing has faced challenges in the 787 program that 
have resulted in significant delays in the airplane's delivery. To 
execute on its large backlog for the 787, and in an attempt to mitigate 
the risk of additional delays to its customers, Boeing decided in 2008 
to significantly expand 787 production capacity. To that end, it 
decided to establish a second final assembly line.
    As it had done when establishing the first final assembly facility, 
Boeing considered multiple locations for the second line, including 
both Right-to-Work and non-Right-to-Work States. After extensive study 
of potential sites, the choice came down to the Puget Sound area, where 
all of Boeing's commercial aircraft are currently assembled, and North 
Charleston, where the aft and mid-body sections of the 787 are 
constructed and assembled and where, as a result, Boeing had already 
established a significant manufacturing footprint.
    In making its decision, Boeing considered a wide range of factors 
designed to ensure the long-term competitiveness of the 787 program. In 
addition to construction and labor costs, logistics, and general 
business climate, Boeing factored in the particular economic incentives 
available in South Carolina, the benefits associated with geographic 
diversity in its final assembly capability, and its ability to maintain 
the stability of the 787 production system in the event of future 
strikes.
    Boeing's concern for production stability was far from 
hypothetical. Boeing's workforce in the Puget Sound area is heavily 
unionized. The IAM represents approximately 25,000 Boeing employees in 
the Puget Sound region and has represented Boeing's production and 
maintenance workers there since 1934. All the assembly line workers at 
Boeing's various Puget Sound facilities are represented by the IAM. The 
IAM has struck Boeing seven times at its Puget Sound facilities since 
1934, and four times since 1989. In 2008, when the IAM's last 
collective bargaining agreement expired, union members--including those 
assigned to the 787 production line--went on strike for 58 days.
    At the time of the 2008 strike, the Dreamliner program was already 
15 months behind schedule and under severe stress, in significant part 
because of ``traveled work'' from suppliers--work that should have been 
completed by suppliers before shipment, or was completed improperly, 
which Boeing then had to fix and address as an ongoing matter with the 
challenged suppliers. Given the stress on the production system, the 
2008 strike had a cascading effect, delaying 787 construction and 
delivery far more than the 58-day duration of the strike. The 2008 
strike also cost Boeing $1.8 billion in lost revenues that year, and 
decreased all aircraft deliveries by 105 for 2008. Boeing's airline 
customers were upset, and in some cases publicly critical, including 
suggesting that the lack of production stability at Boeing could affect 
future orders.
    For example, Virgin Blue Group CEO and Boeing customer Richard 
Branson succinctly described the consequences of the delay caused by 
the IAM strike as ``catastrophic,'' and stated that ``if there's a risk 
of further strikes in the future, he may not buy Boeing again.'' See 
Dominic Gates, Boeing's top customer predicts big production cuts, 
Seattle Times (Feb. 6, 2009). Mr. Branson explained the effect the 
strike had on his airline because planes were not available: ``It was a 
horrible mess that Boeing was on strike. We messed up tens of thousands 
of passengers over Christmas. . . . We had to buy tickets on other 
airlines and scramble to get seats which weren't available.'' Id.; see 
also Bill Virgin, Boeing, unions should listen to Richard Branson, 
Seattle Post-Intelligencer (Feb. 9, 2009).
    In assessing its options for the second final assembly line, Boeing 
was legitimately concerned with, among other factors, the economic 
impact of potential future IAM strikes, the delivery delays that might 
be caused by such strikes, and the perceptions of its commercial 
airline customers that could affect future orders.
A.
    In considering different locations for the additional assembly line 
(as well as sites for the second line's component and interior parts 
manufacturing facilities), Boeing relied on its right in section 21.7 
of the collective bargaining agreement with the IAM. Section 21.7 has 
been in place in every collective bargaining agreement with the IAM for 
the last 45 years, since at least 1965. It gives Boeing the right to 
``designate the work to be performed by the company and the places 
where it is to be performed'' (emphasis added), without any obligation 
to bargain with the IAM.
    Boeing nevertheless negotiated with the IAM regarding placement of 
a second line in Puget Sound. Boeing recognized the benefits of 
locating the second line in the Puget Sound area, which included a 
skilled workforce, Boeing's deep roots in the area, and the lower 
construction costs of expanding an existing footprint. Notwithstanding 
the significant business climate, economic incentives, geographic 
diversity, and labor advantages associated with the potential North 
Charleston location, Boeing believed the balance would tip in favor of 
Everett if, among other things, it could stabilize 787 production with 
a longer-term collective bargaining agreement that would prevent 
strikes for an extended period. Boeing also wanted to slow the growth 
of future wage increases and benefit costs. As the President and CEO of 
Boeing Commercial Airplanes, Jim Albaugh, said in a later interview, 
his predisposition was to locate the expansion in Puget Sound, not 
Charleston.
    Boeing first mentioned the second line to the IAM in the summer of 
2008. In June 2009, Boeing notified the IAM that a decision on the 
placement of the second assembly line was forthcoming. The IAM agreed 
to discuss the issue, and negotiations began in earnest that August. 
Representatives of the IAM and Boeing met seven times between August 27 
and October 21. Boeing made clear from the start that, regardless of 
the outcome, the issue needed to be resolved by October 15 because 
Boeing needed to start construction on the second line, whether in 
Everett or in North Charleston.
    At the request of the IAM, neither party took notes of the 
extensive discussions, but the IAM did submit a written offer to Boeing 
that reflects the distance between the parties on key issues. The Union 
was willing to agree to extend the existing collective bargaining 
agreement only through 2020 (not 2022 as Boeing wanted), but set forth, 
among others, the following conditions:

     Boeing would have to select Everett as the site for the 
second 787 final assembly line.
     Boeing would have to notify the Union 6 months before 
making any decisions on where to place new production capacity for any 
``next generation'' product. If the parties did not reach agreement at 
the end of the 6-month negotiation period, the IAM could terminate the 
collective bargaining agreement, relieving it of the no-strike 
obligation.
     Boeing could not move any bargaining unit work currently 
being performed by IAM members or contract with a supplier to perform 
the same type of work being performed by IAM members.

    In addition, though not listed in the written set of conditions, 
the IAM's negotiators consistently insisted that any agreement would 
also require that Boeing remain neutral in all IAM organizing or 
decertification campaigns. Boeing told the IAM that it could not accept 
such significant changes to section 21.7 and its right to make major 
entrepreneurial-level decisions. The IAM's insistence on neutrality in 
organizing and decertification campaigns was also identified early on 
as a roadblock to moving forward. But Boeing continued to negotiate 
with the IAM, hoping to reach a mutually acceptable agreement. As 
Boeing CEO Jim McNerney said in a contemporaneous interview, Boeing's 
goals remained production stability and a slowing in wage growth. Mr. 
McNerney also said that the tone of the then-ongoing negotiations was 
constructive.
    As the October 15 deadline for making the final decision 
approached, Boeing agreed to an IAM request for a 1-week extension of 
the deadline so that the Union could submit its ``best and final 
offer.'' On October 20, the eve of the last scheduled meeting, Boeing's 
representatives made specific suggestions about what the company would 
likely accept, so as to better inform the IAM in preparing its 
proposal. Among other things, Boeing's representatives suggested that 
the company could accept (1) a guaranteed annual wage increase of 2 
percent; (2) a cost-of-living formula of 1.5 percent; (3) cost sharing 
of increase in health care costs; and (4) a 2 percent annual increase 
in pension benefits. Boeing's representatives stressed to their IAM 
counterparts that the company could not accept ``neutrality'' or a 
``guarantee'' to locate future work in the Puget Sound area.
    The IAM's final offer came the next afternoon, October 21. In 
exchange for extending the existing contract to 2020 (again, not 2022, 
as Boeing wanted), the IAM continued to demand that (1) existing 
bargaining unit work could not be moved; (2) Boeing would be precluded 
from setting up additional or ``dual'' sources for 787 component 
production and support; and (3) the IAM would have the right to 
terminate the collective bargaining agreement and strike if new work 
were not placed in the Puget Sound area. Boeing's nationwide neutrality 
in any future union organizing campaigns was an ``absolute necessity,'' 
according to the IAM.
    The IAM's offer fell short on other grounds as well. Among other 
things, the IAM required three lump-sum bonuses of $5,000 or 10 percent 
of earnings, whichever was greater, in 2009, 2013, and 2016. It 
requested an annual pension increase of $2.50 per month for the life of 
the agreement, as well as general wage increases of 3 percent on top of 
cost-of-living adjustments.
B.
    Boeing made its decision concerning the placement of the second 
line in late October 2009. Given its significance, the decision 
involved the most senior members of management undertaking a thorough 
comparison of the business cases for each site--Everett and North 
Charleston. The company's inability to reach agreement with the IAM on 
a mutually agreeable approach to ensure long-term production stability 
in Everett was an important consideration in the discussion, and it 
made the overall business case for North Charleston more persuasive, as 
did the general business climate, the desire for geographical diversity 
in final assembly, labor costs, and South Carolina's willingness to 
make available hundreds of millions of dollars of incentives. After 
considering those factors and others, the company chose North 
Charleston. Boeing publicly announced its decision on October 28, 2009.
    Shortly after making its announcement, Boeing began to build the 
second assembly line in North Charleston on an aggressive construction 
schedule, and to hire workers to staff it. This was one of the most 
massive construction projects in the country in recent years. On 
November 6, 2009, Boeing awarded a contract to BE&K Building Group and 
Turner Construction to design, build, and deliver the 1.2-million 
square foot North Charleston assembly line facility, which would 
include the final assembly line, a delivery center, a welcome center, a 
central utilities building, and a support building.
    Boeing estimates that it has committed over $1 billion to date to 
its North Charleston operations. Construction on the second final 
assembly line is now virtually complete. Boeing expects to start 787 
production in North Charleston by July 2011, and to deliver the first 
airplanes in 2012. Well over 1,000 employees have already been hired to 
work in the North Charleston final assembly facility and plans are in 
place to hire more in the next few months. A large team of managers and 
employees--many of whom have moved to the North Charleston area from 
other parts of the country--have been working tirelessly to staff the 
new facility.
C.
    In March 2010, following a delay of 5 months after Boeing announced 
its decision, and with construction in Charleston well underway, the 
IAM filed an unfair labor practice charge with the Board. The IAM 
alleged that Boeing had, inter alia, violated section 8(a)(3) by 
``beginning the process of transferring work . . . to a new plant 
employing non-union workers in retaliation for bargaining unit workers' 
protected concerted activity.'' In late 2010 and early 2011, Boeing 
representatives had discussions with NLRB officials, including Acting 
General Counsel Lafe Solomon, about the charge. Although Boeing 
believed it had reached an agreement with Solomon to resolve the 
matter, the acting general counsel ultimately directed that a complaint 
be issued.
    On April 20, 2011, the complaint was issued, charging that Boeing 
had violated Section 8(a)(3) of the National Labor Relations Act.\1\ 
The complaint focused on Boeing's allegedly unlawful actions in 
deciding to place its second assembly line in North Charleston, as 
opposed to the Puget Sound area, and in describing that decision to 
employees. According to the complaint, Boeing actions were taken in 
retaliation for IAM-represented employees for having gone on strike in 
2008 and for having the continued ability to go on strike in the 
future.
---------------------------------------------------------------------------
    \1\ The complaint also claimed that Boeing had violated Section 
8(a)(1) of the NLRA, alleging the Boeing executives made ``coercive'' 
statements to IAM-represented employees, threatening to remove work 
from the Puget Sound area because employees had struck in the past, and 
that the company would move work in the event of future strikes.
---------------------------------------------------------------------------
    The complaint alleged that Boeing had ``decided to transfer'' its 
second Dreamliner production line and its sourcing supply program 
``because [IAM-represented] employees assisted and/or supported the 
Union by, inter alia, engaging in the protected, concerted activity of 
lawful strikes.'' See id. at  7-8. According to the complaint, these 
actions violated Sections 8(a)(3) of the Act by ``discriminating in 
regard to the hire or tenure or terms or conditions of employment of 
its employees, thereby discouraging membership in a labor 
organization.'' See id. at  10. The complaint found the company's 
actions ``inherently destructive'' of employees' rights. See id. at  
7-8. See id. at  12. The key remedy sought by Acting General Counsel 
Solomon was ``an Order requiring [Boeing] to have the [IAM] operate 
[Boeing's] second line of 787 Dreamliner aircraft assembly production 
in the State of Washington.'' See id. at  13(a).

                                  II.

    Before exposing the fatal legal defects of the complaint, a 
correction of the factual errors, mischaracterizations, and 
misquotations upon which the complaint is based is in order.
A.
    As an initial matter, the complaint repeatedly alleges that Boeing 
``removed work'' from Puget Sound ( 6), ``decided to transfer its 
second 787 Dreamliner production line'' to South Carolina ( 7(a)), and 
``decided to transfer a sourcing supply program'' to South Carolina ( 
8(a)).
    In fact, no work was ``removed'' or transferred'' from Everett. The 
second line for the 787 is a new final assembly line. As it did not 
previously exist in Everett or elsewhere, the second assembly line 
could not have been ``removed'' from Everett, or ``transferred'' or 
otherwise ``moved'' to North Charleston. Simply put, the work that is 
and will be done at Boeing's North Charleston final assembly facility 
is new work, required and added in response to the historic customer 
demand for the 787. No member of the IAM in the Puget Sound area has 
lost his or her job, or otherwise suffered any adverse employment 
action, as a result of the placement of this new work in the State of 
South Carolina.
    The Regional Director, whose office has been tasked with 
prosecuting this case, understands that, and has accurately and 
publicly described the matter. As the Seattle Times reported last year, 
``Richard Ahearn, the NLRB regional director investigating the 
complaint, said it would have been an easier case for the union to 
argue if Boeing had moved existing work from Everett, rather than 
placing new work in Charleston.'' Dominic Gates, Machinists File Unfair 
Labor Charge Against Boeing over Charleston. Seattle Times, June 4, 
2010.
    Since no work was ``transferred,'' NLRB officials now appear to be 
transforming the theory of the complaint, via public statements, to say 
that the building of airplanes in South Carolina constitutes 
``transferred'' or ``removed'' work because Boeing committed to the 
State of Washington that it would build all of the company's 787s in 
that State. For example, on April 26, an NLRB spokeswoman, Nancy 
Cleeland, apparently told a news organization that,

          `The charge that Boeing is transferring work away from union 
        employees stems from the company's original commitment to the 
        State of Washington that it would build the Dreamliner 
        airplanes in this State.''

    The premise underlying that assertion--that Boeing committed to the 
State of Washington to build all of the company's 787s there--is false. 
Boeing fully honored all of its contractual commitments to the State of 
Washington long before the decision to locate the company's new 
production facility in South Carolina. The notion that Boeing had 
somehow committed to Washington State to build all 787s in that State 
is neither mentioned nor even suggested either in the IAM's charge or 
in the complaint.
B.
    The complaint alleges that senior Boeing executives showed a 
purpose to ``punish'' union employees and to ``threaten'' them for 
their past and possible future strikes. These allegations and other 
public statements by NLRB officials to the same effect, which are based 
on misquotations, selective quoting, and mischaracterizations of 
statements by Boeing executives, are groundless.
    For example, the complaint alleges that Boeing Commercial Airplanes 
CEO Jim Albaugh stated that Boeing ``decided to locate its 787 
Dreamliner second line in South Carolina because of past Unit strikes, 
and threatened the loss of future Unit work opportunities because of 
such strikes.'' (Complaint  6(e).) In addition, the NLRB's Web site 
offers a ``fact sheet'' that quotes Mr. Albaugh as saying ``the 
overriding factor'' in transferring the line was work stoppages. In 
fact, Mr. Albaugh's full statement shows that he was referencing two 
``overriding factors,'' only one of which was the risk of a future 
strike, and that far from seeking to punish the union, Mr. Albaugh's 
predisposition was to place the second line in Washington State.
    Mr. Albaugh's full statement on this point was:

          I think you can probably say that about all the States in the 
        country right now with the economy being what it is. But again, 
        the overriding factor was not the business climate and it was 
        not the wages we're paying people today. It was that we can't 
        afford to have a work stoppage every 3 years. We can't afford 
        to continue the rate of escalation of wages as we have in the 
        past. Those are the overriding factors. And my bias was to stay 
        here but we could not get those two issues done despite the 
        best efforts of the Union and the best efforts of the company.

    The italicized sentences, omitted from the complaint and the NLRB's 
Web site, are critical omissions that directly contradict the NLRB's 
apparent theory of this case. No reasonable reader of Mr. Albaugh's 
interview would depict it as part of a ``consistent message'' that 
Boeing sought to ``punish'' its union employees. When not misquoted, it 
is apparent from the interview statement that if Mr. Albaugh had a 
bias, it was in favor of Puget Sound as the place for the second 
assembly line; that the company's preference was to locate the new line 
in Everett; and that both the company and the union made good-faith 
efforts to accomplish that shared objective. On these facts, it is not 
even arguable that Mr. Albaugh's statement constitutes a ``message'' of 
``punishment'' to the union for past or future strikes.
    The complaint also attempts to depict a statement during an 
earnings call by Jim McNerney, Boeing's chairman and chief executive 
officer, as a threat to punish union employees. The complaint alleges 
that Mr. McNerney ``made an extended statement regarding `diversifying 
[Boeing's] labor pool and labor relationship,' and moving the 787 
Dreamliner work to South Carolina due to `strikes happening every 3 to 
4 years in Puget Sound.' '' (Complaint  6(a) (emphasis added).
    He did not say that at all. First, Mr. McNerney was not making an 
``extended statement'' about why Boeing selected North Charleston; 
indeed, the decision about where to locate the new line had not even 
been made at the time he participated in that earnings call. He was 
responding to a reporter's question about the cost of potentially 
locating a new assembly line in North Charleston, and he answered only 
the question regarding comparative costs that was asked. Thus, in the 
passages misquoted and mischaracterized in the complaint, he discussed 
the relative costs of a new facility in a location other than Everett, 
versus the potential costs associated with ``strikes happening every 3 
to 4 years in Puget Sound.'' He did not say, as the NLRB alleged, that 
Boeing selected North Charleston ``due to'' strikes.
    Nor did Mr. McNerney remotely suggest that what would later turn 
out to be the decision to open a new line in North Charleston was in 
retaliation for such strikes. His answer simply cannot be cited in 
support of the complaint's legal theories, much less in support of the 
sweeping statement made by Mr. Solomon to the New York Times about 
Boeing's ``consistent message'' that the company and its executives 
sought to ``punish'' their union employees.
    Finally, Mr. McNerney's answer to a reporter's question was not 
``posted on Boeing's intranet Web site for all employees,'' much less 
posted for the purpose of sending an illegal message under the NLRA, as 
the complaint incorrectly and misleadingly suggests.
    Nor do any of the other statements cited in the complaint remotely 
suggest an intent to ``punish'' the company's unionized employees. 
Quite the contrary: these statements show, at most, that the company 
considered (among multiple other factors) the risk and potential costs 
of future strikes in deciding where to locate its new final assembly 
facility. In fact, Boeing reached out to the IAM in an effort to secure 
a long-term agreement that would have resulted in placing the second 
line in Everett. Although those negotiations were not successful, that 
effort completely undermines the proposition that Boeing executives 
sent a ``consistent message'' that Boeing's decision was intended to 
``punish'' the union for past strikes.
C.
    The complaint seeks an order directing Boeing to ``have the [IAM] 
operate [Boeing's] second line of 787 Dreamliner aircraft assembly 
production in the State of Washington.'' Notwithstanding that, the NLRB 
has said on its Web site that its complaint would not have the effect 
of closing the North Charleston facility. As a practical matter, 
however, if the Board were to order Boeing to produce in Everett the 
additional three 787s per month that are planned for Charleston, that 
would of course require the production of all planned 787 capacity in 
Everett, leaving North Charleston with nothing to do.

                                  III.

    The principal allegations of the complaint and the significant 
remedy sought--that the second line should be moved to Everett, WA--
pertain to the claim that Boeing violated Section 8(a)(3) of the NLRA. 
To establish a section 8(a)(3) violation, the Board must, under its own 
precedents as confirmed by the courts, show:

    (1) that ``an employee's employment conditions were adversely 
affected;'' and
    (2) that the adverse employment action ``was motivated by'' the 
employee's ``union or other protected activities.''

    Wright Line, 251 N.L.R.B. 1083, 1083 (1980); see also Ark Las Vegas 
Restaurant Corp. v. NLRB, 334 F.3d 99, 104 (D.C. Cir. 2003). As a 
factual and legal matter, it is not even arguable that these elements 
can be established here.
A.
    An adverse employment action is one that discriminates in the 
``hir[ing] or tenure of employment or any term or condition of 
employment.'' See 8(a)(3). An employer's conduct constitutes an 
``adverse employment action'' only if it ``actually affect[s] the terms 
or conditions of employment.'' NLRB v. Air Contact Transport Inc., 403 
F.3d 206, 212 (4th Cir. 2005); Lancaster Fairfield Community Hosp., 311 
N.L.R.B. 401, 403-04 (1993)
    An employer's decision to build a new factory--unaccompanied by 
layoffs, a reduction in wages or benefits, or another change in working 
conditions at existing facilities--does not constitute an adverse 
employment action and thus cannot form the basis for a section 8(a)(3) 
complaint. See, e.g., Weather Tamer, Inc. v. NLRB, 676 F.2d 483, 491 
(11th Cir. 1982) (``A runaway shop exists when an employer, in 
retaliation against union activities, transfers work from the closed 
facility to another plant or opens a new plant to replace the closed 
plant. If no transfer of work has taken place . . . then there has been 
no unfair labor practice.''); see also Cynthia L. Estlund, Economic 
Rationality and Union Avoidance: Misunderstanding the National Labor 
Relations Act, 71 Tex. L. Rev. 921, 943 n.80 (1993) (``I have been 
unable to locate any decisions holding that a withholding of capital 
investment from a union plant, or a decision not to place new or 
expanded operations at the plant, was discriminatory under 8(a)(3). It 
appears to be necessary under Board law to show that existing unit work 
was eliminated, subcontracted, or relocated.'').
    No IAM employees were or will be laid off, demoted, relocated, 
suffer a reduction in wages, benefits, or work hours, or have their job 
duties changed as a result of the decision to locate the second 787 
assembly line in North Charleston. And the complaint does not allege 
that any of those adverse employment actions have happened or even that 
they are likely to occur in the future. The lack of any adverse 
employment action against IAM members is fatal to the section 8(a)(3) 
claim. The NLRA, by its plain terms, does not grant unions the 
unbargained right to have potential new work put in a unionized plant. 
Neither a court nor the Board has ever held otherwise.
    Nor can an ``adverse employment action'' be based upon some sort of 
``diffuse'' injury to a union, such as ``chilling'' support for the 
union, as opposed to a tangible injury to identifiable employees. There 
is simply no precedent for that novel theory suggested in the 
complaint. Indeed, such a standard would effectively eliminate the 
adverse-action element of a section 8(a)(3) violation, and would allow 
the Board to find an unfair labor practice based upon any employer 
action--even actions that are expressly permitted by the collective 
bargaining agreement, and harm no employees--that may nevertheless have 
the effect of reducing union bargaining power, or have incidental 
effects on unionization.
    In addition to being contrary to the plain language of the 
statute--which speaks in terms of concrete enumerated actions--the 
interpretation suggested would effectively conflate the ``adverse 
action'' requirement with the provision's distinct motive element. If 
that were permitted, essentially any action that is even arguably 
adverse to the union's interests could be dubbed an unfair labor 
practice. ``Chill'' is plainly not a substitute for the threshold 
adverse action element. See Textile Workers v. Darlington Mfg. Co., 380 
U.S. 263, 269 (1965).
    As the D.C. Circuit has explained, the fact that an employer's 
action may chill or diminish a union's relative bargaining power ``can 
have no bearing on the lawfulness of the employer's [action]'' under 
section 8(a)(3) because ``it is not the role of the NLRB, and certainly 
not that of the courts, to regulate the bargaining power of the parties 
to a labor dispute.'' Int'l Bhd. of Boilermakers, Local 88 v. NLRB, 858 
F.2d 756, 766 (D.C. Cir. 1988) (emphasis added) (citing Am. Ship Bldg. 
Co. v. NLRB, 380 U.S. 300, 309 (1965)). Were it otherwise, companies 
would have to be neutral regarding unionization (which is not the law), 
neutral towards unions in selecting job sites (which is not the law), 
and neutral regarding the effects of future strikes (which is not the 
law).
    Accordingly, Boeing's decision to place an additional 787 final 
assembly facility in Charleston was not an adverse action under the 
plain language of the statute and clearly settled law.
B.
    Separate and apart from showing an adverse action, the Board also 
must establish either that (1) Boeing's choice of North Charleston was 
``inherently destructive'' of protected activity, or (2) was motivated 
by anti-union animus. The acting general counsel's complaint fails 
here, as well. Boeing's decision to place the second line in North 
Charleston was based upon the company's overall assessment of the 
business cases for each of the two locations, and was made only after 
extensive voluntary negotiations with the IAM. Boeing's desire to 
maintain long-term production stability for the 787 was a significant 
consideration, but there were other important factors, including a 
large economic incentive package. There is simply no case to be made 
for a single-minded focus upon the IAM, much less a single-minded, 
vindictive focus to punish the Union.
    Even if it had been the case that Boeing's decision had been based 
solely on its concern regarding future strikes--for which there is not 
a single shred of evidence--such consideration would not be unlawful or 
even illegitimate. To the contrary, it is established law that an 
employer has the right to make legitimate business decisions in an 
effort to limit the impact of future strikes, and such decisions are--
as a matter of law--not ``inherently destructive'' of protected 
activity and do not provide evidence of any ``anti-union animus.'' 
Further, there is no legitimate claim that Boeing violated the 
collective bargaining agreement. Thus, even if the focus were limited 
solely to how Boeing factored into its decision the potential economic 
impact of future union actions, there would have been no resulting 
violation of the NLRA.

                                   1.

    To the extent that Boeing considered labor stability issues in its 
decisiomaking process, it is beyond question that, as a matter of law, 
such consideration does not constitute ``inherently destructive'' 
conduct. An employer's conduct qualifies as inherently destructive only 
if it ``carries with it an inference of unlawful intention so 
compelling that it is justifiable to disbelieve the employer's 
protestations of innocent purpose.'' Am. Ship Bldg. Co., 380 U.S. at 
311-12. The conduct must be ``so destructive of employee rights and so 
devoid of significant service to any legitimate business end that it 
cannot be tolerated consistently with the Act.'' NLRB v. Brown, 380 
U.S. 278, 286 (1965). Such cases are ``relatively rare.'' Boilermakers, 
858 F.2d at 762 (quoting Loomis Courier Serv., Inc. v. NLRB, 595 F.2d 
491, 495 (9th Cir. 1979)). Where, as here, the governing collective 
bargaining agreement expressly permits the challenged action, an 
exercise of that agreed-upon contract right by the employer cannot be 
``inherently destructive'' of protected rights.
    The Supreme Court has made it clear that there is a ``wide range of 
employer actions taken to serve legitimate business interests in some 
significant fashion, even though the act committed may tend to 
discourage union membership.'' Am. Ship Building, 380 U.S. at 311 
(citing NLRB v. Mackay Radio & Telegraph Co., 304 U.S. 333 (1938)). And 
the Court in American Ship Building also made clear that,

        ``there is nothing in the [NLRA] which gives employees the 
        right to insist on their contract demands, free from the sort 
        of economic disadvantages that frequently attend bargaining 
        disputes.''

380 U.S. at 313. Indeed, the Act ``do[es] not give the Board a general 
authority to assess the relative economic power of the adversaries and 
to deny weapons to one party or the other because of [the Board's] 
assessment of that party's bargaining power.'' Id. at 317. But that is 
precisely what the complaint against Boeing seeks to do, overturning 45 
years of policy and precedent. In order to protect the right of IAM 
employees to strike to obtain their collective agenda, Acting General 
Counsel Solomon would deny to Boeing well-established and legitimate 
defensive actions long available to employers.
    Boeing's decision to put the second 787 line in North Charleston, 
grounded in part in an interest to mitigate the effects of a future IAM 
strike on 787 production, is precisely the sort of defensive employer 
action that does not violate section 8(a)(3). In Brown--still a leading 
case in this area--the Supreme Court held that there was no 
``inherently destructive'' conduct where an employer, in response to a 
strike, locked out its regular employees and used temporary 
replacements to carry on business. In discussing the legitimate 
defensive measures that an employer may take, the Court noted ``the 
Board['s] conce[ssion] that an employer may legitimately blunt the 
effectiveness of an anticipated strike'' by, among other tactics, 
``transferring work from one plant to another, even if he thereby makes 
himself `virtually strikeproof.' '' 380 U.S. at 283 (emphasis added). 
The Court repeated that rule in much the same words in Charles D. 
Bonanno Linen Service, Inc. v. NLRB, 454 U.S. 404, 416 n.9 (1982) 
(``[An employer can] try to blunt the effectiveness of an anticipated 
strike by,'' inter alia, ``transferring work from one plant to 
another.'').
    If ``transferring work from one plant to another'' is not ``so 
destructive of employee rights and so devoid of significant service to 
any legitimate business end that it cannot be tolerated consistently 
with the Act,'' then choosing to locate new work at one site (North 
Charleston), without reducing work at another (Everett)--and in fact 
increasing work at that other site--could not possibly be ``inherently 
destructive'' either. See Brown, 380 U.S. at 284, 287.
    It comes as little surprise, then, that Boeing's actions do not 
fall within the two established categories of ``inherently 
destructive'' conduct. The first involves clear-cut discrimination 
between workers ``based on their participation (or lack of 
participation)'' in protected union activity. Esmark, Inc. v. NLRB, 887 
F.2d 739, 748 & 749 n.14 (7th Cir. 1989) (collecting cases). Boeing 
plainly did not apply differential punishments or rewards to Puget 
Sound area employees based on their varying degrees of union activity.
    A second, narrower category of inherently destructive action 
involves conduct that ``discourages collective bargaining in the sense 
of making it seem a futile exercise in the eyes of employees.'' 
Boilermakers, 858 F.2d at 764. There is no authority for treating an 
employer's exercise of its contractual right to add new production 
wherever it chooses as ``inherently destructive'' under that category--
and considerable contrary authority. Indeed, under the Board's own 
decision in Milwaukee Spring II, 268 N.L.R.B. 601 (1984), enf 'd, Auto 
Workers v. NLRB, 765 F.2d 175, 179 (D.C. Cir. 1985), even a work 
relocation is not ``inherently destructive'' of protected rights if 
consistent with the employer's rights under the governing collective 
bargaining agreement. The acting general counsel's complaint would set 
aside that longstanding precedent as well.

                                   2.

    While Boeing's decision was based on a number of factors, including 
business climate, incentives, geographical diversity, labor and 
construction costs, and production stability, to the extent the 
potential impact of future strikes was considered among those factors, 
the facts here do not support a claim that the company's decision was 
motivated by anti-union animus. As previously discussed, the statements 
of Boeing executives cited in the complaint fall far short of 
evidencing anti-union animus, however, much of the complaint takes 
those statements out of context, misquotes others, and selectively 
quotes still others. Statements of concern about future strikes are 
simply not evidence of anti-union animus as a matter of law. And 
neither do these statements reflect a backward-looking desire to punish 
the IAM for the 2008 strike. Instead, these statements reflect Boeing's 
forthright acknowledgement that production setbacks caused by strikes 
are economically damaging to its aircraft manufacturing operation, and 
that its economic need--and its customers' demands--for future 
production stability contributed to its choice of North Charleston, 
after the IAM's demands in exchange for a long-term extension of the 
existing collective bargaining agreement proved unacceptable. Boeing 
operates in a highly competitive industry that runs on long-term 
production commitments. That business reality was one consideration in 
Boeing's decision to build a new production facility in a location that 
will allow some 787 production to continue during any future IAM strike 
in Everett.
    That Boeing considered as one part of its business decision the 
benefits of improving production stability by avoiding strikes is not 
improper anti-union animus. Both Supreme Court precedents and the 
consistent position of the Board since 1965 make plain that an 
employer's interest in avoiding or mitigating the economic harm caused 
by anticipated strikes is a legitimate business objective. In its brief 
to the Supreme Court in American Ship Building, the Board said that an 
employer's decision ``transferring work from one plant to another'' was 
a ``legitimate defensive measure[],'' even if doing so makes the 
employer ``virtually `strikeproof ' during the period following the 
expiration of a contract.'' Brief for the NLRB at 17, Am. Ship Building 
Co. v. NLRB, 380 U.S. 300 (1965) (No. 255). As previously noted, the 
Court in Brown embraced and adopted the Board's view, 380 U.S. at 283, 
as the Court did again in Charles D. Bonanno Linen Service, Inc., 454 
U.S. at 416 (employers may legitimately ``try to blunt the 
effectiveness of an anticipated strike''). See Birkenwald Distributing, 
282 N.L.R.B. 954 (1987) (employer motivation to avert economic damage 
caused by anticipated strike was legitimate); Betts Cadillac Olds, 
Inc., 96 N.L.R.B. 268, 285 (1951) (``[An employer] has, and needs, the 
right to protect himself by reasonable measures from harmful economic 
or operative consequences of a strike.''). The complaint filed by the 
acting general counsel simply ignores the Board's own precedents and 
the controlling Supreme Court decisions.
    Boeing's public statements explaining its reasons for choosing 
North Charleston are consistent with legitimate defensive actions that 
the courts and the Board have held that employers may take without 
violating section 8(a)(3), and are protected statements under Section 
8(c) of the NLRA, not to mention the First Amendment.\2\ And those 
statements cannot be viewed as pretexts for anti-union motivation. It 
is simply implausible, on both economic and labor-relations grounds, 
that Boeing would undertake a multi-billion-dollar expansion in North 
Charleston simply to retaliate against the IAM for past strikes, rather 
than to improve future production stability for the 787. Moreover, 
Boeing's decision did not involve a transfer of any work from its 
existing operations and by no means made the company ``strikeproof.'' 
Boeing remains heavily invested in, and committed to, the Puget Sound 
area, where all of its commercial aircraft are currently assembled, and 
where the IAM represents 25,000 members of the bargaining unit.\3\
---------------------------------------------------------------------------
    \2\ Those statements are neither threats nor attempts to coerce or 
restrain IAM members from engaging in protected activities and do not 
violate section 8(a)(1), notwithstanding the complaint's contrary 
allegations.
    \3\ The IAM voted to strike Boeing's St. Louis facility, and other 
unions have struck Boeing's other facilities, since Boeing announced 
its decision to place the second line in North Charleston. Boeing is 
unaware of any objective or subjective evidence of decreased interest 
in union activity by employees at Puget Sound or elsewhere. Indeed, the 
IAM's membership in the Puget Sound area is about 25,000 strong, with 
hiring continuing, and the bargaining unit works on building component 
parts for and assembling Boeing's 737, 747, 757, 767 and 777 airplanes. 
In those circumstances, even without control of all Dreamliner 
production, the IAM's bargaining power remains massive.
---------------------------------------------------------------------------
    Indeed, that Boeing reached out to the IAM to try to negotiate a 
long-term contract before it made its decision as to where to place the 
new 787 assembly line wholly undermines any suggestion that the company 
wanted to punish the IAM. Significantly, the complaint fails to mention 
Boeing's efforts in that regard, although the acting general counsel 
and his staff were fully aware of those negotiations. First, Boeing had 
no obligation to negotiate with the IAM about the location of the 
second final assembly line; Section 21.7 of the collective bargaining 
agreement gave Boeing the unilateral right to decide where the work 
would be placed. In fact, Boeing's decision to invite the IAM to 
negotiate, even when it was not contractually required to do so, raises 
an almost irrefutable inference of good faith and a desire to cooperate 
with the Union. See Democratic Union Organizing Comm.  v. NLRB, 603 
F.2d 862, 887 (D.C. Cir. 1978) (``[T]he fact that the companies 
informed the union that they were considering leasing and `invited 
discussion before their final decision' evinces a greater commitment on 
their part to the collective bargaining process than was reflected by 
the Union.''). Even if Boeing had not negotiated with the Union and had 
merely exercised its rights under the collective bargaining agreement, 
and following its decision, simply announced it was locating a second 
line in North Charleston, that alone would not even arguably be 
evidence of punishment.
    Second, Boeing's conduct during the course of the negotiations with 
the IAM similarly does not support an inference of animus. Boeing could 
not reach agreement with the IAM due to the Union's demands for, among 
other things, a neutrality agreement and a modification of section 21.7 
that would require Boeing to place future work in Puget Sound or face a 
perhaps-crippling strike by the IAM. Because of the timeline for 
reaching a decision on the second line, Boeing reasonably asked the IAM 
for its last, best offer and even gave it additional time to make that 
offer. That Boeing did not accept the IAM's best and final offer was 
simply Boeing's exercise of its right not to agree to a tradeoff that 
was materially adverse to the interests of its shareholders, customers, 
and employees.
    No inference of anti-union animus can plausibly be drawn from the 
fact the IAM was unsuccessful in its negotiation to have the second 787 
assembly line established in Puget Sound. At most, an inference can be 
drawn that Boeing was only willing to agree to place the second line in 
Everett on terms it found acceptable. But where, as here, ``the 
intention proven is merely to bring about a settlement of a labor 
dispute on favorable terms, no violation of (a)(3) is shown.'' Am. 
Ship Building, 380 U.S. at 313. Put another way, the NLRA is not so 
slanted in favor of unions that a union's failure to achieve its goals 
at the bargaining table establishes that the employer was acting from 
anti-union animus, rather than for legitimate business reasons. And 
that is true even if the failure to achieve a favorable result lessens 
the union's bargaining power. As the D.C. Circuit explained on this 
very point:

          It is clear . . . that any effect on the parties' relative 
        bargaining power--so long as it does not substantially impair 
        the employee's ability to organize and to engage in concerted 
        activity--is simply outside the scope of proper inquiry under 
        sections 8(a)(1) and (3).

    Boilermakers, 858 F.2d at 765. The notion that Boeing's 
contractually-sanctioned decision--an action that does not affect any 
terms or conditions of a current IAM member's employment--could somehow 
cause ``substantial impairment'' of the IAM's 25,000-strong Puget Sound 
bargaining unit's ability to organize and function, is simply not 
credible.
    Boeing considered many factors in making its decision. And Boeing's 
taking into account the economic effects of a potential future strike, 
as one element of that analysis, was entirely proper under the law. 
Boeing considered the importance of ensuring stable production of the 
787, not whether the IAM should be punished for past conduct.

                                  IV.

    Boeing's business decision to construct a new 787 production 
facility in Charleston was based on a number of legitimate 
considerations, all of which were plainly permissible under the 
relevant collective bargaining agreement and established law. To the 
extent Boeing considered the possibility of future strikes by the IAM 
among many other factors, Boeing was entitled to rely on the provisions 
of its contract with the IAM and settled precedent under the NLRA in 
making an economic decision where to place the second 787 final 
assembly line.
    At bottom, the acting general counsel is seeking to change 
radically the balance between management and unions struck by the NLRA, 
as the Act has been interpreted for the last 75 years. He seeks to 
change the law so that what a union cannot achieve at the bargaining 
table it will be able to achieve through the Board. But the Act simply 
does not provide the Board or the courts with the authority to ``assess 
the relative economic power of the adversaries in the bargaining 
process and to deny weapons to one party or the other because of [the 
Board's] assessment of that party's bargaining power.'' Am. Ship 
Building, 380 U.S. at 317. To do so would amount to ``the Board's 
entrance into the substantive aspects of the bargaining process to an 
extent Congress has not countenanced.'' Id. at 317-18.
    Again, thank you. I will be glad to answer any questions the 
committee may have.

    The Chairman. Thank you, Mr. Luttig.
    And now our final witness is Ms. Sarah Fox, legal counsel 
to the American Federation of Labor--Congress of Industrial 
Organizations, AFL-CIO. Prior to her employment at the AFL-CIO 
she served for 5 years as a member of the National Labor 
Relations Board, also previously served on the staff of this 
committee under Chairman Kennedy.
    Ms. Fox, welcome back, I guess, and in a different 
capacity. Again, your statement will be made a part of the 
record in its entirety and if you could sum it up we would 
appreciate it.

STATEMENT OF SARAH M. FOX, LEGAL COUNSEL, AFL-CIO, BETHESDA, MD

    Ms. Fox. Thank you. Mr. Chairman and members of the 
committee, as you stated, for 5 years, from 1996 through 2000 I 
had the privilege of serving as a member of the National Labor 
Relations Board and to be part of the administration of that 
act, which is a statute whose passage, as several of the 
witnesses have testified here, really played an instrumental 
role in the subsequent creation of a strong and vibrant middle 
class.
    I am going to talk today about really what is the 
continuing relevance of those rights and the National Labor 
Relations Act to the effort to restore that class. And I want 
to start with a little bit of legislative history. And it is a 
very interesting legislative history and part of the history of 
this committee as well, because Senator Wagner who was the 
chief sponsor of the National Labor Relations Act was a member 
of this committee and the committee did a lot of work in 
developing that legislation.
    There are a lot of parallels between the situation, the 
economic situation the country was facing then, and the current 
situation. Massive--it was the middle of the Great Depression, 
massive unemployment and millions of workers were out of work 
and wages were depressed. It was then the case, as it is now, 
that there was a widespread recognition of what you have talked 
about here which is that prospects for economic recovery were 
being hindered by insufficient consumer demand which was 
attributable to the lack of consumer purchasing power.
    When Congress enacted the NLRA it did it in part as a very 
intended response to the economic crisis that reflected a 
congressional belief that equalizing bargaining power between 
workers and employers, through the practice of collective 
bargaining would enable workers to obtain fairer wages and a 
better standard of living which would in turn spur greater 
business activity and restore what Congress at that time would 
refer to as the flow of commerce. So, it is important to keep 
in mind that in enacting this legislation, the 1934-35 Congress 
sought, not just as a benefit to individual workers, but part 
of a positive national economic strategy. And I think that 
motive is as relevant today as it was then. And it is 
reflected, if you read the preamble of the National Labor 
Relations Act specifically, those concerns and that intention 
to raise wages, raise income, and equalize bargaining power.
    We saw, after the war in particular, millions of workers 
join unions and through the exercise of their right to 
collective bargaining that had been created by this act made 
steady improvements in their wages, in their working 
conditions, in benefits which really, for decades, put them in 
the vanguard of a newly advancing and expanding middle class. 
And not only as Secretary Reich has alluded to, not only did 
union members benefit but because other employers also 
increased their wages to keep up with these trends that were 
being set, it benefited millions of nonunion workers as well. 
Many of the benefits that became standard offerings for 
nonunion employers, healthcare, retirement, pension plans, 
began as negotiated benefits at the bargaining table and were 
key to this.
    And of course today we see, after decades of decline, those 
things going away. We have, as Secretary Reich has said, the 
majority of workers experiencing stagnant or declining wages, 
we see the percentage of workers who have healthcare benefits 
or pension benefits through their employment decreasing. And we 
see, at the same time, just astounding increases in inequality 
to the point, as Secretary Reich was saying that now the top 1 
percent of income earners have captured almost a quarter of 
national income.
    It is against that backdrop that I think we need to 
reassess the importance of the act and put a particular 
emphasis on the protection of those rights. This has been a 
subject of a lot of debate in this Congress, in the context of 
the Employee Free Choice Act. I believe that compelling 
arguments have been made for passage of that act, and I am not 
going to go through them again today. But I do think that the 
very least we can expect is that those rights that do exist 
within the tools that the National Labor Relations Board as an 
agency has, should be respected and that we have every right to 
expect that they will be vigorously enforced. Those rights are 
the right to freedom of association, the right to freely form 
unions and most importantly and significantly, the right to 
engage in collective bargaining for purposes of affecting wages 
and working conditions.
    For that reason, I think I personally find it disturbing 
and I think many do, to see the kinds of attacks that there 
have been recently on actions by the National Labor Relations 
Board in carrying out what are their statutory responsibilities 
with regard to enforcement of the act. And since Judge Luttig 
is here today to talk about the recent issuance of the Boeing 
compliant, I want to focus a little bit on that and the 
particular firestorm that that has created.
    As I understand it, the facts are that in April of this 
year the National Labor Relations Board, through its acting 
general counsel, issued a complaint against Boeing which 
alleged that Boeing has transferred work from its facility in 
the State of Washington--made a decision to transfer this work 
to the facility in the State of South Carolina because the 
employees at the--as a motivating factor that employees at the 
State of Washington facility had repeatedly exercised their 
statutorily protected right to engage in strikes.
    To explain a little about how the agency works, it is 
really a two-headed agency. And it consists of, and it is run 
by six presidentially appointed persons. One end of the agency 
is the five member National Labor Relations Board which really 
acts as kind of a court in a quasi-adjudicative way to decide 
cases. At the other end of the agency is a general counsel who 
acts really as the prosecutor. He cannot initiate any kind of 
prosecution on his own, any enforcement action that he takes is 
initiated in the first instance through charges that people can 
file with the board. They come to the regional offices, they 
are investigated by personnel working under the authority of 
the general counsel. And if that investigation, as a result the 
general counsel finds reasonable cause to believe that there 
has been a violation of the act, he issues a complaint. He 
becomes the prosecutor, through his staff, of that complaint. 
It is tried before an administrative law judge and if either 
party is unhappy with the decision of the administrative law 
judge they have an automatic appeal to the full five member 
board in Washington and from there an automatic right of appeal 
to the Courts of Appeals. So, in that situation this is what we 
are facing now.
    I think it is important to note that there is really 
nothing extraordinary about this complaint. There is a long 
history of cases before the board that say that an employer may 
not move work from one facility to another in response to the 
exercise of protected activity. That is exactly the allegation 
here. It is an allegation that the work was transferred. And 
the standard remedy for this--if it is found that there has 
been a violation--is to instruct the employer to return the 
work.
    The Chairman. Yes. Thanks. Thank you.
    Ms. Fox. And, I think I just will conclude with that.
    [The prepared statement of Ms. Fox follows:]

                   Prepared Statement of Sarah M. Fox

    My name is Sarah Fox and I am legal counsel to the AFL-CIO. For 5 
years, from 1996 through 2000, I was privileged to serve as a member of 
the National Labor Relations Board and to participate in the 
administration of the National Labor Relations Act, a statute whose 
passage in 1935 contributed significantly to the creation and growth of 
a strong American middle class. I appreciate the opportunity to testify 
today regarding the rights established in the NLRA and the continuing 
relevance of those rights to any effort to reverse what has now been a 
decades-long slide in the fortunes of the middle class.
    Let me begin with some comments about the context in which the NLRA 
was enacted and the significance of that context in light of present 
day circumstances. In 1935, the country was of course in the throes of 
the Great Depression. Then, as now, millions of workers were unemployed 
and wages were depressed. Then, as now, prospects for economic recovery 
were hindered by insufficient consumer demand attributable to the lack 
of consumer purchasing power. The NLRA, enacted as a response to the 
economic crisis, reflected a congressional belief that equalizing 
bargaining power between workers and employers through the practice of 
collective bargaining would enable workers to obtain fairer wages and a 
better standard of living, which would in turn spur and support greater 
business activity and restore what Congress referred to as ``the flow 
of commerce.'' In short, the Congress that enacted the NLRA viewed 
giving workers the right to form unions and bargain collectively not 
just as a benefit for individual workers, but as a positive economic 
strategy for the Nation as a whole. That view is as valid today as it 
was in 1935.
    As Congress explained in Section 1 of the NLRA, which sets forth 
the findings and policy concerns underlying the legislation:

          The inequality of bargaining power between employees who do 
        not possess full freedom of association or actual liberty of 
        contract and employers who are organized in the corporate or 
        other forms of ownership association substantially burdens and 
        affects the flow of commerce, and tends to aggravate business 
        depressions, by depressing wage rates and the purchasing power 
        of wage earners in industry . . . 29 U.S.C. 151. Section 1 
        therefore goes on to declare that it is ``the policy of the 
        United States'' to ensure the efficient functioning of the 
        economy by ``encouraging the practice and procedure of 
        collective bargaining'' and by ``protecting the exercise by 
        workers of full freedom of association, self- organization, and 
        designation of representatives of their own choosing, for the 
        purpose of negotiating the terms and conditions of their 
        employment or other mutual aid or protection.'' Id.

    The new statute, as adopted in 1935 and subsequently amended in 
1947, did four important things.
    First, it formally established in what is now section 7 of the Act 
the rights of private sector employees to form and join unions of their 
own choosing, to collectively bargain with their employers, and to 
engage in strikes and other forms of concerted activity--and to refrain 
from such activities.
    Second, it established an affirmative duty on the part of employers 
to recognize and bargain with representatives chosen by employees 
without employer interference.
    Third, it defined and prohibited a series of ``unfair labor 
practices'' by employers and unions which interfere with or 
discriminate against employees on the basis of the exercise of rights 
protected by the Act.
    Fourth, it established an independent agency overseen by 
individuals appointed by the President and confirmed by the Senate to 
administer and enforce the Act: These consist of a 5-member Board 
which, in the case of unfair labor practices, acts in an adjudicative 
body, and an independent, separately appointed General Counsel who, 
through representatives employed in Regional Offices around the 
country, investigates charges filed with the agency against employers 
and unions and, where it is determined that there is reasonable cause 
to believe an unfair labor practice has been committed, acts as a 
prosecutor in issuing complaints and prosecuting them before the Board.
    Following the passage of the Act, and particularly after the end of 
World War II, millions of workers, by joining unions and exercising the 
right to collectively bargain provided by the Act, were able to win 
improvements in wages, benefits and working conditions that for decades 
put them at the vanguard of a steadily advancing and expanding middle 
class. Gains achieved at the bargaining table by union workers caused 
employers to raise wages for millions of non-union workers as well, and 
benefits such as health insurance and retirement plans, initially 
negotiated for union workplaces, became standard offerings by nonunion 
employers too. Prosperity was broadly shared by families at all income 
levels.
    Today, however, as previous witnesses have compellingly testified, 
the middle class is in serious decline, with wages for the majority of 
workers stagnant or falling, increasing percentages of the workforce 
without access to health insurance or pension benefits, and more and 
more workers employed on a contingent basis, with no job security. 
Instead of broadly shared prosperity, we have levels of inequality 
unheard of for more than a century, with the percentage of total income 
captured by just the richest 1 percent of Americans now exceeding 24 
percent. Not surprisingly, these developments parallel a similar 
downward trend in the percentage of private sector workers covered by 
collective bargaining agreements, which is now back to its lowest point 
since the National Labor Relations Act became law.
    The reasons for this decline are various, and include the hollowing 
out of the country's manufacturing base and the concomitant loss of 
manufacturing jobs; steep employment declines in other industries that 
have historically been highly unionized, such as mining and utilities; 
and the increasing percentage of the private workforce that has no 
right to unionize because of exclusions from statutory coverage. But 
there can be no question that a large part of the decline is due to 
fierce opposition to unionization by employers and weaknesses in the 
NLRA that allow employers to engage with impunity in intense and 
protracted anti-union campaigns--campaigns that are often accompanied 
by illegal threats, firings, and other forms of coercion, but even 
where conducted in accordance with current law, are typically designed 
to generate high levels of tension and conflict in the workforce that 
the employer can blame on the union and thereby dissuade workers from 
supporting a unionization drive.
    The compelling case for reform of the NLRA has been made repeatedly 
before this committee and elsewhere in the Congress in the context of 
the debate over the proposed Employee Free Choice Act, and it is not my 
intention to rehearse those arguments here. But in the absence of 
reform, it is certainly appropriate to expect that those protections 
for workers that do exist in the Act are fully and vigorously enforced. 
It is in that context that the recent and increasingly vehement attacks 
on agency personnel for simply carrying out their statutory obligations 
should be considered deeply disturbing. Since Mr. Luttig has appeared 
to testify today regarding the complaint recently authorized by the 
Acting General Counsel alleging that the Boeing Co. has committed 
unfair labor practices I refer in particular to the uproar that has 
been generated over that action.
    The complaint in question was issued on April 11 of this year. 
Briefly summarized, it alleges that the company has violated sections 
8(a)(1) and (3) of the NLRA in connection with an alleged decision to 
transfer the assembly work for some of the 787 Dreamliner airplanes it 
is producing from an existing Boeing facility in the State of 
Washington to a new company plant in South Carolina. These allegations 
are based on alleged statements by company officials that they would 
transfer or had decided to transfer the assembly work to South Carolina 
because of past strikes engaged in by the workforce at the Washington 
State facility.
    It is important to note at the outset that the issuance of the 
complaint does not constitute a finding by the agency that Boeing has 
violated the NLRA. It reflects only a conclusion by the General 
Counsel, after an investigation of charges against the company filed 
with the agency by the union representing workers at the Washington 
State, that there is reasonable cause to believe that a violation has 
occurred, which is the standard for initiating an enforcement action 
under the NLRA.
    As Mr. Luttig's testimony makes clear, the company vehemently 
contests both the legal theory on which the case is based on and 
certain of the factual allegations on which the complaint is based--
most notably whether the assembly work in question is work that the 
company plans to transfer from the Washington State facility to South 
Carolina or new work, as well as the complaint's assertions as to the 
company's motive for the decision. It is certainly not unusual for the 
Respondent in an unfair labor practice to deny the commission of unfair 
labor practices; indeed that is obviously true in every case that 
proceeds to a hearing. And like all other Respondents, Boeing will have 
a full opportunity at a hearing before an ALJ (which I understand has 
been scheduled for next month) to present its defense. If any aspect of 
the ALJ's decision is adverse to the company, it can file exceptions to 
the decision with the Board in Washington, DC, and it will also have 
the right to appeal any subsequent decision by the Board to a Federal 
Court of Appeals.
    Contrary to many statements that have been made to the press and in 
other forums, the legal theory on which the complaint is based is 
neither novel nor exceptional. Section 8(a) prohibits employers from 
interfering with, restraining or coercing employees in the exercise of 
rights guaranteed by section 7 of the Act; section 8(a)(3) from 
discriminating against employees because of their exercise of section 7 
rights. It is beyond question that the right to strike is among the 
rights guaranteed by section 7, and there is ample precedent in Board 
law for the proposition that the decision to transfer work from one 
facility to another because workers at the first facility have 
exercised a right protected by section or to prevent employees from 
exercising. There is even a name for this line of cases--it's called 
the ``runaway shop'' doctrine.
    What is exceptional about this case is not the novelty of the legal 
theory, but the size and power of the company that has been charged, 
and the magnitude of the decision that is at issue. But there is no 
warrant in the NLRA for making enforcement decisions on the basis of 
such distinctions--or on whether a particular decision will be 
politically unpopular.
    This is most emphatically not to say that I believe Boeing to be 
guilty of unfair labor practices, and I would not presume to make any 
such suggestion. That is a judgment that can only be made by the 
ultimate decisionmaker after thorough examination of the facts as 
presented at the hearing before the ALJ, and careful consideration of 
the application of the law to that particular set of facts. And that is 
precisely why it is ultimately pointless--and destructive of the 
processes established by law for the resolution of such matters--for 
Boeing and others to attempt to litigate the case in the press or, for 
that matter, in Congress.
    Two final points: First, the uproar in response to the NLRB's 
complaint has, not surprisingly, muddied the legal issues at stake. For 
instance, some critics are now claiming that this complaint is an 
attack on legally protected ``Right-to-Work'' laws, given that South 
Carolina is a Right-to-Work State. This is a red herring.
    There is no question that States are expressly permitted by section 
14(b) of the NLRA to enact so-called Right-to-Work laws, which prohibit 
unions from requiring the payment of dues or fees from individuals in 
the bargaining whom the union is obliged to represent but who do not 
choose to actually join the union. However, the legal theory on which 
the complaint is based has nothing to do with the fact that South 
Carolina happens to be a Right-to-Work State.
    Boeing could have moved this work to Oregon, Illinois, New York or 
any other non-Right-to-Work State and the analysis, as well as the 
acting general counsel's duty to enforce the Act, would be the same. 
The issue is not where the work was allegedly relocated to--indeed that 
is entirely irrelevant to the legal theory of the complaint. The issue 
here is why the work was relocated, and whether that reason involves 
considerations that are unlawful under the Act.
    Nor does the issuance of the complaint constitute unprecedented 
government intervention in legitimate business decisions. It is 
commonplace among labor and employment lawyers to say that employers in 
this country are generally free to make business decisions affecting 
individuals' employment status for good reasons, bad reasons or no 
reasons at all. But an employer may not make such decisions based on 
considerations that Congress has declared to be impermissible as a 
matter of law. This is true whether the decision discriminates on the 
basis of race, of gender, or religion or because the individuals have 
exercised rights guaranteed by section 7. And where unlawful 
discrimination has occurred, it is standard to require the guilty party 
to restore the status quo ante. As the NLRB complaint specifically 
states,

          It does not seek to prohibit [Boeing] from making non-
        discriminatory decisions with respect to where work will be 
        performed, including non-discriminatory decisions with respect 
        to work at its North Charleston, South Carolina, facility.''

    As I noted at the outset of my testimony, the ability of employees 
to exercise section 7 rights without fear of retaliation played an 
important role in the growth of collective bargaining and the expansion 
of the middle class throughout the 40s, 50s and 60s. It is time now for 
Congress to focus on revitalizing those rights as a key element of any 
strategy to restore the middle class.

    The Chairman. Thank you very much, Ms. Fox. Thank you to 
the rest. Thank you all for your testimonies.
    We will now begin a round of 5-minute questions. I hope to 
set the standard by keeping mine to 5 minutes.
    Secretary Reich, again I want to talk about this basic 
bargain that we had following World War II with workers--
employers and employees, that bargain being that if you worked 
hard, if you had increases in productivity you would also share 
in that by better wages and benefits. During your time in the 
Clinton administration we created over 20 million new jobs, 
incomes began to rise--at the end of the administration we had 
a budget surplus. CBO said we could pay off the national debt 
in 10 years. What was it that was done in the 1990s when you 
were there, what was it that moved the ball in that direction? 
What were some of the policies that helped move us in that 
direction?
    Mr. Reich. Mr. Chairman, if you look back on the 1990s, in 
fact if you look back on the three decades after World War II, 
that era of great shared prosperity, you find three particular 
sets of policies. No. 1, strong unions. And we in the Clinton 
administration did everything we could to enforce, vigorously, 
the right to collective bargaining. In that three decades after 
the Second World War, as I have alluded to, we had a far 
greater portion of the American workforce in unions, giving 
them greater bargaining leverage to get higher wages and better 
benefits. That is No. 1.
    No. 2, is investments in education, job training, health, 
healthcare, that is human capital. In the Clinton 
administration we did our best. We didn't finish that agenda. 
In the first three decades, that era of prosperity after the 
Second World War, massive investments in education and 
healthcare, in infrastructure, that is the major investment. I 
mean, President Dwight David Eisenhower, Republican President, 
former general, nobody would accuse him of being a socialist, 
but some of the major investments in America, in terms of 
infrastructure and the expansion of higher education were 
commenced in that Administration. We tried, in the Clinton 
administration, to do that and again our efforts didn't get as 
far as some of us would have wanted and certainly the President 
wanted.
    The third ingredient is a progressive tax structure. That 
enables average working people to have enough money in their 
pockets so that they can turn around and spend.
    In fact, all three of these, strong unions, public 
investment and a progressive tax structure enable average 
working people to turn around and spend their money and 
therefore create jobs and enable the economy to expand. It is a 
virtuous cycle. That is the basic bargain that you alluded to a 
moment ago.
    In terms of progressive taxes though, we have seen a 
movement away from progressivity. I mean again, under 
Eisenhower, the marginal income tax rate on the highest earners 
was 91 percent. I mean we are having this debate now about 
whether it should go back to Bill Clinton's marginal tax rate 
or we ought to extend the tax cuts that were undertaken under 
President George Bush. This is a completely displaced debate, 
in light of what we had in the three decades after the Second 
World War.
    Those are the ingredients. And unfortunately we have moved, 
particularly in the last 10 years, although President Obama has 
made every effort to move us back on track, the movement of the 
Nation has been away from those three principal pinnacles or 
undergirdings of middle class prosperity.
    The Chairman. Thanks, Secretary Reich.
    Ms. Boushey, one of the points that I heard you make in 
your testimony, your written testimony anyway, is about the 
impact that the squeezing of the middle class has had on our 
families. When parents are desperately looking for work, or 
they are working two jobs to make ends meet, when they can't 
afford quality childcare, they have no savings, no retirement 
plans, no paid sick days, that the stresses on families can be 
overwhelming. Yet all too often these stresses are thought of 
as private problems, not public policy concerns.
    Is this another area where our policy failures have 
contributed to the decline of the middle class? And speak about 
it in terms of is this just a private thing that we shouldn't 
worry about or is this something we ought to worry about in a 
public policy setting?
    Ms. Boushey. Certainly. Thank you.
    I think there is a couple of issues. First and foremost, it 
really is the decline of the middle class that has led to many 
of these squeezes on families. As Secretary Reich talked about 
in his testimony, as you saw male wages declining over the 
1970s and 1980s you saw a lot of families needing that second 
earner and having an increased labor force participation of 
wives and mothers, which means that today most children grow up 
in a family where there is no stay-at-home caregiver, and that 
means both that families need to provide care substitutes while 
parents are at work, not just for children, but also for ailing 
family members in the family. Who is caring for Grandma or 
taking her to the doctor, things like that.
    And at the same time you--it is now the case that every 
employer, as they are looking out at their workforce, sees a 
workforce for whom most of those workers now have care 
responsibilities. But the reality is that we haven't changed 
our policies, at the workplace or in terms of our public 
policies, to address this need for workers to have flexibility 
and for families to have care substitutes when everyone needs 
to be out there in the labor force working.
    So these really are not private problems, they are public 
problems and they are ones that virtually every family faces. 
There is a number of pieces of legislation that I know that 
this committee has considered that would address that. In 
particular I would point to the Healthy Families Act which 
would provide every worker the ability to earn paid sick days. 
With so many workers not having anyone to care for a sick child 
or an ailing family member, that is of utmost importance for 
families and something they can't solve on their own.
    The Chairman. Thank you, Ms. Boushey. Thank you.
    Senator Enzi.
    Senator Enzi. Mr. Chairman, I appreciate you moving up the 
hearing because all the Republicans are invited to the White 
House this morning and----
    The Chairman. Oh, what time do they have to leave?
    Senator Enzi. They have to leave right now, but I think 
that Senator Isakson was the first one here so I will let him--
I will defer my chance for questions to him.
    The Chairman. And I----
    Senator Enzi [continuing]. That he can maybe make the bus 
yet.
    The Chairman [continuing]. And we moved it up to 9:15 to 
try to accommodate that, I am told.
    Senator Enzi. Yes.
    The Chairman. And I will be more than happy to accommodate 
Senators who--on the Republican side--have to leave to go to 
the White House.

                      Statement of Senator Isakson

    Senator Isakson. Thank you, Ranking Member Enzi for your 
courtesy. Thank you, Mr. Chairman. And I do have to leave, but 
I really appreciate the opportunity to do two things.
    First to associate myself, word by word, with the testimony 
or the statement of Senator Enzi. I think he hit the topics 
right on top of the head as far as I am concerned. I do think 
it needs to be expressed that the pattern of practice that has 
been exhibited over the last 2 years, in terms of changing the 
level playing field that we have had, is alarming to me as one 
who ran a company for 22 years, worked hard to provide jobs.
    The NLRB decision is just as egregious as what the National 
Mediation Board did to retroactively try and change a 75-year 
precedent in the unionization vote requirements for 
transportation unions. I mean to just unfettered make those 
changes at the drop of a hat, to me, makes no sense at all and 
shows a bias that is really going to cost the American worker 
jobs and opportunity and is one of the reasons we are having a 
protracted recovery.
    Since I have to go, I just want to ask one question. And 
Mr. Reich, I have great respect for your service to the country 
and I appreciate all that you have done and I have read a 
couple of your books, not all 10 of them, but a couple. They 
are good. They are smarter than I am, I can tell you that.
    But I have to ask. You obviously support what NLRB is 
trying to do in the Boeing case. Is that right? Just a short 
answer, because I have got a followup.
    Mr. Reich. Senator I am not going to try to prejudge that 
case. I think it is a distraction, quite frankly, to talk about 
what the general counsel has done before the NLRB has done a 
thing, before the administrative law judge has decided, before 
it has gone to appeal. I think that the preface of this 
hearing, as I understand it, is to talk about the fundamental 
problems of the middle class in this country and that is what 
we ought to be talking about.
    But again, I am not going to pre-judge.
    Senator Isakson. OK. Let me ask you one fundamental 
question, historically in your knowledge. Do you know of any 
time in history that the NLRB has made a decision to 
retroactively invalidate a capital investment of $1 billion or 
any comparable sum?
    Mr. Reich. Senator, I don't believe the NLRB has made a 
decision in this case and I am not enough of an NLRB historian 
to know what the NLRB has done in previous cases. But I can 
tell you, honestly as a history buff with regard to labor, I am 
shocked and deeply upset by the relentless attacks on organized 
labor and on unionization, on the rights of people in this 
country to unionize that have been accelerated over the past 2 
years.
    Senator Isakson. There is a balance, in my judgment, 
between reasonable regulation, reasonable compliance, 
reasonable government oversight, but when it goes too far then 
the unintended consequences do what we have tried to prevent in 
this country and that is jobs going somewhere else in the world 
because America becomes an untenable place to do business, 
because of an overly regulatory reach.
    I apologize that I am going to stand up and walk out. It is 
no offense to Miss Fox or any of you, but I have to get to the 
White House. But I just had to have that say and I appreciate 
it, Mr. Chairman.
    The Chairman. Actually, Senator Kirk, do I understand you 
are also going to the White House?
    Senator Kirk. I guess I got that invitation as well.
    The Chairman. Well, I will recognize----
    Senator Kirk. Thank you.
    The Chairman [continuing]. If people wouldn't mind I will 
recognize Senator Kirk then.

                       Statement of Senator Kirk

    Senator Kirk. Thank you, Mr. Chairman.
    I say, coming from Chicago, we are familiar with axioms of 
The Mob. And one of them is, if it takes you longer than a 
minute to figure out who the mark is at the table, it is you. 
And so we have three left wing witnesses and Judge Luttig, so I 
guess you are the mark here for this witness hearing today.
    I am worried that this hearing sort of represents this 
idea, very prominent in Washington and almost nowhere else, 
that we are going to sue our way into prosperity. And through 
making America not just the No. 1 litigious society on Earth, 
but the No. 1 times 10 litigious society on Earth, that we can 
take the largest exporter in the United States and torture them 
with higher and higher legal costs and make sure that the 
Chinese airliner, which we expect will come on in 5 years will 
actually be lower cost and better, crippling, what is the 
premiere U.S. export in what is otherwise a pretty terrible 
export picture for the United States.
    I am also worried because I am in a heavily unionized 
State--one of the most corrupt States in America, epitomized by 
the Blagojevich trial going on right now in Federal court in 
Chicago. I would worry that if we lock in this sue any company 
if they even think about leaving a heavily unionized State, 
then any new investment will not want to come to Illinois 
because you lock them into this Bermuda Triangle of we are 
going to whack you with the NLRB if you ever think of leaving.
    If I go to South Carolina I will have the ability to 
participate in a continental economy and use all of the 
efficiency advantages the founding fathers gave. But if I make 
the mistake of going into one of these heavily controlled, 
corrupt States, then I am going to be, because of your action, 
locked into this State forever with no flexibility.
    But Judge, could you comment on that?
    Mr. Luttig. Senator, that is exactly right.
    Senator Kirk. One part of being the mark is your microphone 
doesn't work either.
    Mr. Luttig. Hello?
    Mr. Reich. There you go.
    Mr. Luttig. Senator, as part of my testimony it is the case 
that the action brought by the NLRB will have negative and 
detrimental effects not only on Right-to-Work States, but on 
non-Right-to-Work States as well. It is for that reason that I 
don't see this as a partisan issue, I don't see it as a union 
versus nonunion issue, I don't even see it as a business issue. 
This is a complaint which should not have been brought and I 
believe that every member of this committee will conclude that 
it should not have been brought, because it will harm all 
States in the country and the country's economic recovery. You 
are correct.
    Senator Kirk. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Kirk.
    The order of witnesses that I have in order of arrival, 
Senator Blumenthal, Senator Roberts, Senator Merkley, Senator 
Isakson, who has already gone, Senator Whitehouse, Senator 
Alexander, Senator Franken and Senator Kirk who we just 
recognized. So, that is the order.
    Now I will yield to Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman. I would yield 
to Senator Alexander, if he has to go to the White House.
    Senator Alexander. Thank you for the courtesy. I am going 
to stay, given the importance of the hearing. I greatly 
appreciate your offer.
    Senator Blumenthal. Thank you.

                    Statement of Senator Blumenthal

    Let me first of all, thank all of the witnesses for being 
here today and say I am troubled by the attack on the NLRB 
process. And I emphasize the word process because as Secretary 
Reich said so well, we are at a very incipient, a very 
beginning stage in that process. The complaint has been 
brought. There have been references to findings and decisions 
and from your own very distinguished career Mr. Luttig, there 
has been no finding or judgment. There has been a complaint.
    You may feel--and you are an advocate and you are entitled 
to express that point of view vigorously and effectively, as 
you have done--that the complaint should never have been 
brought. That is an argument that, no doubt, you will present 
in the course of the process. And even if there is a finding 
that there was, in effect, a violation of law, the remedy may 
not be to return that second line to Everett. It may well stay 
in South Carolina.
    I guess my question to you is, are you troubled by the kind 
of vehement and even vicious political attack on what should be 
a judicial process?
    Mr. Luttig. Senator, I actually don't see a vicious attack 
on the NLRB. As you know and your colleagues know, whether an 
issue, a legal issue presents a public policy issue, large or 
small frankly, depends upon the facts of the particular case, 
the challenges that are made by the National Labor Relations 
Board and the remedy sought. Under the governing law of this 
case on the facts here and the claims that had been made by the 
acting general counsel and on the relief sought, he has brought 
forward, to America, a public policy issue of some import.
    Cases bubble up through the Federal courts and the legal 
system all the time. Infrequently do they get to the level of a 
consequential legal decision and that is because the courts are 
reluctant to address the larger issues unless they are required 
to. In this case he has brought forward that issue. So we 
intend to proceed through the process. And you are absolutely 
right, and as a former Federal judge I have a great respect for 
the process. But it is not----
    Senator Blumenthal. And the process could well, may well 
eventually involve a Federal court. Will it not?
    Mr. Luttig. It certainly could. We hope not.
    Senator Blumenthal. And so aren't we doing, as Secretary 
Reich said so well, prejudging the outcome here and indeed 
threatening. In case you have missed it, some of the public 
statements have involved the future of the acting general 
counsel, as you have just heard from a member of this body, 
implications about impacts on jobs in the future that go to 
people's reputations and livelihoods. It seems to me that there 
is an element of prejudging here.
    Mr. Luttig. It is not prejudging at all, Senator, and that 
is what--where I was trying to go to. The complaint, as filed, 
has presented the larger public policy issues as to the scope 
of the act. I believe it is wholly appropriate for there to be 
a nationwide discussion of it. I especially believe that it is 
appropriate for this committee to take cognizance over the 
matter now. Because actually in this case all of the facts and 
all of the law that would be relevant for this committee's 
oversight authority are in the record and in the complaint.
    Senator Blumenthal. I respectfully disagree, and my time 
has expired, but, in fact as your testimony makes clear, some 
of the disputes are factual disputes which have to be resolved 
by a fact-finding administrative law judge, not the least of 
them being statements by company officials, you say they were 
taken out of context, that the full quote wasn't provided, that 
there were references to strikes and work stoppages without the 
additional parts of the quote that supposedly would have 
modified it. But that is classically the kind of factual 
dispute that goes before a judge. Is it not?
    Mr. Luttig. That issue goes before the judge, Senator, 
actually in the Federal court system, in my judgment this 
complaint would be dismissed on the complaint because on the 
facts alleged there can be no violation of law.
    Senator Blumenthal. Again, my time is expired and I 
apologize, Mr. Chairman. If there is a second round of 
questioning I would avail myself of that opportunity. Thank 
you.
    The Chairman. Yes, there will probably be another round.
    Senator Roberts is not back.
    Senator Merkley.

                      Statement of Senator Merkley

    Senator Merkley. Thank you very much, Mr. Chairman. Thank 
you all for your testimony.
    Mr. Reich, the chart that you provided, and I think you 
have used it in at least one of your books, maybe in 
``Aftershock,'' that shows the separation between the 
productivity of American workers and their rising wages, is 
very dramatic. And about the time I graduated from high school, 
in 1974, those two lines diverged dramatically. And actually 
they have continued diverging on a very clear path, almost 
regardless of which administration we had.
    And yet to me, that chart symbolizes the hollowing out of 
the financial foundations of American families. The fact that 
working families, over a 30-year period, have not been able to 
share in the prosperity of America--the GDP didn't go up, it 
isn't that we didn't have prosperity as a nation, but families 
didn't share fully in it, in fact, they are flattened out.
    In my working class neighborhood of three-bedroom ranch 
houses, you see it in terms of people's ability to have 
continued home ownership, which often depends on the ability to 
buy their parent's house. You see the next generation moving 
back into their parent's house, because they can't buy the same 
home that their parents were able to buy in the post World War 
II period.
    To me, this is really a question about a vision of what 
type of America we want. Do we want the type of America that we 
built over the 30 years that you labeled the Great Prosperity, 
in which families participate, build their financial 
foundations, and educational standards improve? Or do we want 
an America in which the manufacturing jobs disappear, we have 
enormous disparities in income, and people are simply 
continuously struggling to get a foothold? It is obvious that I 
prefer the first vision.
    In some ways I have summed this up by saying, we need to 
spend less on foreign wars and foreign bases and more on 
infrastructure and education. In other words, we need to build 
the human capital and the physical capital of our Nation, and 
we are falling way behind.
    I would just invite you to share any comments you would 
like.
    Mr. Reich. Senator, people often ask me, what country 
should the United States emulate in terms of building and 
rebuilding the middle class and the working class of this 
country. And I said, there is no other country, just go back to 
the three decades after the Second World War in the United 
States. We knew how to do it, because we did make the very 
investments that you are talking about.
    Over the last 30 years we have been disinvesting. I mean 
look at what is happening now in States all over the country in 
terms of teachers being fired, more and more kids being crammed 
into classes. In public universities, such as where I now 
teach--at the University of California--which I believe is the 
best public university in the world, that is my prejudice, fees 
skyrocketing. Middle class and lower middle class, working 
class families can't even afford to send their kids. All over 
America our infrastructure is crumbling. That is not what 
happened in the three decades after the Second World War, but 
we have let deferred maintenance get completely out of control 
at a time when we could borrow the money cheaper--right now, on 
world markets--than we could ever borrow before. And at the 
same time we are seeing and we have seen a dramatic shrinkage 
of unionization, giving workers the bargaining power to get 
better wages.
    And who is going to pay for all of this? As I said before, 
the irony here is that as more and more and a larger and larger 
share of the national income and wealth goes to the very top, 
their actual contribution, in terms of their tax rates, not 
just income tax rates but also capital gains, estate tax, all 
across the board, keeps on declining.
    Senator Merkley. I was very struck recently by hearing the 
statistic that China is investing 10 percent of their GDP in 
infrastructure, Europe, 5 percent and America 2 percent. This, 
to me, captures the fact that we are not maintaining our 
infrastructure or expanding it and that is problematic. Right 
now is a moment when if we invested more in infrastructure it 
would do a lot to put our construction companies back to work 
and help put this economy back on track.
    Mr. Reich. Senator, this is the tragedy. We are buying into 
a mythology that we are a poor country, that we can't afford to 
do all this. We are richer than we have ever been. We are the 
richest Nation in the history of the world. We can put our 
people back to work, we can rebuild our infrastructure, we 
could rebuild our educational system, there is nothing we can't 
do. But we have to make sure that the wealthy pay their fair 
share; we have to make sure that we make the right kind of 
investments; we have to make sure that there is sufficient 
bargaining power in our workforce. This is not rocket science, 
but the problem is things are getting and have gotten out of 
control.
    Senator Merkley. Thank you.
    The Chairman. Thank you, Senator Merkley.
    Senator Alexander.

                     Statement of Senator Alexander

    Senator Alexander. Thank you, Mr. Chairman. I thank the 
witnesses for coming.
    This is a hearing about the endangered middle class. I 
would like to speak about the middle class I know the most 
about, which is in Tennessee and begin with a short story. And 
then Judge Luttig, I have a series of questions for you.
    Thirty years ago I went to my first White House dinner. 
President Carter was the President and he said, Governors, go 
to Japan, persuade them to make here in the United States what 
they sell here. So off I went to Tokyo with a map of the United 
States and I showed that Tennessee is in the center of the 
population of the United States and so that was important to 
manufacturers, that reduces transportation costs. And then it 
showed that every State north of us did not have a Right-to-
Work law and our State did. Both those factors made an 
important decision in Nissan's location in Tennessee 30 years 
ago. After that came General Motors. After that has come 
Volkswagen. After that has come a number of other auto 
suppliers, auto assembly plants and tens of thousands of 
suppliers.
    The middle class in Tennessee, when I started being 
governor was the third poorest in the country. We soon, because 
of the growth of auto jobs had the fastest growing incomes of 
any State and today one-third of our manufacturing jobs are 
auto jobs. And Nissan told me the other day that it will be 
soon selling in the United States--85 percent of what it sells 
in the United States it will make in the United States, which 
is precisely what President Carter wanted 30 years ago.
    It seems to me, our job--the way to improve the status of 
the middle class is to create an environment in which companies 
can create jobs so middle class families can hold those jobs, 
just as has happened in our State.
    Now Judge Luttig, the questions I am going to ask you I 
would appreciate a short answer because I have limited time. 
Boeing is the--how many employees does Boeing have?
    Mr. Luttig. Approximately 170,000 worldwide, Senator.
    Senator Alexander. How many are in the United States?
    Mr. Luttig. I would say 90 percent of those.
    Senator Alexander. So 150,000 or so in the United States? 
And it is the country's largest exporter?
    Mr. Luttig. It is, Senator.
    Senator Alexander. And this is the first new jet assembly 
plant in 40 years. Is that correct?
    Mr. Luttig. Correct.
    Senator Alexander. And where does Boeing sell its 
airplanes?
    Mr. Luttig. Around the world, Senator.
    Senator Alexander. So countries all over the world?
    Mr. Luttig. Absolutely.
    Senator Alexander. And I heard you say, and I read an 
article in the Wall Street Journal, by your president, that 
made the point that U.S. tax and regulatory policies make it 
more attractive for many companies to build manufacturing 
capacity overseas. If you didn't build--if you weren't allowed 
to build a new plant in South Carolina or some other Right-to-
Work State, I assume you have the option of building those 
airplanes overseas, if you are selling them overseas. Is that 
correct?
    Mr. Luttig. We do, but the acting general counsel, in a 
speech recently said that he would have brought the complaint 
even if we had located outside the United States, Senator.
    Senator Alexander. I assume that if a company outside the 
United States comes to you and says what President Carter said 
to me 30 years ago, persuade Boeing to make here what it sells 
here, you would be under lots of pressure over the next 10, 15, 
20 years to make airplanes in countries where you sell 
airplanes. Is that correct?
    Mr. Luttig. We will, and we are already, Senator.
    Senator Alexander. You will and you are already. The United 
States is really in a competition for manufacturing jobs such 
as Boeing's manufacturing jobs?
    Mr. Luttig. A fierce competition.
    Senator Alexander. Yes. And how long will it take for this 
case to make its way through the legal process?
    Mr. Luttig. It can be expected to take up to 3 years, if 
not longer, if we go to the U.S. Supreme Court.
    Senator Alexander. It might be 3 years. If this were to be 
the law, according to the acting general counsel, then any 
company in the United States, which has a plant in a union 
State might have to think twice before locating a new plant in 
a Right-to-Work State. Is that correct?
    Mr. Luttig. It would have to, Senator.
    Senator Alexander. It would have to think that. And so it 
could then look at its other choice which would be to go 
overseas?
    Mr. Luttig. That's correct.
    Senator Alexander. Do you agree with Senator Kirk's 
suggestion that if you live in a State like Illinois, that a 
company might have to think twice about locating in a State 
that does not have a Right-to-Work law, because if it did, 
after that any future expansion would be limited?
    Mr. Luttig. I do. And I believe that is one of the most 
pernicious effects of this particular complaint, Senator.
    Senator Alexander. So we have a situation where this acting 
general counsel, not confirmed by the Senate, can hold up the 
Nation's major exporter for 3 years, up to 3 years, while this 
case is decided, thereby causing middle class families in 
Tennessee, as we look forward to the next wave of auto 
suppliers which will come to our State because of a good 
workforce, this includes General Motors which has a UAW 
partnership, but this will slow down the growth of Tennessee's 
middle class by keeping jobs from coming in here and making it 
more likely they would go overseas?
    Mr. Luttig. It will, Senator. And I would add that the 
acting general counsel has not ruled out a 10J Motion, which 
for all of us in the room just means an injunction which would 
mean literally the closure of the Charleston, SC plant.
    Senator Alexander. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Let's see, Senator Whitehouse? And then Senator Franken. Oh 
no, I'm sorry, then Senator Roberts and then Senator Franken.

                    Statement of Senator Whitehouse

    Senator Whitehouse. Thank you, Chairman.
    It seems to me, Secretary Reich, you mentioned the failure 
of the United States to maintain the traditional, progressive 
tax structure. The information that I have is that the top 1 
percent of taxpayers pay about a little over 28 percent of the 
Federal taxes that are paid, that the top 5 percent of 
taxpayers pay about nearly 45 percent of the taxes that are 
paid and the top 10 percent pay a little over 55 percent of the 
taxes that are paid.
    Now, standing alone that sounds pretty progressive. But if 
you measure it against wealth, the top 1 percent of the owners 
of wealth in this country hold nearly 34 percent of the wealth, 
compared to the top 1 percent of taxpayers paying only 28 
percent. So nearly 34 versus 28. The top 5 percent of owners of 
wealth in this country control 60.4 percent of our country's 
wealth. And the top 5 percent taxpayers, again, 45 percent so 
60 to 45. And the top 10 percent of our country's wealth owners 
control over 71 percent of the country's wealth, meaning that 
only 29 percent of the country's wealth is controlled by the 
lower 90 percent, which means that the top 10 percent control 
more than the lower 90 percent of the Nation's wealth. And yet, 
they pay about just a little over half of the taxes.
    So, in terms of progressivity--Federal taxes, income and 
payroll--to what extent in determining progressivity should we 
be looking at wealth and income levels in evaluating whether or 
not the taxes that are paid by the highest taxpayers are 
progressive?
    Mr. Reich. Senator, of course we should be looking at 
wealth as well as income. In fact, when looking at----
    Senator Whitehouse. What do those numbers cause you to 
conclude about the progressivity of our tax structure, that I 
just gave you?
    Mr. Reich. The tax structure should also include, if I may 
amend what you just said, capital gains, because people who are 
very wealthy in this country are paying, many of them 15, 16, 
17 percent a year of their income in taxes, but that is because 
it is dividend income or capital gains income. And we have a 
kind of a hidden scandal in this country, hidden in the sense 
that most people don't know about it, that we have carried 
interest.
    Senator Whitehouse. That is how hedge funds are paid.
    Mr. Reich. For example, hedge fund managers are treating 
and are allowed, because of a loophole in the taxes, to treat 
their income, that is essentially capital gains, as--I'm sorry, 
their capital gains income that is essentially ordinary income, 
it just looks and smells and in every other way as ordinary 
income, as capital gains and have a 15 percent, therefore 
income tax, in fact.
    Senator Whitehouse. And how about CEO stock options?
    Mr. Reich. And stock options feed into that. Because if I'm 
a CEO----
    Senator Whitehouse. They are also treated as capital gains.
    Mr. Reich [continuing]. Who gets to choose when to start my 
stock options and then I cash in my stock options, that is all 
taxed at 15 percent.
    The point you are making, and I agree with it entirely, is 
that if you look at all of the taxes, who pays, where the 
wealth is, our system is not only regressive but it is getting 
more and more regressive.
    Senator Whitehouse. The information that we have from the 
Internal Revenue Service is that the top 400 tax income earners 
in the country from the last time the IRS did this calculation, 
they earned, on average, a little over a third of a billion 
dollars each and as a group they paid, in fact, Federal taxes 
of about 16.7 percent.
    I asked the Bureau of Labor Statistics what that equates to 
in our Providence labor market in Rhode Island and it is about 
$29,000 and it is what a hospital orderly makes if they are 
single and not declaring deductions. So it seems that you have 
a hospital orderly making $29,000 paying the same tax rate as 
the people making a third of a billion.
    And then you have the middle class in between and they are 
paying considerably more than the ultra rich and obviously more 
than the lower income people. And is that part of the middle 
class squeeze you are talking about?
    Mr. Reich. It is an enormous part of the middle class 
squeeze. It is the third leg of the stool that I was talking 
about before, in terms of No. 1, unions, we need stronger 
unions. No. 2, public investment in education, infrastructure. 
No. 3, to pay for that public investment and make sure that we 
have good schools and good highways and good systems of public 
transportation and water and sewage and so forth. We have to 
ask the rich to pay their fair share, otherwise the middle 
class doesn't have a chance.
    The Chairman. Thank you, Senator Whitehouse.
    Senator Roberts.

                      Statement of Senator Roberts

    Senator Roberts. I appreciate and I associate my remarks 
with the Senator from Tennessee.
    My concern is with Boeing and the decision by the NLRB and 
Mr. Solomon who brought the suit. I know there has been some 
concern about publicizing this and making it an issue as 
opposed to a process, but I know there has been an article in 
the New York Times, it has been referred to by Jim McNerney, 
who is the CEO of Boeing,
    I simply want to thank you Judge, and thank your CEO for 
all the efforts that you have done in the 10-year fight, and I 
mean fight, to make sure that Boeing has the contract for our 
tanker fleet so that we can be assured of global reach in 
regards to our national security. You and I both know all of 
the travails that we went through to get that. I wanted to pay 
tribute for that.
    I think, as I went down all the questions that I had, that 
Senator Alexander in very fine fashion asked those questions or 
made that point, the one that I want to make sure that 
everybody understands is that no existing work is being 
transferred to South Carolina. And not one single union member 
in Washington has been adversely affected by this decision. Is 
that correct?
    Mr. Luttig. That is not only correct, Senator, but we have 
actually added jobs in the Puget Sound area since the decision 
was made to locate the new facility----
    Senator Roberts. There you go again answering my next 
question. In fact, you have stated that you have added more 
than 2,000 union jobs and you are still hiring. Is that 
correct?
    Mr. Luttig. We are and we intend to continue.
    Senator Roberts. Then you go on to say that the--or the CEO 
goes on in his article to point out the 787 production line in 
Everett has a planned capacity of seven airplanes per month, 
whereas the line in Charleston will be three additional 
airplanes to reach your per month capacity and that the basic 
reason that you made this decision was a surging global demand, 
in fact the demand for the new 787 Dreamliner, not acting out 
of spite or animus. Is that not correct?
    Mr. Luttig. No, that is absolutely correct, Senator.
    Senator Roberts. That is a seven to three advantage in 
regards to Washington and you are hiring 2,000 more and you are 
still hiring and you are going to continue to hire. I don't 
know how that could be described as being an action of spite or 
animus.
    And then in addition, to followup on Senator Alexander's 
point, you have 155,000 U.S. employees? Is that correct?
    Mr. Luttig. Approximately. Yes, sir.
    Senator Roberts. Right. And that about 40 percent are union 
and that ratio has been unchanged since 2003?
    Mr. Luttig. That is correct, Senator.
    Senator Roberts. And you are involved in 34 States?
    Mr. Luttig. Correct.
    Senator Roberts. Half are unionized, half are Right-to-
Work?
    Mr. Luttig. Approximately, sir.
    Senator Roberts. All right. Then the obvious question or 
conclusion reached by Senator Alexander, which I agree with, 
the unintended consequence, forward thinking CEO's would also 
be reluctant to place new plants in unionized States lest they 
be forever restricted from placing future plants elsewhere 
across the country. Now that is speculation or whatever, it is 
hard to answer, but given your background, wouldn't you think 
that would be the case?
    Mr. Luttig. That is true and that is why this issue should 
be of concern, both to Right-to-Work States as well as non-
Right-to-Work States, Senator.
    Senator Roberts. OK. Thank you so much. And my time is 
expired, Mr. Chairman.
    The Chairman. Well they have all the money. They have all 
the money down there, of course.
    [Laughter.]
    All right. Thank you, Senator Roberts.
    Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman. To the Senator of 
Kansas, I think that sort of thing should be brought up in 
business meetings.
    I am a member of four unions. And I take some umbrage--
Senator Durbin is not here, but he loves when I use that 
phrase, taking umbrage, about some of the things that were said 
after I got here. I was in the Judiciary Committee, so I didn't 
get to hear the testimony.
    I heard words like the mark, and mob and torture and 
corrupt and heavily controlled and whack and that Illinois was 
heavily controlled by union and that is why it was corrupt and 
that is why those connections were made.
    Minnesota has 15.6 unionization, Illinois has 15.5 percent 
unionization. There is nothing corrupt about Minnesota. And I 
really resent that implication, I really do. The union members 
in my State that I work with are among the finest people I 
know. And the unions that I worked in, including AFTRA, the 
American Federation of TV and Radio Artists, the Writers Guild 
of America, they provided healthcare for me and my family when 
I was working. And they added to the trade balance of this 
country more than almost any other industry in this country. I 
don't like that. And I don't like these attacks on unions. I 
really don't.
    Now, when you see the membership in unions going down and 
you see the middle class getting less purchasing power, Ms. 
Boushey, that hurts our economy, because the middle class then 
is really the prime purchaser, consumers in this country. This 
country runs on consumers, there is a direct tie there. Right?
    Ms. Boushey. Certainly. A hundred percent. Consumption is 
about 70 percent of our gross domestic product, that is the 
goods and services that we all buy. If people don't earn wages 
that increase over time, then the purchasing power of the 
American public does not increase. And as we talked about 
earlier, American families have been able to increase their 
purchasing power by working longer, harder, more, and over the 
2000s, as their incomes fell, even though they were working 
longer, harder and having more people----
    Senator Franken. Debt.
    Ms. Boushey [continuing]. They took on debt. It is not a 
recipe for a stable economy.
    Senator Franken. Let's talk about taxes for a just a second 
while I have the professor and Labor Secretary here. Adam Smith 
wrote of a need for progressive taxes. Right?
    Mr. Reich. Senator, Adam Smith said the taxes on the rich 
should be not just the same percentage as taxes on the middle 
and the poor, but a higher percentage.
    Senator Franken. Yes.
    Mr. Reich. Because he talked about equal sacrifice. That 
was the point. Adam Smith, equal sacrifice.
    Senator Franken. The concept of disposable income is what 
he was really talking about, too. Adam Smith--people don't 
realize that Adam Smith called for progressive taxes.
    Now, let me ask you something else. We keep hearing this 
talk about balancing the budget, that not one tax ever should 
be raised. And I also hear that Ronald Reagan was a deity. I 
mean, we respect Ronald Reagan. Ronald Reagan raised taxes, 
didn't he? How many times, Mr. Secretary? Do you know?
    Mr. Reich. Is this a quiz?
    [Laughter.]
    Senator Franken. You are on the record, let's just put it 
that way.
    Mr. Reich. I better be careful. I think it was twice, but I 
better check.
    Senator Franken. Yes. And then also on social security 
taxes as well, but income taxes twice. And that is because we 
were being plunged into debt. That is what was causing the 
deficit and that is why Ronald Reagan raised taxes twice and 
today he would be sent out of town on a rail.
    Mr. Reich. Senator, if I may?
    Senator Franken. Yes. I am sorry.
    Mr. Reich. These issues are all connected.
    Senator Franken. Right.
    Mr. Reich. Taxes, unions, public investment in education, 
infrastructure, they are three inter-related pieces of the 
problem that the middle class has faced. And over and over and 
over again I hear, unfortunately, the assertion that we have 
to, in order to get jobs back, sacrifice wages. If that is the 
choice we have to make, and the middle class and working class 
of this country has to make, in order to get more jobs you have 
to have lower wages, then we are all really in trouble, greater 
trouble than we have been over the last 30 years.
    The Chairman. Thank you, Senator Franken.
    Senator Franken. Mr. Chairman.
    The Chairman. My apologies to Senator Enzi, he had yielded 
his time earlier and I should have returned to him, but now I 
will recognize Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman and I do know that 
Mr. Reich has to leave.
    I do have some questions but I would submit them in writing 
if you would be so kind as to answer them, I would appreciate 
that. I do have questions, though.
    Mr. Reich. Certainly.
    The Chairman. I just know Secretary Reich, I know you said 
that you had to leave and would you answer this is the last 
one.
    Mr. Reich. I would be perfectly happy to answer Senator 
Enzi's question.
    The Chairman. I just wanted you to be here for the first 
round, but Senator Enzi said he didn't want to have the 
questions.
    Mr. Reich. Yes, please.
    Senator Enzi. I will submit some because they are--I am an 
accountant, they are of a technical nature, but I know that you 
have technical answers. I would be happy to do it that way.
    And we have ignored Ms. Fox. I have a few questions that I 
would like to ask her.
    Ms. Fox, when you served as a member of the National Labor 
Relations Board from 1996 to 1999, did the board issue press 
releases on routine complaints?
    Ms. Fox. I am afraid I am----
    Senator Enzi. Probably not. Did it release fact check 
documents on cases that portrayed contested allegations as 
fact?
    Ms. Fox. No.
    Senator Enzi. Do you recall either of the general counsels 
serving with you, giving interviews to the New York Times or 
other national newspapers about a complaint they had just filed 
the day before?
    Ms. Fox. I know that there were many times that actions of 
the board were the subject of news coverage and actions of the 
general counsel. I think, particularly in connection with the 
baseball strike--I know there was a lot of attention around 
actions, prosecutorial action.
    Senator Enzi. Some in the last couple of days have called 
the Boeing complaint a routine administrative procedure. But 
the New York Times called it ``highly unusual'' and the 
``strongest signal yet of the new pro-labor orientation of the 
National Labor Relations Board under President Obama.'' That 
paper also wrote that under President Obama's appointees the 
agency, ``including Mr. Solomon and his staff, has sought to 
reinterpret and more vigorously enforce the rules governing 
employers and employees, from what workers can say about their 
bosses on Twitter to the use of Internet and phone voting in 
union elections.''
    Who is right?
    Ms. Fox. I think that it is certainly true that the acting 
general counsel and the board are interested in vigorously 
enforcing the act. Yes, I think that is true and that their 
actions do reflect that. I don't think that they go beyond the 
bounds of what their statutory responsibilities are. I think 
that it is a good thing for agencies that have regulatory and 
enforcement responsibilities to exercise those.
    Senator Enzi. Senator Blumenthal portrayed this as a court 
process, a judicial process. I don't think it is normal in a 
judicial process for the prosecutor to go to the newspaper and 
issue a press release. And not only issue a press release to 
the New York Times but provided a fact sheet and a copy of the 
complaint on its Web site. They made it a public issue. If it 
is a routine complaint this all seems completely out of order.
    And then of course, there is the acting general counsel. 
The acting general counsel filed the complaint on April 20th 
and on April 22d, he did the interview that appeared in the New 
York Times. He stated that Boeing had a consistent message, 
that they were doing this to punish their employees for having 
struck and having the power to strike in the future.
    Mr. Luttig, is that accurate?
    Mr. Luttig. That is what the acting general counsel said to 
the New York Times, Senator. Yes.
    Senator Enzi. But is that accurate of Boeing, that they are 
trying to punish employees for having struck and having the 
power to strike in the future?
    Mr. Luttig. Of course it is not and that is not what the 
complaint says either, Senator.
    Senator Enzi. OK. Have any of the employees been punished 
because of the expansion of the Dreamliner production line?
    Mr. Luttig. No. As our CEO said yesterday on the pages of 
the Wall Street Journal, the union and our union employees are 
part of the fabric of the Boeing company. They have been since 
day one and they will be for a long time to come.
    Senator Enzi. What do you think the purpose of that 
interview was? Why do you think it was given to the New York 
Times as opposed to a Washington State or South Carolina 
newspaper where the interested parties were involved?
    Mr. Luttig. I don't know and I wouldn't attempt to surmise. 
It is something that this committee should ask the acting 
general counsel, Senator.
    Senator Enzi. OK. I will just comment a little bit more on 
it because I don't think it is inappropriate to discuss and 
criticize the recent National Labor Relations Board complaint 
that was filed against Boeing, nor is it out of bounds for 
Boeing to vocalize their frustration with the process as it is 
being mischaracterized by a Federal agency in the press. And I 
think it is the height of hypocrisy to criticize Boeing for 
speaking out, yet offer no criticism of the acting general 
counsel who issued press releases, conducted interviews and 
released a fact check document to argue his case in the press.
    I think Boeing has been a great American success story in 
creating middle class jobs. They have expanded in a time of 
recession, both in Washington State and now in South Carolina. 
We do need to understand both how they did that and what 
obstacles the Federal Government is putting in the way. And we 
need to do that with a number of businesses. The President said 
that he wanted every regulation that was being done or had been 
done by any agency, to be reviewed and to strike down the rules 
that were barriers to job creating. To my knowledge I haven't 
heard of one rule being eliminated.
    It seems like the promises and the words and the press 
releases conflict with what we are really trying to do, 
particularly with the middle class.
    Mr. Luttig. Senator, when I was a public official on the 
Federal bench in prior incarnations in the executive branch, I 
always believed that the public and this body should be free to 
criticize anything and everything I did as loudly as they 
wished. When the President of the United States was criticized 
for criticizing the Supreme Court of the United States, had he 
asked me I would have stood up and defended his right to do so, 
because it has nothing whatsoever to do with an interference in 
the process. And, in fact, in this country we don't want our 
government entities who are wielding the awesome power of 
government to operate in the shadows.
    Senator Enzi. Thank you. My time has expired.
    Ms. Fox. Senator, if I just might have the opportunity to 
make one comment about this. I want to make clear that my 
purpose here is not to criticize Boeing, not to prejudge this 
issue. I don't know, I am not making a judgment. And I also 
want to echo what was said about Boeing. I think Boeing has 
been a very good employer. It has provided many, many--a part 
of building the middle class here.
    I just wanted to make clear that what I am talking about 
here and what I think I am defending is the processes of the 
board and the legal theory on which it--and to try to make the 
point that the--I find the legal theory on which the case is 
based not extraordinary. It is certainly extraordinary that it 
is applied to a company as large as this, that it has the 
potential impact, but I don't think that the law allows for a 
decision about whether you are going to enforce that takes into 
account the size of the company.
    If, under the theory, there has been a violation, I don't 
think the general counsel has a choice but to pursue that. And 
obviously there are factual disputes here and those, I have 
no--I am not intending to make any view of.
    The Chairman. OK. Thanks. We will begin a second round.
    Mr. Luttig, first of all, I want to respond to the comment 
made by Senator Kirk, I am sorry he is not here. I wanted to 
wait till my turn. He talked about you as being the mark, 
something about a gambling game or something at the table, I 
don't understand all that. I want to make it very clear that 
Mr. Luttig was not invited to testify by this chairman or 
anyone on our side, he was invited by the Republican side. I 
resent the fact that Mr. Kirk somehow implied that we had you 
here as a mark, that is not so. You were invited here because 
the minority side gets to approve a witness and they approved 
you as a witness.
    Second, the amount of misinformation--I spoke about this, I 
didn't mean to get into this, but it has been gotten into. I 
didn't mean to have this as a thing on Boeing. The amount of 
misinformation that has come out on this is just astounding. 
Astounding. Astounding.
    First let me respond to what my friend, Senator Enzi, said 
about the press releases and stuff. The National Labor 
Relations Board, within the last year established a new Public 
Affairs Office. I didn't know about it, but they established a 
Public Affairs Office, to put out information on their Web site 
and in releases on major decisions, whether they are pro-union 
or pro-business. In my inquiries on this, it was, as I 
understand it, they set it up for transparency purposes to put 
out information about what they were doing.
    That is what happened here. That person who put that out is 
a career person, not a political appointee, a career person. 
And the fact is that quite frankly in my years both here and 
before when I was lawyering, prosecutors put out information 
all the time about cases that they are bringing before courts. 
Prosecutors always do that. But Senator Blumenthal knows that 
too. They always put out information about the cases that 
they're bringing and that is what this Public Affairs office 
did at that time, as I am understanding.
    Mr. Luttig, the very first sentence of your testimony says 
that the complaint is at issue before the committee. Mr. 
Luttig, the complaint you speak of is not at issue before this 
committee. That complaint is at issue before the National Labor 
Relations Board where it properly belongs. This hearing is 
about the state of the middle class, not about a case that is 
pending before an administrative law judge. And again, I think 
that is some of the misinformation that has gotten out. This 
has become a political thing. And quite frankly, it ought to go 
and proceed as it should.
    The acting general counsel, who by the way is a 30-year 
career person, not a political appointee, had this complaint. 
In 75 years of the Wagner Act both businesses or unions or 
nonunions, anybody can bring complaints to the National Labor 
Relations Board, sometimes they are dismissed out of hand, if 
there is substance to it, they then investigate it, they take 
affidavits, they go out and investigate to see whether or not 
there is enough there to proceed to the administrative law 
judge.
    As I understand it, the general counsel did that, they 
investigated the complaints, they took affidavits, they did all 
kinds of things. They tried to settle the case, as they do in 
the last 75 years, to get both sides to try to settle this. 
That was unsuccessful. The general counsel then decided that, I 
guess, that there was enough evidence there to proceed to 
administrative law judge.
    That is where Boeing makes its case. Now it is not the fact 
that Boeing has been quiet about this, as you have pointed out, 
your CEO had an op. ed. piece in the Wall Street Journal 
yesterday making Boeing's case.
    What is not right, no that is not the right term, what is 
not--what borders almost on unethical activity is for people in 
the political branch of the Congress to begin to interfere in a 
judicial process and to color that judicial process and to try 
to make it a political matter.
    Now we can make statements on whether or not we think it is 
right or wrong, but it has gotten into the area of 
misinformation. There was a press conference the other day, 
there was a quote I saw from the governor of South Carolina who 
was accusing President Obama of instigating this and being 
behind it. President Obama had nothing to do with this, he 
probably didn't even know it was even going on. That is what I 
kind of resent is how it has become political.
    And quite frankly, again, this type of trying to put 
political pressure to bear against the NLRB, even threats to 
pending nominees. Threats that somehow if they proceed with 
this certain nominees will not come before this committee, I 
think that borders. That is borderline. That is borderline.
    So, again, I didn't want this to be a hearing on this 
Boeing issue. I did want it to be a hearing on middle class.
    Now Mr. Luttig, you were a former Federal judge. Right?
    Mr. Luttig. Yes.
    The Chairman. Former Federal judge.
    Now I want to get to the essence of middle class here and 
what we are talking about in terms of disparities. In real 
terms, wages for workers grew 3.78 percent in the last 20 
years, CEO pay increase 468 percent.
    As executive vice president and general counsel, your 
compensation by Boeing, in 2008 was $2,798,962. That was your 
pay in 2008, $2,798,962. In 2009, 1 year later, it was 
$3,743,647. That is a 34 percent jump in your pay as an 
executive in 1 year, during a recession year. Why shouldn't 
employees at Boeing get a 34 percent increase, Mr. Luttig? What 
is going on here? Why shouldn't employees also have a share of 
that? I just asked you the question, why should executives get 
these huge increases and employees being told that they can get 
a 3 percent increase or even less?
    I checked also on the pay. The pay, I guess, in Washington 
is around $26 an hour. That comes to about $52,000 a year. 
South Carolina I am told the average pay is about $18 an hour, 
that is $36,000 a year. Hardly anyone getting wealthy.
    Mr. Luttig, your pay went up by 34 percent. You make $3.7 
million a year. I don't begrudge that, I am just asking about 
fairness for workers at the Boeing plant. Why shouldn't they 
get increases like that, Mr. Luttig?
    Mr. Luttig. Mr. Chairman, my compensation is a matter of 
public record.
    The Chairman. It sure is.
    Mr. Luttig. I have to say at this very instant I have the 
sense that maybe it is not enough. But that aside, Senator I am 
the general counsel of the company, I don't have a dog in this 
particular hunt. I appreciate the spirit. What I would say is 
that the case that I am here to address is actually about the 
middle class and no one should have any doubt about that.
    It is about jobs for Americans and for the middle class, 
thousands upon thousands of jobs for the middle class. As every 
witness has testified, as every one of this committee has 
testified, jobs and job growth is what we need to come out of 
this recession. And it should be irrelevant to you, Senator, 
frankly, what I think about that issue. And I don't want to be 
presumptuous even to answer it, but of course I share the 
committee's concern about the middle class and about the wages 
of the middle class. And I can also tell you that the Boeing 
company does. And that is why we are trying to create jobs. And 
that is why, as one of your colleagues noted, our workers are 
some of the highest paid aerospace workers in the world. And we 
are proud of that. And if we could pay them more, we would, and 
when we can, we will.
    The Chairman. Thank you, Mr. Luttig.
    Senator Enzi. Thank you, Mr. Chairman.
    I was going to explain Senator Kirk's comment about being 
the mark by pointing out the imbalance, that you have three 
witnesses and I have one. But in light of your last question I 
think maybe he was right on.
    This is an interesting process that we do. I wish we would 
go to roundtables where we would bring in some people who have 
done some things for the middle class that had improved things 
to see what kind of ideas they have, so that we could actually 
maybe borrow from those and expand them nationwide. We bring in 
people from institutes and colleges and things like that. But 
what if we brought in some of the companies that have actually 
improved the middle class and found out how they did it, why 
they did it, and what they would suggest for other people? I 
think that would be a much better process than the one where we 
have three witnesses to one and then beat up on each other's 
witnesses.
    Getting back to the Boeing case, I do think that it is one 
of the prime examples of what is happening with the middle 
class. We are shutting down business, we are creating this era 
of uncertainty where businesses don't know what they can do, 
where they can do it, how they can do it. And when they are in 
that kind of mode they are not going to hire people.
    When the country is in the situation that it is currently 
in, and there are so many uncertainties, it is very hard for 
them to go ahead and do wage increases. Part of that is due to 
them still evaluating and waiting for the millions of pages of 
regulations to come out on the new healthcare law so they can 
know what they have to do and what the costs are going to be. 
When you include the cost of benefits along with the cost of 
wages, you wind up with a little different picture of what is 
happening out in the market. And those benefits, for the most 
part, are not taxed. Usually the employees prefer to get money 
that is not taxed as opposed to money that is taxed.
    But this National Labor Relations Board is fascinating to 
me, because the Acting General Counsel gets to make all kinds 
of comments and of course the company can counter the comments, 
but after all of that it is going to go to an administrative 
law judge that works for the board. And after he makes the 
decision, which I suspect will be in opposition to Boeing, then 
it goes to the National Labor Relations Board. I suspect that 
the company will lose there, too. Then it finally goes to 
Federal court. And we will get a ruling there and then maybe 
one party or the other will appeal it to the U.S. Supreme 
Court.
    It is a long process and in the meantime I don't know what 
happens to the jobs. I assume the company can go ahead and 
operate this new facility, since they have a billion dollars 
invested in it already and a thousand people working there. But 
you can see where there is a lot of insecurity of the employees 
as well.
    The press releases that have been done on this are a part 
of a larger effort by the Administration which is to shame 
employers by dragging their name through the press and 
influence and intimidate other employers. And I am not just 
making that up, I am not even using the word shame as my own 
word. This is from the Office of the Solicitor for the 
Department of Labor, their operating plan. It mentions that 
they will use shame as a strategy.
    I think there are more positive ways for us to be working 
on the issues than that and I would hope that in the future we 
can do some of those so that we can come to some really 
constructive ideas for how we are going to improve the 
situation of the middle class in America.
    I have almost used up my time and I will forgo the rest of 
it.
    The Chairman. Senator Enzi.
    Let's see now. Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman. I want to 
thank all of our witnesses, particularly Judge Luttig, for 
being here today. We would recommend an increase in your pay 
but I am not sure whether that would be helpful or hurtful to 
you. So let me just say thank you.
    I want to associate myself with the very powerful remarks 
of my colleague, Senator Roberts, about the excellence of the 
Boeing products and their extraordinary value to our Nation and 
to consumers around the world and the eloquent remarks of 
Senator Alexander about the importance of these jobs and the 
170,000 of them around the world and 150,000 in this country. 
Not only jobs, but good jobs, which is so important in this 
country today for all the reasons that we have heard on both 
sides of the panel.
    I am reassured, by some of your comments, because I--and I 
disagree somewhat and I hope that perhaps you would disagree 
with Senator Enzi that defeat before the National Labor 
Relations Board is inevitable here, because I am sure that you 
will make your case very effectively and I am sure that you do 
not posit or assume a defeat before either the administrative 
law judge or the NLRB. Do you?
    Mr. Luttig. I don't want to over-lawyer this, but you have 
asked me the question. And as the general counsel for the 
company, I presumptively believe that we will lose before the 
ALJ and also before the NLRB, for an institutional reason which 
is wholly legitimate, which is the general counsel of the NLRB 
is charged in the same way that the ALJ is and the board. And 
so when he makes a consequential decision like this, if he is 
acting properly then he is sharing a view of the law by the 
National Labor Relations Board, Senator.
    Presumptively I do expect to lose.
    Senator Blumenthal. Well, let me ask you this, you can seek 
to dismiss this complaint before the administrative law judge. 
Correct?
    Mr. Luttig. I am not a labor law expert, but I believe you 
are correct.
    Senator Blumenthal. Absolutely. You can seek not a Rule 12 
Motion per se, but there is a procedural opportunity for you to 
seek that remedy as you discussed earlier in response to one of 
my questions, that if it were a Federal court you believe it 
would be dismissed.
    Mr. Luttig. I believe there is a corresponding avenue of 
relief equivalent to the 12B Motion. Yes, Senator.
    Senator Blumenthal. And in the meantime your company can 
proceed with its assembly line in South Carolina. Can it not?
    Mr. Luttig. This is where it gets difficult, as you know as 
a former attorney general. I now have the Federal Government 
that is seeking to close Charleston. I would just ask you to 
put yourself in my position, as general counsel. When the 
question comes to me, should we continue to invest capital? 
Should we continue to hire employees? Should we continue to 
hire suppliers? Should we continue to drive forward toward the 
7,000 employees on the site in South Carolina? You can 
appreciate that is an exceedingly difficult question for me to 
answer, Senator. But that is the position that the complaint 
itself has put me in. I know that you don't want to suggest in 
any way that I just dismiss that, I just want you to appreciate 
the significance of what the NLRB has done here, merely through 
the filing of the complaint.
    Senator Blumenthal. And I do. As a former prosecutor, 
Federal prosecutor as well as a State attorney general, I am 
exceedingly mindful about the importance of filing a complaint 
or an indictment, which often is the most consequential part of 
the judicial process. And believe me, I appreciate the 
importance of a complaint or an indictment, not only its 
practical effect but its reputational impact.
    But ultimately you would advise your company, I assume, and 
I am not asking for attorney/client privileged information, 
that the result in a Federal court would be in your favor. 
Would that not be your conclusion? I assume, from the fact that 
you believe that the complaint is contrary to existing law, 
that you believe that ultimately your rights will be vindicated 
by a Federal court.
    Mr. Luttig. I do, Senator.
    Senator Blumenthal. In the meantime, again, removing 
ourselves from your particular advice, the company can proceed 
with its assembly line, with its activities in South Carolina 
and indeed the remedy, even if there is a finding against you 
on the facts, the remedy may be completely different. But 
ultimately your rights can be, and in your view, will be 
vindicated by a Federal court.
    Mr. Luttig. That our rights will be vindicated in one way 
or another before a Federal court, is correct. It does not 
follow a fortiori though, Senator, that the complaint does not 
have harmful economic affects on my company presently and until 
its ultimate resolution in the Federal courts, quite the 
opposite.
    Senator Blumenthal. I might just say, I appreciate both 
your candor and your care. Obviously the NLRB may take a 
different view and may find that it is well-founded, but in the 
meantime you are not asking us to intervene statutorily, are 
you?
    Mr. Luttig. I am not here today to ask for a statutory 
remedy for this. No, sir.
    Senator Blumenthal. Are you asking that we take any 
specific action to intervene in this case?
    Mr. Luttig. No. To the extent that I am doing anything 
affirmative here other than responding to the invitation by the 
committee, I am urging, and unapologetically, that this is a 
matter that is appropriate for consideration by this oversight 
committee at this time. And I don't believe that its oversight 
responsibility in any way conflicts with the ongoing process 
before the NLRB. As you all know, better than I do, every day 
of the week the Congress of the United States takes up matters 
that are being investigated and that are working their way 
through the administrative process of the executive branch.
    Senator Blumenthal. Thank you for your testimony. Thank 
you, Mr. Chairman for giving me a couple minutes extra time. 
And I want to apologize to the other witnesses that I haven't 
asked you any questions, but I really appreciate you being here 
today.
    The Chairman. Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.
    Mr. Chairman, there has been some discussion about union, 
nonunion. We are talking about the middle class, I am talking 
about jobs, auto jobs in Tennessee, that is what has helped our 
middle class grow over the last 30 years in family incomes. 
But, Right-to-Work of course means you could choose to join a 
union or not join a union. If there were any news in Tennessee 
that made more news during the decade of the 1980s than the 
arrival of the Nissan plant, which is a nonunion plant, it was 
the arrival of the Saturn plant with its partnership with 
General Motors. We were delighted to have them, and they 
existed side-by-side, within a few miles of each other.
    Employees at Nissan had a chance, three times, to create a 
union for themselves, they elected not to. And their wages, I 
assume--I don't know exactly what the difference in wages was 
between the United Auto workers at the Saturn plant and the 
nonunion workers at the Nissan plant, but they weren't enough 
to persuade them that they would be better off with a union.
    If we are talking about raising family incomes, which is 
what I have been working on for 30 years, we have to start with 
the jobs. Now, let's talk about the jobs just a moment. Judge 
Luttig, you made a pretty extraordinary statement, you said you 
expect to lose before the administrative judge in June and to 
lose before the National Labor Relations Board which you assume 
has a shared view without the general counsel. How long would 
it take to get your appeal heard and decided before a U.S. 
Circuit Court, if that should happen?
    Mr. Luttig. Before a United States Court of Appeals?
    Senator Alexander. Court Appeals, yes.
    Mr. Luttig [continuing]. Senator, it could be 2 years and 
thereafter to the U.S. Supreme Court it could be as much as 2 
additional years depending on when and if the U.S. Supreme 
Court granted certiorari on the case.
    Senator Alexander. Let's just take the more conservative 
view. For 2 years the Federal labor law in this country, as 
defined by the acting general counsel of the National Labor 
Relations Board is that if you are a manufacturer in a State 
without a Right-to-Work law, you better think twice before you 
move to a State with a Right-to-Work law. Is that right?
    Mr. Luttig. Absolutely. The in terrorem effect of this 
complaint is in itself very harmful.
    Senator Alexander. In the case of my State, Tennessee, we 
have literally hundreds of companies moving--making decisions 
about whether to move to Tennessee or a surrounding State in 
order to supply the Volkswagen plant. They may have to think 
twice about that. I wonder if--does the Boeing company have 
suppliers in Washington State?
    Mr. Luttig. Absolutely, Senator.
    Senator Alexander. And are there suppliers in Washington 
State who might be considering opening an office in South 
Carolina or some State in the southeast so that it could supply 
your new assembly plant?
    Mr. Luttig. There are, Senator.
    Senator Alexander. And might not this decision by the 
National Labor Relations Board acting general counsel, who has 
never even been confirmed by the U.S. Senate, might not it 
cause in the board rooms of those suppliers to say, we can't 
make a decision or we can't move our plant to a Right-to-Work 
State without at least considering the expense and the trouble 
of this kind of litigation?
    Mr. Luttig. It might well. And you would expect it to have 
that effect in a business decision making context.
    Senator Alexander. Do you think it is unethical for the 
U.S. Senate Committee on Health, Education, Labor, and Pensions 
to consider such a consequential decision in a hearing?
    Mr. Luttig. Not only do I not believe it is unethical, 
Senator, in my opinion, it is appropriate.
    Senator Alexander. Do you think it is unethical for a 
Senator to make a speech on the Senate floor about the 
consequences of this unilateral decision which seems to change 
all Federal labor laws and could stop a flow of jobs to the--
among the poorest States in our country at a hearing when we 
are trying to talk about raising family incomes, we are 
basically saying--all you suppliers who are thinking about 
moving to the southeast, where we have the lowest incomes in 
America--stop, don't do that, because this Washington single 
official has decided you can't relocate an expansion of your--
you can't expand your business in a Right-to-Work State, 
perhaps at all?
    Mr. Luttig. Of course it is not unethical, in my personal 
opinion, for the reasons I have set forth, Senator. I believe 
people, regardless of party affiliation, have an obligation to 
speak out against this.
    Senator Alexander. As a former governor of a State who is 
proud to have both the United Autoworkers who work at the 
General Motors plant and the workers who elect not to be in a 
union at the Nissan plant and at other plants in the State, I 
am going to go to the floor in a few minutes and introduce a 
bill which we call the Job Protection Act, which will have 35 
co-sponsors who are Senators. And the purpose of the bill will 
be to preserve the current Federal laws, protection of State 
Right-to-Work laws and provide the necessary clarity to prevent 
the National Labor Relations Board from attempting a similar 
strategy as that announced by the National Labor Relations 
Board general counsel against Boeing to prohibit that from 
affecting other companies' decisions.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Senator Franken.
    Senator Franken. Yes, I just want to clarify a couple 
things. In a State like Minnesota, which is not a Right-to-Work 
State, no one has to join a union. So, I just want to make this 
clear to the Senator from Tennessee. You don't have to--
    Senator Alexander. Well, if they want a job they do.
    Senator Franken. That is not true at all.
    Senator Alexander. You can't work at the United Autoworkers 
plant at the Saturn unless you are a member of the union.
    Senator Franken. In Minnesota there are only 15.5 percent 
of people working in Minnesota who are in unions, so no one is 
requiring you, in the State of Minnesota to join a union. And 
that is just not true, that is just a misunderstanding. And in 
a Right-to-Work State you can be in a union, the union can 
represent you, you just don't have to pay union dues. That is 
the distinction.
    That is what we are talking about. But I want to talk about 
the middle class.
    Senator Alexander. I am afraid to speak.
    Senator Franken. Let me go to Ms. Boushey, because that is 
what I thought this was about.
    Would it be fair to say the middle class is under more 
pressure today than it has been in 60 years?
    Ms. Boushey. Yes. Entirely.
    Senator Franken. And the disparity of income is higher now 
in the United States than it has been since the Great 
Depression. Right?
    Ms. Boushey. Yes. And it has been rising.
    Senator Franken. OK. And that in and of itself has an 
affect on our prosperity does it not?
    Ms. Boushey. Yes. With a hollowed out middle class we have 
less families that are able to provide the kind of stable 
demand that creates good consumers for businesses at its most 
basic level. And then we also, with a hollowed out middle class 
you don't have a population that can make the kinds of 
investments in their own human capital in education, because 
they can't afford it. You don't have the stability to support 
entrepreneurship. You have a good young kid from a low-income 
family or, from a hollowed-out middle-class family that has a 
good idea but they don't have the economic stability to become 
tomorrow's entrepreneurs. It creates a lot of instability to 
not have a large and thriving middle class.
    Senator Franken. And there are so many pressures on middle 
class families now. For example, to get a college education, to 
send your kid to college. My goodness, I talk to college kids 
all the time and I had a group from the MNSCU system, which is 
the Minnesota State Colleges and Universities, and these were 
leaders in it. And I asked them all, there were about 20 in my 
office, I said to them, how many here work 10 hours--at least 
10 hours a week. Everyone. How many here work 20 hours a week? 
Most of them. All going to school. How many here work 30 hours 
a week? Quite a few of them. How many here work full-time while 
going to school? A number of them.
    Ms. Boushey. Certainly. We have seen enormous rises in 
college costs over the past few decades. And at the same time 
we have also seen a change in how kids finance that, away from 
grants, in terms of financial aid, toward loans.
    It used to be the case, 20, 30 years ago that a kid could 
work full-time all summer at a minimum wage job and earn enough 
to send themselves to their local public university that next 
school year. In fact, that is what my mother did. And now, 
today, ever since the college costs have been increasing--the 
last time I looked at this, which was in about 2005, a kid 
would have had to have worked more than full-time, full year at 
the minimum wage in order to have afforded a year of public 
school tuition at their local university.
    Senator Franken. This is why we have kids----
    Ms. Boushey. Exactly.
    Senator Franken [continuing]. Taking 6, 8 years to graduate 
college.
    Ms. Boushey. Exactly.
    Senator Franken. Let's look at the world now versus the 
world after World War II, because I think this is kind of 
important. After World War II we had a different situation--
Japan and Europe were devastated. We had the world markets to 
ourselves in a way, right?
    Ms. Boushey. Right.
    Senator Franken. That is why GM and Ford and those 
companies could give you a job for life and they could give you 
good benefits, because they had the world markets to 
themselves. We are in a different world now. Right? And some of 
the solutions that were available to us then aren't available 
to us now in the same way. And we are going to have to be 
smarter about it, I think, because we are in a global economy.
    That means that we have to be smart about the way we do 
trade, and we are competing with countries overseas and workers 
overseas. Boeing may want to go overseas and that is a 
realistic look at this. But, it seems to me that we also need 
to look at what we are doing, our public policy in terms of the 
middle class, and in order to build prosperity, make sure that 
the middle class is in a position to help drive our economy. 
And we aren't doing that.
    I know my time has run out, Mr. Chairman, and I think we 
are at the end of the hearing. There is so much to talk about 
here. I am a little sorry that we spent quite so much time on 
the Boeing case. I know it is important and it is a little 
microcosm of something, but I think we really should be talking 
about these kinds of things like investments, investments in 
infrastructure, investments in education and about tax policy, 
about revenue.
    We were talking about deficits, because I will just repeat 
it one more time, Ronald Reagan increased the marginal tax rate 
twice when he was President. Ronald Reagan. And if we are going 
to be able to invest in the things that create prosperity we 
are going to have to put everything on the table here.
    Many of the Republicans are at the White House right now 
talking to the President about this very thing. And we have to 
really, really take this seriously and not be so ideological, 
in either way, because our future prosperity and the prosperity 
of our kids and our kids' kids, is at stake right now.
    Thank you, all of you, for testifying. And Judge Luttig, 
thank you. How much do you think you should be paid? How much?
    [Laughter.]
    Mr. Luttig. I will be glad to give you our CEO's address 
after the hearing.
    [Laughter.]
    Senator Franken. Oh, OK. Thank you. Thank you, I will put 
in for you. OK?
    Thanks, Mr. Chairman.
    The Chairman. Thank you, Senator Franken.
    Again, let me try to--I don't want to get on this case, but 
more and more misinformation comes out. The essence, as I 
understand it, of the complaint by the International 
Association of Machinists, filed with the NLRB was that the 
company was making a decision to move an assembly line or start 
an assembly line in South Carolina in retaliation for the union 
exercising a protected right, that protected right being the 
right to strike. Now I don't know whether that is so or not, 
but that is the essence, as I understand it, of the complaint 
which the general counsel's office investigated and evidently 
found enough substance there to further the process to the 
administrative law judge.
    Now again, the law is quite clear, a company and the union 
contracts--the company can move a plant wherever it wants. It 
can open a plant in Timbuktu, it can do anything it wants. What 
it can't do is move a plant, move an assembly line in an 
illegal action.
    Think about it this way, let's say a company has a plant in 
southern California. They hire a lot of Hispanics. Let's say 
the CEO of that company all of a sudden he doesn't like those 
Mexican Americans, he doesn't like those Hispanics, he says, we 
are going to open a branch of our plant in Fargo, ND because 
there are less Hispanics there.
    No. 1, he can open a plant in Fargo, ND, if he wants to. 
What he can't do is open a plant there because he doesn't want 
to hire Hispanics or African-Americans or women or Jews or 
Catholics or anything like that. That is in essence the case we 
have, as I understand it, from the complaint by the IAM, 
International Association of Machinists, that they exercised a 
protected right under the National Labor Relations Act, which 
is the right to strike, that the company has retaliated against 
that in moving their line or opening a new line in South 
Carolina.
    As I said, I am not about to prejudge the case, but it 
wasn't because it was a Right-to-Work State or any other thing. 
That has nothing to do with this case. I happen to represent a 
Right-to-Work State, this doesn't have anything to do with 
Right-to-Work or non-Right-to-Work or union shop or anything 
else. It has to do with whether or not the company decided to 
do this as retaliation for a protected activity.
    I might just add as a subset to that, that strikes are not 
always just because of the union. Sometimes strikes happen 
because of management too, not just the union.
    Now again, Mr. Luttig, you said that it was the proper 
purview of this committee to either investigate this or to have 
a hearing on it. Well, I don't think so. Now to come out here, 
people are free to ask questions and make statements. I have 
made my own, you have made yours, other Senators have too. It 
is not the purpose of this hearing. I would point out that in a 
case Pillsbury Company vs. The Federal Trade Commission, the 
Fifth Circuit Court of Appeals overturned a decision by the FTC 
because a Senate hearing was held on the merits of the case and 
that violated the due process rights of one of the parties 
because of nonimpartiality.
    Mr. Luttig, did you or anyone at Boeing ask any Member of 
Congress to exert pressure on the NLRB to either not issue the 
complaint or withdraw the complaint after it was filed?
    Mr. Luttig. No, Mr. Chairman.
    The Chairman. Did any of your paid lobbyists in Washington 
contact any Member of Congress either personally or through 
telephonic means or other means to ask Members of Congress to 
exert pressure on the NLRB to withdraw the complaint?
    Mr. Luttig. I am the general counsel, I do not have 
responsibility for our Washington legislative team, Mr. 
Chairman. I would have no information as to that.
    The Chairman. But your response is that no one at Boeing, 
neither you nor anyone at Boeing contacted a Member of Congress 
to exert pressure on the NLRB to withdraw this case or to 
modify it?
    Mr. Luttig. I think it is clear, Mr. Chairman, that I don't 
believe that it would have been inappropriate had they done so.
    The Chairman. Miss Boushey, I wanted to pick up--I have 9 
seconds left--and ask you a quick question. Tell me about your 
background and how did your family--how were they able to help 
you do the things that you have done and become an attorney and 
go to law school and get an education. How were they able to do 
that?
    Ms. Boushey. Thank you for the question.
    I actually grew up a mile from the Everett Boeing plant, 
which is the subject of some of this conversation here today. 
My father was a shop steward and machinist for over 25 years at 
that plant and worked on the 747. So, in many ways I would not 
be here today if it wasn't for that good middle class job and 
importantly, that union that represented my father at that 
plant, growing up.
    I am certainly very grateful to that company because they 
do create good jobs for people in Washington State. And I think 
that one of the things that has sort of been a little 
frustrating over the course of this hearing is there has been a 
discussion, that somehow it is some workers against other 
workers, that somehow nonunion workers are better than union 
workers or something just because they are willing to perhaps 
work for lower wages. But those workers in Washington State at 
that plant certainly do a good job and I think it is important 
to honor that as well.
    One of the things that I know, as an economist, and one of 
the reasons that I became an economist was to understand the 
enormous power that companies like Boeing have over 
communities. Whether or not Boeing succeeds or fails has a huge 
impact in Everett, WA and in communities around the country and 
what happens to those families. One of the things that we know 
from empirical work is that workers who have the right to 
organization and that are in unions are typically paid better, 
they get better benefits and that that really was a key 
component of what created the middle class in this country and 
certainly was a key component of what created the middle class 
in that part of Washington State where I grew up.
    And in listening to this conversation and thinking about 
the movement of this assembly line to South Carolina, certainly 
it is important for workers all over the country to have access 
to good jobs, but we should not be doing this in a way that is 
a race to the bottom in a way that undercuts unions or solid 
middle class jobs in one part of the country, pitting them 
against another.
    The Chairman. Thank you.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    One of your questions might better have been asked of me. 
No one from Boeing talked to me, I contacted Boeing to ask if 
they could present a witness at this hearing because this is a 
concern nationwide. A lot of companies are worried about 
whether they can expand, where they can go, who they can hire.
    You made a very forceful statement about perhaps Boeing 
taking an illegal action and taking away a right of workers. 
Judge Luttig, do the Washington State employees still have the 
right to strike?
    Mr. Luttig. Absolutely, Senator.
    Senator Enzi. Do the employees in South Carolina have the 
right to form a union?
    Mr. Luttig. They do.
    Senator Enzi. If they form a union do they have the right 
to strike?
    Mr. Luttig. They do. It is this, Senator, the genius, if 
you will, of the National Labor Relations Act is that it 
recognizes both the right to join a union and the right not to 
join a union. But it also recognizes the rights, if you will, 
of employers and the rights of employees. Again, the genius of 
it is that it attempts to balance all of those so that all of 
those respective rights are protected. And that is exactly the 
context in which we operate every day of the week.
    But, Senator, this is not about unions or nonunions. This 
is not to hurt our union. As I said, the union is part of the 
fabric of the Boeing Company. Forty percent of our workforce 
has chosen to join unions. We need those unions and we in turn 
can create jobs for those unions and for their families. That 
is all that my case before you is about.
    Senator Enzi. I thank you, particularly for that answer, 
which is a good one to conclude on, I believe. I appreciate 
your willingness to come here and testify knowing that 
sometimes these hearings are a little brutal.
    I appreciate everybody's answers today. It was very 
helpful. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Miss Fox, I wanted to ask you about my presentation on the 
essence of the case on retaliation. As I understand it, that 
was the essence of the case filed, on retaliation for a 
protected activity. Of course people can join unions and of 
course they can strike. But you talk about chilling effects, 
chilling effects, if in fact, a company decides to move a line 
or do something and it is in fact found, as a matter of fact, 
that it was in retaliation for a strike, is that not covered by 
the National Labor Relations Act?
    Ms. Fox. Yes, and that is--when I have said previously that 
this is not a novel legal theory, that if it were to be found 
that that was the case, there have been other cases where--and 
they have been cited, I believe, by the general counsel in 
exactly those circumstances where it is proved or established 
that that was the reason for a decision to transfer work, that 
it has been found previously to be a violation of the act and 
the remedy ordered has been to restore the work.
    The Chairman. It is one of the core parts of the National 
Labor Relations Act?
    Ms. Fox. Yes, it is. And just to underscore also, the 
theory of this complaint has nothing to do with where the work 
was moved. The theory would be the same if the work had been 
moved to another unionized State, if it had been moved to the 
next county. I think that Mr. Luttig mentioned the fact that 
the general counsel has publicly stated that it would be the 
same if they moved to another country. It is confusing to me or 
puzzling to me how this could be turned into something that is 
about Right-to-Work States versus unionized States.
    The Chairman. I share that. I don't know how that is--
again, what I am concerned about in this is that I cited the 
Fifth Circuit Court case, if in fact this does wind its way to 
the Circuit Court of Appeals, I guess precedence, Mr. Luttig, 
could take over and they could look at this and say,

          ``Gee if we have a Senate hearing or if this gets 
        into the political thing and people are making all 
        kinds of political charges and stuff, they could find 
        that they would overturn any decisions or dismiss it 
        because of violation of due process rights.''

    And that is my concern about turning it into a political 
matter.
    And like I said, we spent a lot of time on it here this 
morning, but people have a right to do that if they want. I 
wanted it more to be focused on what is happening to the middle 
class in America.
    Again, I don't know if this is correct or not, I am told it 
is, that the average hourly wage in Puget Sound is $52,000 or 
$26 an hour, 2,000-hour year, about $52,000. In South Carolina 
it is about $18 an hour, that is $36,000 a year. So same 
person, doing the same job in Everett, WA making a little bit 
more, quite a bit more as a matter of fact, than a person 
working in South Carolina. This has all the appearances to me 
as a race to the bottom and that again, is what is happening to 
the middle class here.
    Second, I would also say that I read the CEO's, Mr. 
McNerney's op. ed. that was in the Wall Street Journal and also 
Mr. Luttig's statement here. In your statement you said that at 
about the same time that the IAM provided Boeing with its final 
position South Carolina confirmed Boeing's eligibility for 
several hundred million dollars in incentives. I assume that is 
tax incentives, I don't know, but I assume it is. That means it 
is taxpayer supported.
    I also asked and found out that Boeing, a great company--by 
the way, I make no bones about it, I have been a big supporter 
of Boeing products I think all the time I have been here in the 
Congress, both in the House and in the Senate, as opposed to 
Airbus, but I don't want to get into that.
    But, when Mr. McNerney, the CEO, makes veiled threats about 
moving things overseas I find that the Boeing Company is the 
recipient of $19.5 billion in taxpayer's money, contracts with 
the Federal Government, $19.5 billion, it would seem to me that 
Mr. McNerney, rather than making veiled threats about moving a 
plant oversea ought to say,

          ``Look, we are grateful to the taxpayers of this 
        country for the $19.5 billion in Federal contracts that 
        we have and the last thing that we are ever going to do 
        is take our plant overseas, we are going to stay here 
        in America.''

    Now that would send a signal to companies that we are going 
to stay here, we are not going to move overseas because we 
recognize the benefits to American workers.
    Mr. Luttig. Mr. Chairman?
    The Chairman. Yes.
    Mr. Luttig. Mr. McNerney did not make a veiled threat at 
all on the pages of the Wall Street Journal. He was making the 
observation, which is absolutely correct, that there is a 
flight of American business overseas and that is a matter of 
grave public concern. Second, the government is one of our 
largest customers and we are very proud to be the supplier of 
aircraft and other technology for the U.S. Government and we 
appreciate it very, very much.
    The Chairman. Let me read what he said, this is Mr. 
McNerney,

          ``More worrisome though are the potential 
        implications of such brazen regulatory activism on the 
        U.S. manufacturing base and long-term job creation. The 
        NLRB's over reach could accelerate the overseas flight 
        of good, middle-class American jobs.''

    Then at the last paragraph he says,

          ``U.S. tax and regulatory policies already make it 
        more attractive for many companies to build new 
        manufacturing capacity overseas.''

    Now if that is not kind of veiled implications that Boeing 
could also, I would like to see a sentence in there say that, 
Boeing is an American company, we get $19.5 billion from the 
U.S. taxpayers in contracts and we are staying in America.
    Mr. Luttig. You have that statement from me today on behalf 
of the Boeing Company, Mr. Chairman.
    The Chairman. I appreciate that very much.
    Mr. Luttig. You are welcome.
    The Chairman. That is good. We want companies like that to 
stay in America and we want them to build here and not to talk 
about moving things overseas. I appreciate that very much.
    Senator Enzi.
    Senator Enzi. Mr. Chairman, I think he might have been 
making comments on a broader view than whether Boeing would 
move or not. Boeing, I think, is the last of the American 
airplane companies. We are talking about Chinese companies and 
French companies now and so I appreciate Boeing being an 
American company.
    But, you mentioned the taxes that South Carolina is 
providing on this. I am familiar with States trying to attract 
businesses to their State and Wyoming doesn't have, and I hope 
everybody listens to this, we don't have any personal income 
tax, we hardly have any corporate income tax. That makes it 
harder for us to attract businesses to Wyoming, because we 
can't give those concessions that the States that have those 
can give. And they don't give those concessions unless they 
anticipate getting the revenue back, sometimes in the short-
term but always in the long-term. They can't sell their 
citizens on attracting a business by giving concessions unless 
they can show how that is going to make a difference for their 
State. This company is going to employ, well I think they have 
1,000 people working on the building and stuff right now and 
almost 4,000 people that will be there full-time. That is a lot 
of taxes that they are going to collect. I don't think the 
State of South Carolina really considers that to be a taxpayer 
expense or the people would not have gone along with it.
    We ought to be concerned about the number of companies 
looking at this case that may or may not move to different 
States in the United States or that may move overseas. We have 
certainly had enough manufacturing jobs go overseas that we 
ought to be really careful to see that we are not encouraging 
that.
    The Chairman. I just hope that companies will look at this 
and say,

          ``If workers exercise their protected rights and 
        their legal rights, that our company should not 
        retaliate against them because that is a covered right 
        by the National Labor Relations Act, whether they 
        belong to a union or not. We should retaliate against 
        them because that is a covered right by the National 
        Labor Relations Act, whether they belong to a union or 
        not it doesn't make any difference.''

    That is what I hope comes out of this.
    Senator Enzi. I hope that no company ever threatens 
retaliation. When the coal mines came to Wyoming they were 
United Mineworkers mines, but the employees, it is the 
employees, not the companies, decided that that was not a good 
idea. I think they are still unionized, but they are all local 
unions, there are no national unions there.
    I guess we ought to issue a word of warning to the union 
bosses as well, that they can over reach and cause the 
detriment to themselves. And that may be part of the reason why 
we have gone from, as Mr. Reich has stated, 31 percent of the 
people being in unions down to, I think in the private sector 
it is less than 7 percent. We can keep debating this if you 
want to, but I am ready to go.
    [Laughter.]
    The Chairman. We can keep debating it and any time you want 
to talk about coal mining just let me know. My father was a 
coal miner for over 20 years, before there were unions. You 
want to talk about what life was like for coal miners before 
there was the United Mineworkers Union, talk to me. I will tell 
you what my dad went through and I will tell you what a lot of 
his coworkers went through before there was a union that 
protected their rights and their safety and their health. Talk 
to me about it some time. I will tell you what my dad went 
through in the 1920s and the 1930s, as a coal miner in the 
State of Iowa.
    With that, thank you all very much. I just would say that 
this committee is going to continue to have hearings on the 
middle class. I think we got a little sidetracked but into a 
narrow shoot today, I didn't mean for that to happen, but it 
did. That is all right.
    But we will have other hearings on the middle class, on 
jobs, on the job structure in America, on job training, 
education, on pay, on what is happening to the pay of middle 
class Americans and how my chart showed, why is it that during 
the tiers of the Great Prosperity that there was an 
equivalency. The tide raised all boats equivalently, 2 point 
something percent. But in the last 30 years the boat has been 
tipped over and those at the top have gotten huge increases, 
percent increases, a lot of money, but those at the bottom have 
lost. Why real wages today are about where they were almost 30 
years ago, real wages.
    These are things that this committee should be looking into 
and I intend to continue to have hearings on that broader issue 
of what is happening to the middle class and families and pay 
in this country.
    Senator Enzi. I would hope we would have some hearings on 
what to do about it rather than--
    The Chairman. I hope through the hearings that we will 
generate some thoughts on what to do about it. We heard from 
Mr. Reich, I think he had some suggestions on it and I hope 
that we do come up with some suggestions and I think we might.
    With that, I thank you all for being here. And the record 
will remain open for 10 days for statements and questions.
    And again, the committee will stand adjourned. Thank you 
all very much.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

      Response to Questions of Senator Harkin by J. Michael Luttig

    Question 1. Currently, there is a surge line in Washington State 
that assembles Dreamliner planes. In a newsletter, Boeing stated that 
``[t]he 787 surge line is part of a detailed plan to transition 
incrementally from a production rate of two airplanes per month to 10 
airplanes per month in 2013. Having this capability will enable the 787 
program to mitigate risks as it introduces the 787-9 and starts up 
final assembly in North Charleston, SC. When the second line in South 
Carolina is up and operating, the surge capability in Everett will be 
phased out.''
    Is there airplane production--on the surge line or any other line--
that is currently located in Washington that will be transferred if 
Boeing follows through on its decision to locate the second assembly 
line in South Carolina?
    Answer 1. There is not, currently, a surge line in Washington State 
that assembles Dreamliner planes. I am also advised that there is no 
airplane production currently located in Washington that will be 
transferred when Boeing follows through on its decision to locate the 
second assembly line in South Carolina.

    Question 2. You stated in your testimony before the committee that 
you did not ask any Member of Congress to exert pressure on the NLRB 
regarding the complaint against Boeing.
    Did you or any other employee or representative of Boeing tell Lafe 
Solomon or any employee of the NLRB that you intended to ask Members of 
Congress to intervene or attempt to influence NLRB regarding the 
complaint? Please describe those conversations in detail.
    Did any employee or representative of Boeing discuss with a Member 
of Congress the possibility of threatening the NLRB's budget or 
threatening the status of a pending nominee before Congress to 
discourage the NLRB from prosecuting Boeing? Please describe those 
conversations in detail.
    Answer 2. See response in next question.

    Question 3. Congressional Republicans have asked the National Labor 
Relations Board to turn over any documents in its possession about the 
decision to issue a complaint against Boeing.
    Did you or any employee or representative of Boeing draft, consult, 
or in any way participate in the drafting of any of these requests?
    Answers 2 and 3. Once Acting General Counsel Lafe Solomon withdrew 
the settlement offer that he had made to Boeing after the IAM expressed 
its disapproval of that settlement offer, and after Mr. Solomon and his 
staff informed Boeing that he intended to take the unprecedented and 
legally unsupported action of moving forward with a complaint that he 
was informed would have the effect of shutting down Boeing's new 
Dreamliner production line in South Carolina, Boeing reached out to 
many interested stakeholders, including Members of Congress--as I told 
Mr. Solomon we would. The Acting General Counsel's action here is 
contrary to decades of established law, and it is entirely appropriate 
for the Nation's elected representatives to scrutinize and exercise 
their oversight authority over a Federal agency when it acts outside 
the bounds of its statutory authority. The complaint filed by the 
Acting General Counsel, and the remedy it expressly seeks. have 
significant policy and practical consequences. In fact, the mere filing 
of this complaint has understandably caused a national uproar because 
of what is already its chilling effect on the willingness of businesses 
to build new factories and expand businesses in both Right-to-Work and 
non-Right-to-Work States alike, and its curtailment of the needed job 
creation that follows on such business expansion.
    As I mentioned in my testimony, Congress is certainly well within 
its authority to examine an agency action with such profound policy 
consequences, as it has done since the filing of the NLRB's complaint. 
That said, how Congress chooses to engage the NLRB issue ultimately is 
a matter only for its Members to decide.
    While I appeared before the committee at the request of its 
Members, I believe firmly that it is my Company's right--and indeed, 
its obligation to its employees and shareholders--to speak out on this 
matter, and also to raise its concerns to our Nation's elected 
representatives. We will continue to do so, given the profound 
potential implications of the Acting General Counsel's action here on 
my Company, its employees, and our shareholders.

    Question 4a. In response to questions about the amount of money 
Boeing receives as a Federal contractor, you testified at the hearing 
that Boeing is an American company and will keep its jobs in the United 
States. While final assembly of Boeing commercial planes takes place in 
the United States, many of the component parts of the Dreamliner are 
manufactured in other countries.
    What percent of component parts used in manufacturing the 787 
Dreamliner will be created outside the United States?
    Answer 4a. I have been advised that the domestic content of the 787 
Dreamliner is roughly 70 percent.

    Question 4b. What percent of the component parts in Boeing 
commercial aircraft were created outside the United States in 1991 
versus 2011?
    Answer 4b. I have been advised that in 1991 the average foreign 
content on all Boeing commercial aircraft was 12.3 percent, and in 2010 
(the latest available data) the average foreign content on all Boeing 
commercial aircraft was 14.6 percent.

    Question 4c. What percent of the total labor costs for building and 
assembling the Dreamliner are spent in the United States?
    Answer 4c. I have been advised that a majority of the total labor 
costs for building and assembling the Dreamliner is spent in the United 
States.

    Question 4d. How many U.S. jobs would be created if Boeing only 
sourced their component parts from the United States?
    Answer 4d. Any response on the Company's part would be speculative.

    Question 4e. What is Boeing's average total compensation per 
employee in Washington State and South Carolina?
    Answer 4e. Because both the cost-of-living and the mix of work 
performed by Boeing employees in Washington State and South Carolina 
differ in so many ways. it is not possible to meaningfully compare 
their compensation.
    That said, Boeing seeks to provide a competitive total pay and 
benefits packages to employees throughout the country, including 
employees in Washington State and South Carolina. Pay and benefits not 
only include wages and incentive plans, but also include, among other 
benefits, pension, savings, and healthcare benefits. While our 
compensation information is proprietary, our employees enjoy pay and 
benefits which are extremely competitive and in the upper tier of our 
peer companies. Boeing's competitive compensation practices are widely 
recognized throughout the industry. Year after year, Boeing receives 
thousands of applications for positions from citizens of all 50 States.
    In addition to base salary, we have a broad-based employee 
incentive plan, the EIP, that paid our BSC employees an additional 14 
days of pay for contributing to our financial success as a company in 
2010 (additional 5.4 percent of annual pay). Very few companies have 
this type of broad-based incentive opportunity. In addition, our health 
care plans provide outstanding coverage and are in the top quartile 
nationally. Our savings plan, which includes a company match on 
employee contributions and an additional company contribution, is also 
in the top quartile of top companies nationally. When you look at the 
various pieces together (base + incentive + health care + retirement), 
the total value provided to both our Washington State and our South 
Carolina employees is extremely competitive and in the upper tier of 
our peer companies.
    We are proud of our investment in our employees, and in what they 
are achieving to drive Boeing's success.

        Response to Questions of Senator Enzi by Secretary Reich

    Question 1. As an economist, what is your view of the national 
debt, currently at more than $14.3 trillion today, a 35 percent 
increase since January 2009? Should we be concerned about this.
    Answer 1. Over the long term, the debt problem must be addressed. 
In the short-term, however, I worry that spending cuts or tax increases 
could slow the recovery. Consumers are reluctant to spend, given the 
decline in the value of their major asset (their homes) and the 
difficulty of borrowing--and given their fear of job and wage loss. 
Businesses are reluctant to invest in additional capacity or add more 
jobs without enough customers to justify such expenses. The resulting 
shortfall in aggregate demand is making this recovery painfully slow, 
and maintaining high levels of joblessness. State and local governments 
are adding to the problem by cutting their expenses and/or raising 
taxes. This is the worst time for the Federal Government to cut 
spending. On the other hand, it's still a good time for government to 
borrow, since the yield on Treasury bills continues to be 3 percent or 
below.

    Question 2. You stated frustration with the decline in unionization 
in your opening statement. During the Clinton administration, in which 
you served, did overall unionization rates increase or decrease?
    Answer 2. Unionization increases during the Clinton administration 
declined--continuing a trend that began in the late 1970s. The major 
reason for declining unionization is the necessity for businesses to 
cut costs in the face of increasing competition, both foreign and 
domestic. But other countries--notably Germany, whose economy continues 
to outpace our own--have maintained much higher rates of unionization 
in the private sector, giving their workers greater bargaining power to 
secure higher wages. Those higher wages, in turn, have contributed to 
buoyant demand.

    Question 3. During your tenure as Secretary of Labor, what steps 
did the Administration take to encourage unionization?
    Answer 3. We enforced the labor laws, made sure workers knew their 
rights under the law, and encouraged management-labor cooperation 
toward higher productivity.

    Question 4. Do you support repeal of section 14(b) of the National 
Labor Relations Act? Why or why not?
    Answer 4. I would like to see it repealed. So-called ``Right-to-
Work'' laws have not improved labor conditions. Wages in Right-to-Work 
States are 3.2 percent lower than those in non-Right-to-Work States, 
after controlling for demographic and socioeconomic variables as well 
as State macroeconomic indicators, according to the Economic Policy 
Institute (briefing paper February 17, 2011). Using the average wage in 
non-RTW States as the base ($22.11), the average full-time, full-year 
worker in a RTW State earns about $1,500 less annually than a similar 
worker in a non-RTW State. At the same time, the rate of employer-
sponsored pensions is 4.8 percent lower in RTW States, according to the 
same study. Nor do Right-to-Work laws boost economic growth. After 
Oklahoma adopted a Right-to-Work law (Oklahoma is the only State to 
have adopted a Right-to-Work law in the past 25 years), there was no 
improvement in employment; the manufacturing sector shrank 
dramatically, and the number of new companies coming into the State 
fell by one-third in the decade following adoption. Indeed, there is 
reason to believe that ``Right-to-Work'' laws may undermine growth by 
reducing or restricting consumer demand.

        Response to Questions of Senator Enzi by Heather Boushey

    Question 1. Why didn't the stimulus bill create the lower 
unemployment rates promised by the Administration?
    Answer 1. The stimulus bill did indeed create lower unemployment. 
Unemployment levels would have been much higher without the Recovery 
Act. Economists Alan Blinder and Mark Zandi have estimated that without 
the American Recovery and Reinvestment Act and other fiscal policies, 
unemployment would have reached over 11 percent, rather than the 10.1 
percent it reached in October 2009, and job losses would have totaled 
12.4 million, rather than 8.8 million.\1\
---------------------------------------------------------------------------
    \1\ Alan Blinder and Mark Zandi. ``How the Great Recession Was 
Brought to An End.'' (Washington, DC: Economy.com, 2010), available at 
http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf.
---------------------------------------------------------------------------
    The Administration's unemployment estimates were generated in 
December 2008 and by the end of January, before the Recovery Act was 
signed into law, it was clear that the estimate of how deep the Great 
Recession would be was already too optimistic. Economists were not 
predicting we would be losing jobs to the tune of 20,000 per day in 
January 2009 and this is why the Administration's estimates were too 
rosy, not because the Recovery Act did not perform as hoped. Basically, 
their baseline was not as grim as it should have been.\2\ According to 
the Congressional Budget office, ARRA increased the number of full-time 
equivalent (FTE) jobs by 1.6 million to 4.6 million compared with what 
would have happened otherwise, including more than 571,000 full-time 
equivalent (FTE) jobs in the first quarter of 2011.\3\
---------------------------------------------------------------------------
    \2\ Heather Boushey. ``Accomplishments of the Recovery Act.'' 
(Washington, DC: Center for American Progress, 2011), available at 
http://www.americanprogress.org/issues/2011/02/boushey_arra.html.
    \3\ U.S. Congressional Budget Office. ``Estimated Impact of the 
American Recovery and Reinvestment Act on Employment and Economic 
Output from October 2010 Through December 2010.'' (Washington, DC 
2011), available at http://www.cbo.gov/ftpdocs/120xx/doc12074/02-23-
ARRA.pdf.
---------------------------------------------------------------------------
    The Recovery Act included tax cuts equal to about $282 billion, 
alongside increased funding for infrastructure and energy independence, 
help for States struggling with falling revenues, and aid to those 
hardest hit by unemployment.\4\ Together, as the new law was 
implemented, it saved and created millions of private-sector jobs, 
averted an even worse economic crisis for working families, and helped 
avert an even bigger Federal budget deficit by growing the economy.\5\
---------------------------------------------------------------------------
    \4\ Boushey, ``Accomplishments of the Recovery Act''.
    \5\ U.S. Congressional Budget Office, ``Estimated Impact of the 
American Recovery and Reinvestment Act on Employment and Economic 
Output from October 2010 Through December 2010.''

    Question 2. Looking at Bureau of Labor Statistics data from 1995 to 
2007, how much did U.S. businesses increase their capital services 
input vs. labor hours?
    Answer 2. U.S. private nonfarm businesses increased their capital 
services by 6.0 percent and their labor hours by 2.2 percent from 1995 
to 2000, and further increased their capital services by 3.2 percent 
and their labor hours by 0.1 percent between 2000 and 2007.\6\
---------------------------------------------------------------------------
    \6\ Bureau of Labor Statistics. ``Preliminary Multifactor 
Productivity Trends, 2010.'' (Washington, DC: Bureau of Labor 
Statistics, 2011), available at http://www.bls.gov/news.release/
prod3.nr0.htm.

    Question 3. What role has the impact of technology on productivity 
growth and the increasing use of capital compared to the contribution 
of labor played in compensation trends?
    Answer 3. Over the past few years, we have seen an increasing 
divergence between productivity and wages as productivity is increasing 
steadily while wages remain stagnant. This indicates that workers are 
not realizing the gains of productivity and that corporations are 
instead spending increasing amounts on things other than increases in 
their workers' wages.\7\
---------------------------------------------------------------------------
    \7\ Lawrence Mishel, Jared Bernstein, and Heidi Shierholz, The 
State of Working America 2008-9. (Ithaca, NY: Cornell University Press. 
2009).

    Question 4. Since 1985, have the average annual work hours for 
lower wage workers fallen more or less than those for higher-paid 
workers?
    Answer 4. Since 1985, the average hours of work for the quintile of 
workers earning the least have grown from 2,343 to 2,465, or by 5.2 
percent. In the same time, the average annual hours of work for workers 
in the top quintile of earners have grown from 3,612 to 3,765, or by 
4.2 percent.\8\
---------------------------------------------------------------------------
    \8\ Ibid.
---------------------------------------------------------------------------
Response to Questions of Senator Blumenthal by Secretary Reich, Heather 
                         Boushey and Sarah Fox

    Question 1. Secretary Reich, Ms. Boushey and Ms. Fox: As you each 
mentioned in your testimony, the growth of middle class was, in large 
part, due to the growth of the unions. I am deeply concerned by the 
Federal Government either looking the other way with regard to labor 
laws, or enabling businesses to deprive many employees of their right 
to join a union or receive labor protections. Certainly, 
misclassification of workers is one practice that deprives workers of 
the wages and benefits that they deserve. As Attorney General, I 
investigated businesses in Connecticut that misclassified their workers 
as independent contractors rather than employees. I am pleased to join 
Senators Sherrod Brown and Harkin in their effort to pass the Payroll 
Fraud Prevention Act that would limit the misclassification of workers. 
This practice, however, is far too prevalent.
    Can you discuss how misclassification of workers has shifted more 
power to the employer? How has this impacted employees' ability to 
advocate for fair treatment, adequate pay and reasonable benefits?
    Answer 1. Misclassification of workers is a significant and, in my 
view, growing problem that has shifted power to employers and 
undermined employee protections. Too many employers have taken 
advantage of unintended loopholes in labor laws, or of structural 
changes in the economy, to classify people as independent contractors 
or supervisors exempt from labor law protections, when in fact they are 
employees who the laws were designed to protect. These 
misclassifications make it far more difficult for employees to form 
unions and otherwise join with other employees to ensure that labor 
laws are being enforced. And they reduce employees' ability to advocate 
for fair treatment, adequate pay, and reasonable benefits.

    Question 2. Secretary Reich: We have seen far too often that 
workers need unions to fairly negotiate with businesses. I believe that 
this should be a right of all workers. I am deeply concerned by the 
National Labor Relations Board's decisions in October 2006, referred to 
as the Kentucky Rivers decisions. In 1935, the National Labor Relations 
Act defined a supervisor as a person who has the authority to ``hire, 
transfer, suspend, lay off, recall, promote, discharge, assign, reward 
or discipline other employees, or responsibility to direct them, or to 
adjust their grievances, or effectively to recommend such action, if in 
connection with the foregoing the exercise of such authority is not of 
a merely routine or clerical nature, but requires the use of 
independent judgment.'' Expanding that definition unfairly denies many 
employees the right to organize.
    Can you discuss how these decisions and possibly other laws, 
regulations or rules have lessened the power of unions? What impact has 
this had on the middle class?
    Answer 2. Expanding the definition of ``supervisor'' beyond the 
plain meaning and intent of the National Labor Relations Act, as did 
the NLRB's the Kentucky Rivers decisions of 2006, robs employees of the 
right to organize that is the bedrock of that Act. This--alongside 
inadequate penalties on employers who violate employees' rights by 
intimidating or firing them for attempting to organize unions, and 
employer threats to retaliate against striking workers by permanently 
replacing them--have severely undermined the power of unions. In my 
view, all three should be rectified: Congress should negate the NLRB's 
Kentucky Rivers decisions and return to the meaning of ``supervisor'' 
contained in the Act; Congress should increase penalties on employers 
who intimidate or fire workers who attempt to organize unions; and 
Congress should bar employers from threatening to retaliate against 
striking workers by permanently replacing them.

     Response to Question of Senator Blumenthal by Heather Boushey

    Question 1. Can you discuss how misclassification of workers has 
shifted more power to the employer? How has this impacted employees' 
ability to advocate for fair treatment, adequate pay and reasonable 
benefits?
    Answer 1. Misclassification of workers (treating them as 
independent contractors when they are in fact employees) disadvantages 
the employee in several ways. First and perhaps most importantly, 
misclassification allows employers to deny key worker protections and 
benefits to their employees such as unemployment insurance (UI), 
worker's compensation, social security benefits, temporary disability, 
and minimum wage and overtime protections.\1\ This shifts power to the 
employer because it strips the employee of access to income security 
and wage-related protections, forcing them in many cases to accept a 
position without benefits at a sub minimum wage rate, and subjecting 
them to abusive overtime practices.
---------------------------------------------------------------------------
    \1\ James M. Bickley. ``Tax Gap: Misclassification of Employees as 
Independent Contractors.'' (Washington, DC: Congressional Research 
Service, 2011), available at http://www.workforce
atm.org/sections/pdf/2011/
TaxGapMisclassificationofEmployeesasIndependentContractors.pdf?
CFID=1779052&CFTOKEN=42387785.
---------------------------------------------------------------------------
    Because of the increasing prevalence of worker misclassification as 
an illegal cost reduction tactic, employees in organizations that 
employ this tactic find themselves extremely disadvantaged in 
attempting to negotiate for increased pay, reasonable benefits, and 
fair treatment.\2\ When classified as an independent contractor, an 
employee who attempts to negotiate for any of these runs the risk of 
termination in a depressed job market. Because independent contractors 
receive none of the traditional employment protections, many workers 
are forced to choose silence or risk losing their job.
---------------------------------------------------------------------------
    \2\ Ibid.

    [Whereupon, at 12:11 p.m., the hearing was adjourned.]