[Senate Hearing 113-466]
[From the U.S. Government Publishing Office]
S. Hrg. 113-466
DRIVERS OF JOB CREATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE CURRENT STATE OF JOB CREATION FOCUSING ON KEY SECTORS
SPURRING JOB GROWTH AS WELL AS THE IMPORTANT ROLE OF THE MIDDLE CLASS
__________
MAY 7, 2014
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon MARK KIRK, Illinois
KAY HAGAN, North Carolina JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota
Charles Yi, Staff Director
Gregg Richard, Republican Staff Director
Dawn Ratliff, Chief Clerk
Taylor Reed, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Economic Policy
JEFF MERKLEY, Oregon, Chairman
DEAN HELLER, Nevada, Ranking Republican Member
JOHN TESTER, Montana TOM COBURN, Oklahoma
MARK R. WARNER, Virginia DAVID VITTER, Louisiana
KAY HAGAN, North Carolina MIKE JOHANNS, Nebraska
JOE MANCHIN III, West Virginia MIKE CRAPO, Idaho
HEIDI HEITKAMP, North Dakota
Andrew Green, Subcommittee Staff Director
Scott Riplinger, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
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WEDNESDAY, MAY 7, 2014
Page
Opening statement of Chairman Merkley............................ 1
Opening statements, comments, or prepared statements of:
Senator Heller............................................... 2
WITNESSES
Jennifer Erickson, Director of Competitiveness and Economic
Growth, Center for American Progress........................... 3
Prepared statement........................................... 27
Derek Smith, Chief Executive Officer, Clean Energy Works Oregon.. 5
Prepared statement........................................... 33
Emil H. Frankel, Visiting Scholar, Bipartisan Policy Center...... 7
Prepared statement........................................... 35
Robert Dietz, Vice President for Tax and Market Analysis,
National Association of Home Builders.......................... 8
Prepared statement........................................... 38
R. Thomas Buffenbarger, International President, International
Association of Machinists and Aerospace Workers................ 10
Prepared statement........................................... 51
(iii)
DRIVERS OF JOB CREATION
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WEDNESDAY, MAY 7, 2013
U.S. Senate,
Subcommittee on Economic Policy,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 2:32 p.m., in room SD-538, Dirksen
Senate Office Building, Hon. Jeff Merkley, Chairman of the
Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN JEFF MERKLEY
Chairman Merkley. I call this hearing of the Economic
Policy Subcommittee of the Committee on Banking, Housing, and
Urban Affairs to order.
Five and a half years ago, this country faced the largest
financial crisis since the Great Depression. This crisis and
the following recession shook the American job market to its
core. We have made progress over the last several years in
recovering jobs and growth, with employment recently surpassing
pre-recession levels for the first time.
At the same time, though, there is no doubt that much more
needs to be done and should be done to drive job creation,
particularly middle-income, good-paying jobs with benefits--a
foundation for America's economic success.
We still have much more to do to make an improving but
still tough economy work for all Americans. Unemployment rates
remain high and punishingly long for too many. The recent lapse
in emergency unemployment insurance has led many long-term job
seekers to exit the workforce. And while payroll employment
gains have recently been rising at a pace of about 200,000 per
month and almost 300,000 last month, we need more jobs for new
entrants and more jobs for those seeking full-time employment.
Among the hardest-hit sectors have been construction and
manufacturing. As policy makers, we should above all keep in
mind that not all jobs are created equal. One of the most
troubling trends of the Great Recession has been that middle-
income jobs lost in the recession have been replaced in the
recovery by low-wage jobs. An updated study released last week
by the National Employment Law Project shows that this trend
continues. We should focus most on the creation of good middle-
class jobs with living wages which will serve as a multiplier
driving the economy forward.
I know that these types of jobs are good for working
families and good for the economy, because I grew up in a blue-
collar family that was able to live the middle-class American
dream. As I have said before, America does well when the middle
class does well.
We have with us today a panel of experts who will discuss
the state of the labor market as a whole and describe the roles
of some key sectors in creating living-wage jobs. So I thank
all of you. We will have an opening statement from our Ranking
Member, Senator Heller, and then we will turn to your
testimony. It is great to have you here.
STATEMENT OF SENATOR DEAN HELLER
Senator Heller. Mr. Chairman, thank you for holding this
hearing, and it is always timely to talk about jobs. I want to
thank our witnesses also for taking time and being here with us
today.
Creating jobs and fixing this broken economy has always
been my highest priority, as I know it has been for the
Chairman. And there is not a day that goes by that I do not
think about what can be done to create jobs and improve our
economy.
It has almost been a year since we had our first
Subcommittee hearing on how to help the middle class in this
recession. Unfortunately, after a year, it is clear that
Washington, DC, is still failing to create an environment
where private businesses are able to create robust job growth.
Some would argue that Washington, DC, has been forcing a job
destroying agenda on the American public.
I believe that the policies of the last couple years are
not working in Nevada. Nevadans suffered through 4\1/2\ years
of double-digit unemployment and is still one of the worst
rates in our country. We have to end the fear and uncertainty
that most Nevadans are facing.
Now is the time when we should develop policies that would
create new growth and opportunities and finally free ourselves
from this mediocre and stagnant economy.
Well, there is a lot of talk about how to create jobs.
There has been a lack of action to help create jobs. There are
concrete measures that Congress could be doing right now that
would create jobs. Let us reform the Tax Code. Let us rein in
wasteful Federal spending. Let us support comprehensive energy
policies. And let us stop Washington's overregulation.
As I mentioned in our hearing last year, Nevadans are
fighting every day for a decent paycheck, a safe home, and a
strong community. Their driving goals for a better life is what
motivates me every day to fight for them here in Washington so
their voices can be heard.
I want to thank again all of our witnesses for taking the
time to be here today. I look forward to your testimony, and
thank you, Mr. Chairman, again for this hearing.
Chairman Merkley. You are welcome, and I will go ahead and
introduce all of our witnesses, and then we will enter directly
into the testimony.
Jennifer Erickson is the Director of Competitiveness and
Economic Growth at the Center for American Progress. She holds
a B.A. from the University of Virginia, a master's in public
policy from the University of Edinburgh. Her work focuses on a
range of issues affecting America's ability to compete
successfully at home and internationally. Prior to joining the
Center for American Progress, Ms. Erickson served as special
advisor to the First Minister of Scotland, with portfolios
including economic growth, innovation, and U.S. relations.
Mr. Derek Smith comes from Portland. I am so glad that you
traveled so far to join us. He has been a leader in the role in
triple bottom line ventures for more than a decade with
experiences in the public, private, and nonprofit sectors.
Prior to heading Clean Energy Works Oregon, he was policy
advisor for the city of Portland's Bureau of Planning and
Sustainability. In the late 1990s, Derek developed one of the
first sustainability programs in the retail world at Norm
Thompson Outfitters. As Director of Operations at YOLO
Colorhouse, Derek was a member of the management team that
achieved 500 percent annual growth. He has a B.S. in Mass
Communications from San Jose State University and an M.B.A.
from the University of Oregon.
Emil Frankel is a visiting scholar at the Bipartisan Policy
Center and an independent consultant on transportation policy
and public management issues. Previously, he served as BPC's
Director of Transportation Policy. He received his bachelor's
degree from Wesleyan University and his law degree from Harvard
Law School. Mr. Frankel has a varied and distinguished career
in both the public and private sector, including serving as
Assistant Secretary of Transportation, Commissioner of the
Connecticut Department of Transportation, and principal
consultant at an international engineering consulting firm.
Dr. Robert Dietz is Vice President for Tax and Market
Analysis for the National Association of Home Builders. His
responsibilities include economic and legal analysis of tax and
policy issues. Prior to joining the National Association of
Home Builders in 2005, Dr. Dietz worked as an economist for the
Congressional Joint Committee on Taxation, specializing in
revenue estimation of legislative proposals involving housing,
urban development, and other business tax issues. He earned his
Ph.D. in economics from Ohio State University.
Mr. Tom Buffenbarger is the president of the International
Association of Machinists and Aerospace Workers. He assumed his
first IAM leadership post at age 20 in 1970 when he was elected
shop steward of his apprenticeship group at General Electric
Jet Engines. He has served in a number of key leadership roles
over these years before becoming international president in
1997. And I might add that my father was a member of the
Machinists, and so I certainly grew up so much appreciating the
union. Thank you.
And to kick us off, Ms. Jennifer Erickson.
STATEMENT OF JENNIFER ERICKSON, DIRECTOR OF COMPETITIVENESS AND
ECONOMIC GROWTH, CENTER FOR AMERICAN PROGRESS
Ms. Erickson. Thank you, Chairman Merkley and Ranking
Member Heller, for inviting me here to testify. My name is
Jennifer Erickson, and I am the director of competitiveness and
economic growth at the Center for American Progress.
My testimony today will focus on three things: the current
jobs picture in the United States, policies that can promote
jobs over the short term, and what we have to do over the
longer term to have a dynamic economy. And what is central to
all of this analysis is the understanding that if we are going
to have a strong and growing economy, we need a strong and
growing middle class--a middle class which provides a stable
source of demand and also a pipeline of entrepreneurs and
skilled workers.
Between 2007 and 2009, the United States underwent its
longest, most severe economic contraction since the Great
Depression, with unemployment rising to 10 percent. In the
nearly 5 years since the official end of the recession, the
economy has continued to recover. As of last week's latest jobs
numbers, we have seen 50 straight months of private sector job
growth and added a total of 9.2 million private sector jobs.
And while that is encouraging, there can still be no doubt
unemployment is stubbornly high unemployment and labor force
participation is far too low.
Much of this problem has to do with a lack of aggregate
demand, an output gap which can be attributed in part to
stagnant family incomes as well as fiscal austerity. So with 10
million workers still unemployed, the message could not be
clearer. We need to take immediate steps for job creation.
Now, if we are going to grow the largest, most dynamic,
complex economy the world has ever seen, we have to do a lot of
things right. But there are two things we can do right away:
invest in infrastructure and dramatically expand
apprenticeships.
At a time when almost 800,000 construction workers are out
looking for work and when so much of America's infrastructure
is in disrepair, this is the perfect time to invest. And we can
do so knowing that for every $1 billion invested in
infrastructure, between 9,000 and 15,000 direct and indirect
jobs are supported.
When it comes to our younger workers, we should remember
that right now in the United States we have as many unemployed
and underemployed workers as the entire population of New York
City. And expanding apprenticeships is one way to address a
part of that problem. Apprenticeships are a form of on-the-job
training where workers are still earning a wage, and that
training and those jobs will lead to good middle-class jobs.
And when it comes to the longer term, we know that
investments in our middle class and in our competitiveness
helped build our economy in the 20th century. So the question
is: Are we prepared to invest in ourselves once again?
When it comes to building human capital, will we make sure
that every child in America has the opportunity to attend high-
quality preschool education where we know there is an enormous
return on investment? And when it comes to our economic
environment, since we know that about half of all economic
growth following World War II came from advances in science and
technology, then are we prepared to boost investments in
general science, space, and technology funding, a category
where we saw a cut in real terms of 12 percent from 2010 to
2013?
In fact, if we look at those 3 years, 2010 to 2013, we saw
the largest 3-year reduction in Federal spending since
demobilization following the Korean War. And cutting
investments in our economic competitiveness at a time when the
world is getting increasingly global is incredibly shortsighted
and it risks the very innovation economy that our workers and
businesses have so diligently built.
Finally, I would note that we have to take great care to
avoid the mistakes of the past. Americans lost millions of jobs
and trillions of dollars from the financial crisis that led to
the Great Recession. So as a start, we must see through the
landmark reforms from Dodd-Frank to ensure that the era of
``too big to fail'' has truly passed, enabling regulators with
the tools they need to protect American jobs.
We know how the economy works: Securing America's middle
class is the key to America's economic growth in both the short
and long term. So the sooner that we acknowledge that smart
investments in growing that middle class are key to our
economic success, the sooner we will see more Americans in
good-paying jobs.
Thank you.
Chairman Merkley. Thank you.
Senator, I know that you have to go. Do you want to ask any
question before you go, just slip one in before you take off?
Senator Heller. I just want to apologize. Ms. Erickson
talked about infrastructure and creation of jobs. I have got a
Commerce hearing right now, and the Department of
Transportation is going to be in front of that Committee, and
we need some infrastructure work in Nevada. So I do apologize
to all the witnesses. I really need to get to this Committee.
But thank you very much for being here.
Again, Mr. Chairman, thanks for holding this hearing.
Chairman Merkley. You are off to apply the very insights
that are being presented. Thank you so much.
Mr. Smith.
STATEMENT OF DEREK SMITH, CHIEF EXECUTIVE OFFICER, CLEAN ENERGY
WORKS OREGON
Mr. Smith. Mr. Chair, my name is Derek Smith. I am CEO of
Clean Energy Works, based in Portland, Oregon. Thank you for
the opportunity to speak with you this afternoon, and thank you
for your leadership on clean energy and economic development.
Clean Energy Works is a nonprofit, public-private
partnership. Our mission is to create jobs and reduce energy
waste through the facilitation of home energy retrofits. We
coordinate and deploy public, private, and utility dollars to
scale up the residential energy efficiency sector.
We were founded 4 years ago as a city of Portland pilot
project seeded with Recovery Act dollars, and I am here to
report that this smart Federal investment is proving that
residential energy efficiency can create quality jobs and
unlock private capital to grow a vibrant marketplace.
To date, our statistics include:
12,000 Oregonians signing up, 3,700 homes upgraded in
rural, suburban, and urban communities; 30 percent average
energy savings per home; and more than $1.5 million put back
into the pocketbooks of Americans instead of being spent on
energy waste.
As for jobs, we know through our work that, for every 10
homes upgraded, one job gets created. To date, we have enabled
1,300 workers to receive paychecks; 400 new hires in the hard-
hit construction industry; $21-an-hour average wages across
multiple trades, from weatherization to HVAC to plumbing to
electrical; 56 percent of work hours performed by women and
people of color; 36 veterans working on projects; $65 million
in economic development; and counting.
Before we began our work a few years ago, this market was
small. About 200 homes were upgraded per year, and workers were
paid piece-rate wages averaging around $9 an hour, no benefits.
We are now lifting people out of poverty and into career
pathway professions.
How do we generate these numbers? It all comes down to
making it easy for citizens to upgrade their homes for energy
efficiency. The way it works for a homeowner is they sign up at
our website; we arrange an energy assessment of their home and
pair them with a vetted contractor; a scope of work is drafted
and agreed upon by the contractor and the homeowner; we arrange
financing from a local lender; and we provide quality control
and customer service throughout the project.
Currently, more than 100 small- to medium-sized contracting
firms are growing their businesses in the program, and multiple
private lenders are providing unsubsidized financing. These
lenders include several credit unions, a regional bank, and a
community development financial institution. Loan products
include secured, unsecured, home equity and ``on-bill,''
meaning that customers can pay back their loans through the
utility bill. So private investment is happening in energy
efficiency, initially spurred on by public investment.
As you know, a coordinated effort to retrofit America's
inefficient housing stock would create hundreds of thousands of
U.S. jobs in some of the hardest-hit industries, as you
mentioned, including construction and manufacturing. These are
primarily small business jobs that cannot be outsourced, using
materials that are on average 90 percent made in the U.S.A. In
Oregon alone, we estimate there are 600,000 homes in need of
weatherization, an $8 billion economic opportunity that could
create 60,000 jobs.
So I would like to conclude by highlighting a few policy
issues for your consideration.
First, on real estate valuation, a key component to the
future, the Sensible Accounting to Value Energy, or SAVE, Act,
Senate bill 1106, was introduced by Senators Bennet and Isakson
in June of last year. This legislation would improve the
accuracy of mortgage underwriting used by Federal mortgage
agencies by including energy efficiency as a factor in
determining the value and affordability of a home.
And on financing, Senators Cardin, Feinstein, and Schatz
introduced Senate bill 2189, the Energy Efficiency Tax
Incentives Act, last month. This legislation includes the first
performance-based energy efficiency tax incentive--25E in the
Tax Code. This tax incentive would provide between $2,000 to
$5,000 to homeowners based on their energy savings. This
approach would let the market determine the technology put in
the home. Tax dollars would essentially be investing in savings
from what you could consider miniature power plants represented
by bundles of home energy retrofits, and those tax dollars
would also be investing in the multiple public benefits those
savings provide, notably job creation.
Thank you very much for your support and consideration.
Chairman Merkley. Thank you, Mr. Smith.
Mr. Emil Frankel.
STATEMENT OF EMIL H. FRANKEL, VISITING SCHOLAR, BIPARTISAN
POLICY CENTER
Mr. Frankel. Thank you, Mr. Chairman. I appreciate this
opportunity to address this important issue. Before proceeding,
I would like to request that my full written statement be made
part of this Committee's hearing record.
Chairman Merkley. Without objection.
Mr. Frankel. I would like to say that this issue of the
interrelationship between transportation and infrastructure
investment has dominated our work on the National
Transportation Policy Project at the Bipartisan Policy Center,
which work I directed. Most relevant, in January of 2011, we
issued a white paper entitled, ``Strengthening Connections
Between Transportation Investments and Economic Growth'', which
was co-authored by two members of our project: Douglas Holtz-
Eakin, former CBO Director, and Martin Wachs, of the University
of California.
Increasingly, over the past 25 years, as a State and
Federal transportation official, a consultant, teacher, and
policy contributor on transportation and infrastructure issues,
I have come to appreciate the role that these investments play
in building economic growth and prosperity. This has been true
throughout American history, from the days of roads and canals
and Henry Clay's and Abraham Lincoln's internal improvements,
through highways and airports, and it has been recognized going
back to Secretary Albert Gallatin, Thomas Jefferson's Treasury
Secretary, to Dwight Eisenhower.
In my own teaching, I have made extensive use of a book by
a distinguished economist, Peter Bernstein, called ``Wedding of
the Waters'' about the building of the Erie Canal at the
beginning of the 19th century. It was, of course, an
engineering and construction miracle, but most importantly,
from Bernstein's point of view, was how this investment in
infrastructure in a transportation facility changed the economy
of the State, the region, and the Nation. The Erie Canal
connected newly settled areas of the Midwest and the Great
Lakes to the original States and allowed agricultural products
to flow from west to east and industrial products from east to
est. New cities were born, and old cities got a new economic
function. For example, New York City, because of the Erie
Canal, reinforced its pre-eminent position as America's center
of finance, commerce, and international trade, a position that
it has held for 200 years.
Similarly, as William Cronan wrote in his monumental
``Nature's Metropolis'', the coming of the railroads to Chicago
not only changed that city but fundamentally altered the
economies and the natural and built environments of both
Chicago and of the Plains and western regions of the United
States.
A March 2012 report by President Obama's Treasury
Department with CEA noted that the United States has a rich
history of investing in infrastructure and reaping long-term
benefits. Those benefits include both the long-term economic
growth and the short-term effects of stimulating maintenance
and creation of construction and construction-related jobs.
While infrastructure investments play an important role in
stimulating construction jobs, quantifying the multiplier
effect, the jobs multiplier effect, is difficult. But I think
as was noted in the BPC white paper, to which I have referred,
and I am quoting from it, ``Short-term job creation, while
vitally important, must be viewed within the context provided
by a long-term view. Over the long-term, higher productivity .
. . is the key to higher labor earnings and improved standards
of living.'' It is the long-term economic benefits, in terms of
productivity, efficiency, access to markets, and labor force
flexibility, which should be the goals and purposes of public
investment in transportation and other infrastructure
investment.
But selecting the appropriate infrastructure investments,
those that promise the greatest short- and long-term economic
benefits in a time of persistent budget deficits and stagnant
public spending, is a difficult challenge to public policy
leaders. Public investment capital is constrained, and the
reality is that Federal transportation spending is likely to be
under economic pressure for some time to come, despite
compelling evidence that we have been falling consistently
short of making the infrastructure investments we need to
sustain an efficient, safe, environmentally sustainable, and
well-functioning transportation network.
The priority, then, needs to be on making ``wise''
infrastructure investments, that is, those that promise the
greatest economic benefits in terms of increased productivity,
efficiency, and job creation. Unfortunately, for the most
part--there are exceptions, but for the most part, the United
States' framework for planning, analyzing, and making decisions
about infrastructure investments is really not up to the job of
making these tough, wise investment decisions. I think that is
an important challenge to the Congress as it considers
transportation reauthorization legislation.
I think also the funding limitations puts a greater burden
on financing and a greater burden on States and localities.
None of these policy initiatives, whether it is
infrastructure banks or public-private partnerships or
expanding TIFIA, remove the need to make better and wiser
choices. Smart, wise infrastructure investments are critical to
economic growth and long-term job creation.
Thank you very much.
Chairman Merkley. Thank you.
And we will proceed with Dr. Dietz.
STATEMENT OF ROBERT DIETZ, VICE PRESIDENT FOR TAX AND MARKET
ANALYSIS, NATIONAL ASSOCIATION OF HOME BUILDERS
Mr. Dietz. Thank you for the opportunity to testify today.
My name is Robert Dietz, and I am an economist with the
National Association of Home Builders. NAHB represents all
sectors of residential real estate development--single-family,
multifamily, remodeling, and businesses connected with
supplying and financing those activities. Home building is also
an industry dominated by small businesses.
The residential construction industry was hard-hit by the
Great Recession. Home construction fell 75 percent from 2005 to
2009, and the industry lost almost a million and a half jobs.
But since 2011, the home building and remodeling sectors are
growing again. Over the last 2\1/2\ years, 274,000 jobs have
been created.
This job creation has occurred because of significant
improvement in housing starts. From 2009 to 2013, total starts
grew by 67 percent, reaching an annual total of 925,000. This
expansion has had direct economic benefits. NAHB estimates
that, on average, the construction of 1,000 single-family homes
provides enough work to create 2,970 jobs--roughly 3 jobs per
single-family home.
Additionally, construction of 1,000 rental apartments,
including units developed under the Low-Income Housing Tax
Credit Program, generates 1,130 jobs, roughly 1 job per
multifamily home. And $100 million in remodeling expenditures
creates 890 jobs.
This job impact is broad-based across sectors and across
the Nation. For example, somewhat more than half of these jobs
are created in the construction sector, with the rest in other
sectors in the economy.
The health of housing is key for the overall state of the
U.S. economy. Currently, housing represents about 15.5 percent
of GDP through a combination of housing services and the
investment produced by builders, by adding or improving homes.
Nonetheless, housing has room to grow. Typically, housing
represents 17 to 18 percent of GDP. With a growing population
and an aging housing stock, NAHB forecasts that single-family
construction will increase 22 percent in 2014, with 6 percent
additional growth for multifamily. 2014 should, in fact, be the
first year since the recession in which the total number of
housing starts exceeds 1 million homes. And this expansion will
produce jobs. In April alone, builders and remodelers added
13,100 jobs.
The Great Recession was an important if painful reminder of
the key role that housing plays as a source of household
savings. According to Federal Reserve data, primary residences
accounted for 42 percent of a typical homeowner's wealth. And
savings in a home are also widely held. Roughly 65 percent of
households own a home while only 50 percent possess a
retirement account and only 16 percent own stocks and bonds
outside of such an account.
Housing, of course, also plays a key role in the health of
our society. Access to safe and decent and affordable rental
housing is needed for those households for whom renting is the
best choice. And for those able to assume the financial
responsibility of owning a home, home ownership has been shown
across an array of academic studies to produce a rich set of
social and individual benefits, including increased
neighborhood participation and improved education and health
outcomes.
While home construction is poised to continue to expand and
add jobs, certain industry head winds exist. These include
access to building lots, rising building material prices,
access to builder loans, and worker shortages in some markets.
And an additional head wind is the lack of policy certainty in
areas connected to housing. Providing certainty in these areas,
including enacting a tax extenders bill and passing
comprehensive housing finance reform, would be a net positive
for job creation. And fostering job training for those
interested in becoming home builders and remodelers will pay
dividends. In particular, support for job centers and the
community college system will ensure that the next generation
of construction professionals will fill the jobs of the future,
including building new homes and making the existing stock of
homes more energy efficient.
In conclusion, housing provides the momentum behind an
economic recovery because home building and associated
businesses employ such a wide range of workers. Housing can be
a key engine of job growth that this country needs.
Thank you, and I look forward to your questions.
Chairman Merkley. Thank you very much.
And now we will turn to our fifth presenter. President
Buffenbarger, thank you so much for coming.
STATEMENT OF R. THOMAS BUFFENBARGER, INTERNATIONAL PRESIDENT,
INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS
Mr. Buffenbarger. Thank you, Chairman Merkley, Ranking
Member Heller, and Members of this Committee for the
opportunity to testify before you today on the vital importance
of manufacturing to the creation and preservation of American
jobs. My name is Tom Buffenbarger, and I serve as International
President of the International Association of Machinists and
Aerospace Workers, also known as the IAM. Our members work in a
variety of manufacturing industries including aerospace,
electronics, defense, shipbuilding, transportation, and forest
products. The IAM is a broadly diversified manufacturing union
and the largest aerospace union in North America. We strongly
believe that manufacturing is critical to our national economic
recovery. Manufacturing is responsible for the good jobs that
our Nation needs. It also generates the innovation and new
technology which our Nation depends upon to ensure a healthy,
robust, and sustainable economy in the future.
According to the U.S. Bureau of Labor Statistics, the
manufacturing sector contributes $1.6 trillion in value to our
economy, or about 9 percent of GDP. A recent study by the
Congressional Research Service notes that manufacturers have
been responsible for approximately 70 percent of all research
and development conducted by businesses in the United States.
Manufacturing jobs are good jobs. Workers in the
manufacturing sector enjoy an 8.9-percent compensation premium
over other working Americans and are more likely to have
employer-paid health care and other benefits. Since the start
of the 21st century, education levels for manufacturing workers
have improved; nearly 30 percent have at least a college
degree, and the percentage with less than a high school diploma
has shrunk to 10 percent. However, what has made manufacturing
a source of middle-class jobs has been the traditionally high
rate of unionization within the sector. The Center for American
Progress notes the disturbing correlation between the decline
of union density and the share of the Nation's income going to
the middle 60 percent of households, which has fallen from 52.3
percent to 45.7 percent since peaking in the late 1960s. If
this trend continues, then manufacturing work will not be the
ladder to the middle class as it historically has been.
The effect of the manufacturing sector and the jobs that it
produces can be found in the sector's multiplier effect. This
can be seen in two ways. The Manufacturing Institute has found
that every dollar of manufactured products supports $1.33 in
output from other sectors, a larger multiplier than any other
economic sector. In other words, manufacturing creates the
wealth that drives much of our economy.
Moreover, manufacturing jobs support additional jobs, both
direct and indirectly related to manufacturing, throughout the
economy, and the multiplier ratios from manufacturing vary from
a low of 1:3 to high of 1:16. The difficulty in coming up with
a precise ratio derives from the changing nature of
manufacturing jobs and what is counted as a manufacturing job.
In the past, many manufacturing enterprises were vertically
integrated operations that included a variety of support
functions, such as shipping and transportation, as well as
professional and business services like accounting, legal, and
consulting. If any of these functions are directly employed by
a manufacturer, then they are counted as manufacturing jobs;
otherwise, the jobs are considered indirectly related to
manufacturing. Other examples of indirect employment impacted
by manufacturing activity include jobs in restaurants, retail,
as well as local and State government.
According to last week's employment report, manufacturing
employment currently stands at 12.1 million jobs, nearly 9
percent of U.S. payrolls. Significantly, even with the addition
of 650,000 manufacturing jobs since the bottom of the Great
Recession, the U.S. has still lost over 5 million manufacturing
jobs since the start of this century. While a variety of
factors, including technological changes and lean manufacturing
practices, have reduced overall manufacturing employment, the
lack of a comprehensive manufacturing policy that is directly
related to jobs, our flawed trade policies, and a ballooning
trade imbalance--$475 billion in 2013--have also contributed to
this decline.
This year marks the 20th anniversary of NAFTA, which
increased our trade deficit with Canada and Mexico by $150
billion resulting in a loss of an estimated 1 million U.S.
jobs. For our members at companies like Maytag and Freightliner
who saw their work and their jobs move to Mexico, the harsh
reality of this model of trade is not a theoretical discussion.
An even bigger killer of U.S. manufacturing jobs has been
the implementation of the PNTR with China. When China PNTR was
passed in 2000, the U.S. exported three times as many
manufactured goods as China, but within a decade China
surpassed the U.S. in exports and became the world's leading
manufacturer and exporter. By 2012 our share of global
manufacturing activity had declined to 17 percent from 30
percent just a decade earlier even as the value of our exports
had more than doubled. Now, two-thirds of our global trade
deficit is with China, a rapidly growing country that engages
in a variety of unfair trade practices--illegal subsidies,
forced technology transfer, currency manipulation, and an
appalling lack of labor rights.
The Economic Policy Institute estimates that over the last
decade our trade imbalance just with China has cost the U.S.
nearly 3 million jobs and put downward pressure on U.S. wages.
And now, just 2 years after the passage of the U.S.-Korea FTA,
we have seen our exports to Korea drop and our trade deficit
with that country grow with a loss of an estimated 60,000
American jobs, mostly in manufacturing.
Successful countries recognize the importance of a strong
manufacturing sector and the true nature of global competition.
These countries know that there is no such thing as a ``free
market'' and provide strong support for critical wealth and
job-creating sectors like manufacturing.
The IAM has long called for the development of a national
manufacturing strategy as our global competitors have done.
This is not about picking winners and losers but, rather,
creating the foundation for future prosperity. We applaud the
President for taking steps to make this happen. The creation of
the Office of Manufacturing Policy reporting to the National
Economic Council, as well as the Advanced Manufacturing
Partnership. which includes representatives from labor,
industry, academia, and the Federal Government, has put a new
focus on manufacturing at the highest levels of Government.
We look for the Advanced Manufacturing Partnership to
develop a national manufacturing strategy that links Government
policies and investment to actual job creation. This could be
accomplished by requiring employment impact statements as part
of the decisionmaking process for Government procurement
contracts, grants, and awards. Simply stated, contracting
agencies and policy makers should know how many good domestic
jobs will be created and maintained by a contractor or grantee.
Our trade policies must be reformed to include enforceable
labor rights and environmental protections, and this is
particularly important as the U.S. negotiates the Trans-Pacific
Partnership, or the TPP, with countries like Vietnam and Brunei
that lack free and independent labor unions. Also, enforcement
action must be taken to end currency manipulation by our global
competitors.
There are many other steps that also will include
strengthening the measure and standardizing the measure of Made
in the U.S.A. and Buy American requirements for Government
procurement contracts. In some cases, the domestic content
requirement is as low as 51 percent, and it is not always clear
that agencies limit their calculation of domestic content.
One Government initiative, the Export-Import Bank, stands
out as a success. The Export-Import Bank provides critical
financing for the export of American-made goods and services.
Last year, the Bank provided over $37 billion worth of export
financing that supported over 200,000 American jobs, mostly in
manufacturing, and returned $1 billion to the U.S. Treasury.
Manufacturing plays a critical role in our economy. The
sector is an engine of innovation and a source of middle-class
jobs. We must not, however, take the sector for granted.
America needs to think strategically about how we prepare our
workforce, what investments we make to remain globally
competitive, and how we trade with other Nations. For too long
our focus has been on meeting the needs of U.S.-based
multinational corporations at the expense of working Americans.
This culture must change. Only then will we see a rebirth of
American manufacturing--a rebirth that is essential for our
national and economic security, and the future of America's
hard-working men and women and their families and their
communities.
I would be happy to answer any questions that the Committee
may have. Thank you, Mr. Chairman.
Chairman Merkley. Thank you, all of you, very much. I have
been so struck by the fact that in the last recession 60
percent of the jobs we lost were good-paying or living-wage
jobs, yet only 40 percent of the jobs we are getting back fall
into that category. The difference of that 20 percent means
that millions of families across America who had the American
dream in their hand--a good, solid job, one with benefits, the
ability to save a little to assist their children and launch
them into the world--are now seeing that dream crumble and slip
through their fingers. And these are very concrete areas, these
areas of infrastructure and rebuilding the building
infrastructure with energy-saving retrofits and home
construction and manufacturing that can make a difference.
I am going to ask some questions of each of you. I will
follow the general pattern, but since there is only one of me
and my panel members are not here, please feel free to indicate
you would like to jump in on some of these questions so we
create a little bit more of a conversation. And Senator
Elizabeth Warren has indicated she is trying to wrap up her
other Committee and is on the way. So we may have
reinforcements soon.
Jennifer, I thought I would start with your point about
aggregate demand, and if I understand right, this is the point
that people do not make something if you do not have someone to
sell it to. But there are others who have said, you know, the
real key is not aggregate demand; it is concentrating wealth
among the very few at the top because they will devise and
build new factories, create new jobs, new job employment
strategies.
So as you think about those two different theories,
essentially aggregate demand and, if you will, a concentration
of wealth at the top, what is the case that favors one theory
over the other?
Ms. Erickson. Thank you so much, Mr. Chairman. I think the
case that favors the argument for aggregate demand and the
importance of the middle class is that we tried the other way.
Supply side economic policies were de facto what was in place
for a lot of America's last 15 years, and what we saw was
exactly this concentration of wealth that you mentioned at the
top.
In fact, if we look at all income gains since 2009 when we
entered recovery, 95 percent of those income gains have gone to
the top 1 percent. And so the reality is that the top 1 percent
does not have the ability to drive the demand that is needed to
employ more American workers and for businesses to feel the
need to invest. It is no mystery that U.S. businesses are
currently sitting on about $2 trillion in cash. That is because
they do not think that there are enough customers on the other
side if they make those investments. In fact, it was the former
adviser to Presidents Ronald Reagan and George H.W. Bush, Bruce
Bartlett, who wrote back in 2011, ``It is the demand.'' That
was the headline of a major national piece.
And so I think that the reality is that the sooner we
realize that businesses need customers, the sooner we will
realize that we need a strong and growing middle class and
policies that will support that.
Chairman Merkley. So, in short, if concentration of wealth
at the top was the key, we would have more jobs now than ever
before since we have more concentration of wealth; and,
therefore, the model has been tested, it has failed, and it
shows that people are not going to keep creating more factories
and employing more people if there is no one to buy the
product.
Ms. Erickson. Absolutely. In fact, venture capitalist Nick
Hanauer, who is from Washington State--he was one of the
original investors in Amazon. He wrote a piece in Bloomberg a
couple of years ago where he said, ``A typical middle-class
consumer is more of a job creator than I can ever be.'' And his
point was that while he makes about 1,000 times a year as much
as a typical American worker, he is not going to buy 1,000
times as many pairs of pants or pillows or dinners. And so he
was addressing this not just from the reality of the type of
character of country he wants to live in where there is more
opportunity in the middle class, although we would certainly
believe that is important; but also a matter of hard economics,
that even if you are looking at it from a purely business
perspective, you need customers.
Chairman Merkley. So in this sense, what turns out to be
very good for the middle class is very good for the entire
economy.
Ms. Erickson. Absolutely. Absolutely, and for the private
sector, too. Again, I think if you look at what is happening
both in small businesses and large businesses, the single
biggest thing that comes up when they are asked what is their
impediment to growth and hiring more workers is demand. They
need to know there are customers there if they are going to
open a new set of doors.
Chairman Merkley. So I want to turn next to the issue of
infrastructure, and, Mr. Frankel, you addressed this as well as
Ms. Erickson in the beginning. One of the statistics I was
struck by is that China is spending roughly 10 percent of its
GDP on infrastructure. And I went to China a decade apart. On
my first trip, I saw largely bicycles in Beijing, and on my
second trip, not only were the roads clogged with cars, but I
also got on a train that went 200 miles per hour. And that was
a phenomenal change in infrastructure, and I saw that all over
China.
I understand Europe is spending 5 percent of its GDP on
infrastructure and America just 2 percent. If these numbers are
not right, please correct me. But what does it mean for a major
developed country if we are investing far less of our economy
in infrastructure than, if you will, our European competitors
and upcoming countries like China? I do not know if either of
you would like to jump into that.
Mr. Frankel. Well, respectfully, Mr. Chairman, I am not one
who really looks to what other countries are doing. I think it
has some relevance, but China is certainly at a very different
place in its development from the United States. And it is to
be expected that it would be spending a much higher percentage
of its GDP on infrastructure. We spent a much higher percentage
when we were building the Interstate Highway System.
The question I think is more are we spending enough or not
in terms of our own needs, in terms of our own capacity to
remain competitive, and that is without regard to, you know,
what China is spending or some other country is spending.
Similarly, in terms of the high-speed rail system, we need
to provide the kind of infrastructure which meets the needs and
can bring the greatest benefits in a time of fiscal constraint.
You are dealing with that much more directly than I am. You are
dealing with scarce resources, the issue about how to divide a,
if not shrinking, not adequately growing Federal pie, Federal
funding. Congress has kind of established a policy as much by
inaction as by action and thought over the last 10 years and,
that is, Federal funding in terms of transportation
infrastructure, as I noted in my statement, is actually in real
terms declining. That is inappropriate in terms of providing
for a productive economy.
I was struck--I make reference to this in my written
statement, as you probably noted. I was more recently in the
United Kingdom. They have a conservative-led Government, which
has a commitment to a policy of austerity, and they are still
spending what they think they need to spend on wise
investments. Particularly, I spent a good deal of time in
London and got some briefings on a project called
``Crossrail'', which is a brand-new subway line across Greater
London. It is a $15 billion or almost $20 billion investment at
a time of austerity. It was a decision to go forward by a
Labour Chancellor of the Exchequer, pursued by a conservative
Chancellor of the Exchequer, because of a perception of an
analysis which showed that in their case the London region was
an engine of economic growth for the United Kingdom and that an
investment in improved access, improved labor mobility, and
enhancing the agglomeration economics of the financial industry
and financial sector in the London region was absolutely
critical to ongoing growth of the United Kingdom and was based
on a very careful business case and benefit-cost analysis.
We need to be able to do that in order--those are the kinds
of decisions, rather than looking to what percentage China is
spending or some other Nation is spending and what they are
spending it on, what do we need to spend, what are wise
investments for us which benefit long-term economic growth?
Chairman Merkley. I take your point that we should be in
the context of are we spending enough for our infrastructure.
What I see in kind of an anecdotal way--and I do a town hall in
every county each year of our Oregon 36 counties--and I meet
beforehand with the city commissioners and the county
commissioners and ask them what is going on, what are they
challenged by. And they are always raising infrastructure
issues. And one of the things that is very common for them to
raise is water infrastructure, and what they tend to say is,
``We built this water system that we love decades ago,'' often
post-World War II, that it now has three problems: first, it is
wearing out; second, it does not meet the modern standards for
either clean water supply or wastewater treatment; and, third,
we need to plan for an expanded water supply or wastewater
treatment for additional growth to be able to occur.
And given those three things and kind of the common sense
that those were a major--in terms of the feedback of local
officials, feedback in terms of what is constricting their
economy, I have sponsored a bill called ``WIFIA'', or the Water
Infrastructure Financing Innovation Act, modeled on TIFIA,
which you mentioned in your testimony, the goal being to
provide more low-cost funding for this type of infrastructure
to be built.
Any insights or thought about--often we talk about roads
and bridges, but any thoughts about how important water
infrastructure is to our future?
Mr. Frankel. Well, it is obviously critical, and we are
going to have to invest in water resources. Our inland
waterways may be less relevant in your State, but certainly in
the middle part of the United States, we have systems of locks
and dams that are 100 years old. We talk about the
transportation system, and it does not compare to elements of
the inland waterways in terms of the need for upgrading and
restoration.
Certainly in metropolitan regions, New York to its credit
has made major efforts to prevent leakages from an old water
system, and we lose tremendous amounts of water, when water is
becoming a more and more valuable resource, from leaks and
breakdowns in major water systems for major metropolitan
regions. So I think this is critically important.
In terms of the particular--and I commend you for the
initiative in terms of the financing initiative, as I
mentioned, if funding is going to be flat or decline at the
Federal level, if the burden is going to be greater on States
and localities, the Federal Government should expand its
financing capabilities, that is, offering greater credit to
State and local governments, allowing them to leverage Federal
resources by putting their own resources in, as well as raising
private resources. All of that is critically important,
although it does require the establishment of adequate revenue
streams, whether it is for transportation or water projects, in
order to service the debt of provide returns if there are
private investors involved.
But as I think I mentioned in my written statement, my
colleague, Aaron Klein, who is an alumnus of the staff of this
Committee, and I wrote an op-ed about 8 or 9 months ago about
the need--that what was happening really was a shift from
Federal funding to Federal financing, and drawing that
distinction is important, and taking advantage of and trying to
ride that and maximize the opportunities.
I might mention one other thing, actually your comments,
Senator, reminded--I do not know if this is still the case. I
suspect it is. When I was at the Department of Transportation
now 10 years ago, I know a huge issue in Oregon was the state
of the bridges on the interstate system, particularly on the I-
5. And it is an example of, with limited, scarce Federal
funding available, what should we be putting it into. And I
would make the strong argument, for example, in the case of
Oregon, where they would like to, they need to restore and
rebuild and in some cases replace those bridges; otherwise, the
whole system of mobility, including freight and goods
movements, to, from, and through the State of Oregon will come
to a stop. Think about the economic impacts of that, as I know
you have. Think about the economic benefits, huge economic
benefits in terms of cost and investing in our existing
infrastructure maximizing its effectiveness and allowing it to
contribute to a growing economy.
Chairman Merkley. I think as you may know, Senator Murray
has for a very long time, long before I ever came to this body,
worked very hard to line up the particular project, the last
drawbridge on I-5 on the North-South Freeway, and it had rather
a rough course over the last 2 years. But because the need
still remains as a key part of our freight and passenger
transportation, I am sure we going to be revisiting that piece
of infrastructure. Point taken.
I wanted to particularly emphasize a point, if I caught it
right, that 90 percent of the jobs from infrastructure would be
middle-class jobs. Did I catch that right in your analysis?
Mr. Frankel. I made reference to the Treasury-CEA report in
2012, and it identified--I think the figure was 80 percent of
the jobs, as I remember--it is in my written statement--of the
jobs that would benefit from investment in infrastructure would
fall into the percentiles between the 25th and 75th percentile,
the construction and construction-related, because most of the
jobs are in construction and manufacturing, and most of those
jobs fall into those middle-class percentiles in the economy.
Chairman Merkley. Yes, that 80 percent of the jobs created
by investing in infrastructure would be in construction,
manufacturing, and retail, and that 90 percent of these would
be middle class. That is a powerful recognition of how much
connection there is between building this needed infrastructure
for the general economy but also at the same time creating
those living-wage jobs.
While we are still on the infrastructure, did you have
anything you wanted to add to that?
Ms. Erickson. The only thing I would say is that U.S.
public construction spending as a percentage of GDP has dropped
to its lowest point in 20 years, and while we can all agree
that the question is are we meeting the needs of our workers
and our businesses, I also think the answer to that has been a
resounding no, we are not. So that is why you are seeing
different bedfellows from the AFL to the Chamber of Commerce
standing up together and saying that this is really a time when
we need to act.
So it is my sincere hope that we will see some bipartisan
movement on this in Congress. I think that staying too focused
on every dollar of Government spending as if it is exactly the
same as part of an overlong and, in my view, sometimes
misguided deficit fight really risks our fiscal future in the
long term as well as our jobs picture today.
Chairman Merkley. Thank you very much.
I am going to turn now to Mr. Smith, and a different sort
of infrastructure is our building infrastructure and rebuilding
our buildings to make them more energy efficient, as you know,
to create a lot of jobs. There was a statistic that you
utilized, which I believe was Oregon could create 60,000 jobs.
Can you repeat the conditions that would be necessary to create
those jobs just in the energy retrofit field?
Mr. Smith. Yes. So the data that we have gathered to date
has been that for every 10 homes that get upgraded for energy
efficiency, one job gets created, and that is proven data that
we have, working on this for many years, and is actually
consistent with what the home builders--as we discussed before,
the testimony.
And so the analysis we have done in the State is that there
are 600,000 homes. These are prequalified homes that are owner-
occupied, that are in need of weatherization, that we can go
after now, but we have to raise demand to get to them. Again,
it comes back to demand. And so, therefore, that results in
60,000 jobs.
Chairman Merkley. OK. I realize that Oregon is 1 percent
basically of the Nation, and that would mean a potential for 6
million under a roughly similar ball-park, back-of-the-envelope
calculation, so a key piece.
Mr. Smith. That is right.
Chairman Merkley. And in terms of customers actually saying
it is convenient and easy and financially possible to do these
retrofits, how important is low-cost financing and how
important is on-bill financing?
Mr. Smith. Financing is a critical tool in the toolbox, and
on-bill is a very important piece of financing. I would
underscore that capital is not the only issue. I appreciate the
focus on demand in this testimony because from you standpoint,
we need to get energy efficiency retrofits to be valued by
citizens, like a kitchen remodel or a bath remodel. Again, this
is remodeling that should be considered not only for the
benefits that it provides in terms of better comfort in the
home, but also that there is better health in the home, the
homes are safer, and that there will be a return in the result
of a sale transaction, so a financial return. And the way we
can really get all those demand drivers moving, not only by
providing more capital, is to promote policies that support
real estate valuation. And then in the meantime, as demand
continues to grow and we result in all these benefits of health
and safety and job creation, investments in rebates like the
ones I mentioned and the policy site I mentioned are really
important and they are smart investments that the public sector
can make because of all these benefits of job creation, health,
safety, et cetera.
And I just want to add, just also to link infrastructure
and demand, that we recently started adding services of seismic
strengthening, radon mitigation. We will go into storm water,
electric vehicle infrastructure. So any services that help make
the home ready for the future and help the homeowner and
occupants be safer, healthier, spend less on those resources,
that is where we want to go. It creates more jobs, creates more
business development opportunities for these small contracting
firms, creates more private investment. And it is just great
all the way around. We are achieving multiple public policy
objectives in one fell swoop.
Chairman Merkley. And if I can go back to your estimate on
the 60,000 jobs, that is homes only. So there is a huge
potential also in the commercial side in addition.
Mr. Smith. Absolutely, yes.
Chairman Merkley. I would like to welcome Senator Elizabeth
Warren, who has been able to join us. We have been talking
quite a bit about infrastructure and now also on energy-saving
retrofits and their role in creating jobs and how many of these
jobs in these two areas are also good-paying middle-income
jobs. So I have had the privilege of carrying on the
conversation for a while, and so would you like to take 5
minutes and jump in?
Senator Warren. I would. Thank you very much. I appreciate
it, Mr. Chairman. I apologize for not being here earlier. I am
caught in two committees at the same moment. We have another
committee that is about NIH funding and cancer research, so I
apologize for not being here. But I had some questions I wanted
to ask about that I thought were important here.
I was looking through some data, and according to the
National Institute of Standards and Technology, manufacturing
is responsible for about 12 percent of our GDP. Every dollar
spent in manufacturing generates about $1.48 in economic
productivity in other sectors of the economy. So we have got a
powerful multiplier out of investments in manufacturing.
The growth in manufacturing is very important to the
economy, but if manufacturers cannot get adequate funding, then
growth is obviously held back, and that means that they cannot
take on more orders, hire more people, make more shipments,
that sort of thing.
Now, a recent study from NIST which analyzed the results of
a national survey for manufacturing companies found that a lack
of access to capital was one of main obstacles to
manufacturers' ability to remain profitable, to expand their
operations, and to compete with larger companies--cannot get
the money, cannot make the investments, cannot have a business
that prospers and then grows.
So the question I would like to ask--and I will ask it to
anyone on the panel--is: How do we think about sustaining,
expanding, capital--making capital available to manufacturers,
particularly to smaller manufacturers? Does anyone have
thoughts on this or had any experience with this? Mr. Dietz,
you had the misfortune of moving first.
Mr. Dietz. I represent the National Association of Home
Builders. I would say that is beyond just manufacturing. It is
construction as well.
Senator Warren. Fair enough.
Mr. Dietz. Absolutely a very large issue for home builders.
Something like two-thirds of the construction in this country
is done by small firms, firms that are family owned, that have
10 or fewer employees, and that access to credit, what is
called ``acquisition, development, and construction loans,'' is
a big deal. And a lot of that lending comes through smaller
banks, so we need to make sure that the community banking
system is available so you get the kind of benefits that come
from regional growth. And it is also--we have talked a lot
about demand. It is also a matter of credit for home buyers.
And so, you know, people go through a life cycle. They rent,
they buy. But credit is key to turning that kind of
macroeconomic concept of demand into kind of a real economic
benefit at the microeconomic level.
Senator Warren. Yes. You know, it is a very powerful point
you make about the importance of community banks, that
community banks disproportionately relative to big banks spend
more of their lending portfolio in small business lending. And
I worry about our community banks because we all know the
number of community banks out there is shrinking. They are
under a lot of pressure. They are under regulatory pressure.
They are under other economic pressures. They get swept up in
purchases by other larger financial institutions. And every
time that happens, it is not only an impact on that community
bank and on the banking system, it is also an impact on every
small business that counted on that community bank for its
financing.
Anybody else want to speak to this? Any other thoughts
about it? Yes, sir.
Mr. Buffenbarger. Well, from the machinists' perspective,
this is an interesting conversation, and we are talking from
our own parochial points of view. But what the Government needs
to do is start thinking big again. The first thing to the
safety of community banks and support is reinstate Glass-
Steagall, handle a few----
Senator Warren. I did not set you up with that answer.
Mr. Buffenbarger. No, no.
Senator Warren. Would you please clarify?
Mr. Buffenbarger. But you certainly gave me the opportunity
to put my 2 cents' worth in.
Senator Warren. Good.
Mr. Buffenbarger. But, Senator Merkley, you pointed out, as
did others on the panel, the crisis in, for instance, water
resources in this country. Being an old union, 126 years old
this past Monday, we were around at the creation of the
Tennessee Valley Authority, and we were designated by President
Roosevelt--the machinists and the electrical workers--to build
TVA. And if you take that concept and expand that nationwide,
you address the issues of water resources. With that inherently
are the other side--sewer, waste--but it also has an element of
power with it where we generate low-cost electricity. That in
turn, when power is cheap, to entice manufacturing to start,
and the consumers of that on both ends, the manufacturing side,
the using end, and those then who will benefit from it on the
purchasing side, seems to be a self-perpetuating idea.
And that is something that merits deep thought and a
review--I mean, all the lessons of the past were not bad
lessons. TVA happens to be, I think, one of the--that and
Social Security are the two great hallmarks of Franklin
Roosevelt's domestic agenda.
Instead, today we fight because the Government wants to
privatize TVA, much as we did the banking community, and our
experience as a union with the deregulation, privatization of
transportation, of power, of pharmaceuticals, of banks, of just
about everything in our lives has been the code word for
``destroy.'' Why do we want to do this?
So I would recommend the creation on a big thinking level
of a development bank, a bank that spurs innovation, low-cost
loans to those who wish to get into the manufacturing business,
that we give an oversight to assure it does provide jobs, the
middle-class jobs we are looking for to sustain this country.
And if we have got the stomach for big-ticket items again and a
challenge to America, I think this country is looking for that
kind of challenge again.
Senator Warren. I really appreciate your making that point,
Mr. Buffenbarger, because you are exactly right, that when we
make the investments in infrastructure, we not only create good
jobs right now; we create the right conditions for businesses
to be able to grow and flourish. Every investment that we make
in the power grid is an investment in bringing down the cost of
production for every business out there. You are right. Every
investment we make in roads and bridges is an investment in
being able to get your goods to market. And when we make those
investments, we have another particular to build a future--a
future in manufacturing and a future in all other business
areas. That is a very good point.
Anyone else want to add? Mr. Smith.
Mr. Smith. Yes, Senator, I would like to add a point to
your great point about community banks, and credit unions,
actually, and how close they are to their communities, and a
point related to the work I am in, which is energy efficiency
retrofits of homes. And before I do that, I just want to credit
Senator Merkley for your--I meant to mention in my previous
statement your efforts to get capital to rural communities
through working with rural utilities, which is a huge help for
those communities.
What we have experienced is we took U.S. Department of
Energy stimulus dollars to provide credit enhancements early in
the downturn of the economy to motivate private lenders to lend
into the residential energy efficiency sector. In 2008, there
was no lending anywhere, but certainly not in this new
burgeoning field. And what we have been able to do in the past
few years is actually unlock that private capital, pull the
credit enhancements, and have multiple lenders competing for
this sector because we created competition among them, and we
have found that it has been community banks like Umpqua Bank
and credit unions like Advantis and Selco and others in our
State that are closer to the ground, they are closer to the
communities, they want to support their members, they want
their capital to go locally. And I find--a little editorial
here--a little too much attention on the big banks and interest
from those banks in reaching out their hand for a subsidy, when
actually it is these small banks that are taking the risk.
There is enough data in this sector that it is worthy of
investment, and I believe that if we turn our attention to
supporting these community banks, as you pointed out, that the
big banks will follow at some later point as demand--again, we
need more demand before they are going to enter the market. We
do not need to subsidize them. We need to focus on the small
guys who are close to the communities. Thank you.
Senator Warren. Very powerful point.
Ms. Erickson.
Ms. Erickson. I think everyone has had really important
suggestions. One thing that I would like to mention in addition
to support for community banks is that, again, the single most
important thing we need to do for access to capital from my
perspective is avoid repeating the next financial disaster that
will seize all credit. The Chairman mentioned that, before I
came to the Center for American Progress, I was the economic
adviser to Scotland's First Minister, which is a tiny country
with huge banks. And so I had, unfortunately, far too close a
ringside seat to what happens when credit pretty much dries up
overnight, when institutions that are hundreds of years old and
operate in many countries pretty much go away or have to be
taken over by the Government.
And I think that, as important as Dodd-Frank is--and I
certainly appreciate the leadership of this Committee in
getting it through--if we were to go ask men and women on the
street, ``Do you think that the financial sector is safe? Do
you feel like your 401(k) is all right? Do you trust your
banks?'' I do not think that most people in America think that
the job is done. I do not think that most people in this room
would think that the job is done. And so I think one of the
most important things now to protect credit and access to
capital is making sure that the regulations that were so
strongly fought for in this chamber are actually put into
place.
Senator Warren. I think that is a very, very good point,
Ms. Erickson. I think Americans get this. I think people all
around the country get this. They understand that we have some
very large financial institutions that are continuing to load
up on risks and that it poses a danger to the entire economy.
You know, the five largest financial institutions which we
were told back in 2008 were too big to fail, had to be bailed
out, are now 38 percent larger than they were when they were
bailed out in 2008 and 2009. This is not a sustainable path for
the United States. So I thank you very much because I think you
have made powerful points around this.
Going back to Mr. Dietz's point, finance is important for
being able to develop manufacturing, to develop markets, to
develop all of our business activities, and getting it right so
that our community banks, our credit unions, the people who are
on the ground and working with small businesses can make an
important difference. But we have got to make sure we do not
crash this economy, let the largest financial institutions
crash this economy again.
I thank you all very much on this, and I appreciate this,
Mr. Chairman.
Chairman Merkley. Thank you. Thank you, Senator.
I am going to jump back in, following up with Mr. Dietz, in
regard to two issues related to home construction, and that is,
one concern I have is that with fewer families earning middle-
class incomes, fewer families will believe they have the power
and, in fact, de facto will not have the financial power to
become homeowners. So I would just like you to comment a little
bit on that, but also--and, by the way, we will have to keep
our comments very short because we have votes now scheduled for
3:45, which means we can go until 3:50, but then we have to
dash over to the Capitol.
And, second, I read recently that young adults between 25
and 30 in a short number of years have become half as likely to
get a home mortgage, in other words, to start become
homeowners, which obviously affects the long-term number of
houses that will be sought and purchased.
Any comment on those two challenges?
Mr. Dietz. Yes, I think they are actually connected. One of
the kind of areas of my research has been to look at
demographic challenges. We talk about income distribution. We
have talked about it here. But we really need to look at age
analysis, too.
One of the things you have seen recently is even though
there is job creation going on, there has actually been some
wage declines, but it has been for people under age 35. When
you layer on student loans and all the other typical challenges
that come about those kind of key years of forming households,
getting married, you really do have a problem for both renter
demand and owner-occupied demand.
So, you know, the Congress needs to look carefully, pass
comprehensive housing finance reform to make sure the credit is
available for those home buyers, but also make sure credit is
available for developers of multifamily housing. And a key way
that we can support the rental housing sector is to protect the
Low-Income Housing Tax Credit Program, which has obviously been
a topic of debate in tax reform.
Chairman Merkley. I think one of the things we are hoping--
and I have signed on to Senator Warren's bill--is that by
reducing the interest rates on student loans, enabling folks--
in Oregon we have 500,000 folks who have student loans--to
refinance those at 4 percent, a lot of those people may be much
more likely to become customers of the home construction, home
ownership world.
Mr. Dietz. Eventually.
Chairman Merkley. Yes. And, President Buffenbarger, I want
to--you made many big points about how we are structuring our
economy from talking about financing banks for infrastructure,
industrial banks, manufacturing, certainly how manufacturing
drives R&D. Did I catch you right, 70 percent of R&D driven by
manufacturing?
Mr. Buffenbarger. Yes.
Chairman Merkley. Yes, substantial, and kind of the whole
multiplier. But here is an issue that I have seen in
manufacturing, that we have--we did lose a lot of
manufacturers, as you pointed out, 50,000 factories, 5 million
jobs, due to an unlevel playing field. But we also have a
challenge that we have to figure out in terms of automation. I
have been doing a Made in Oregon manufacturing tour, and the
modern robotics and modern software to drive that robotics are
phenomenal and are changing what can be done with human hands
at a cost that can replace workers. This means much higher
productivity, on the one hand, but it means a lot fewer
workers, a lot more money going to capital and less to labor.
And I have always felt if we do not make things in America, we
are not going to have a middle class in America. But in this
case, if we do not make things in America with people, we have
a challenge. And yet, to be competitive with the world, we are
certainly going to continue adopting these new technologies.
So any insights on the challenge of sustaining
substantial--not just a successful manufacturing sector but
ways in which we can make sure it thrives so much that it
continues to provide living-wage jobs.
Mr. Buffenbarger. Thank you, Senator. As you pointed out,
Oregon, which is a great State--and recently I toured the
Boeing facility in Portland, a prime example of high
technology, yet we are hiring there. We are going to be putting
the employer there. It is going to be adding about 500 new
jobs, because the technology enables us to handle the higher
volume to meet the demand of the marketplace.
What would help in this realm, if the Government were to
insist on those Made in America principles we spoke about
earlier and Made in the U.S.A., maybe we could make the robots
here for a change. After all, the concept of them was invented
here, and we offshored it with Government incentives to Nations
such as Japan and Germany. Maybe we should have kept the
technology that was devised from defense-related R&D. That was
a taxpayers' investment into the thought process, and then we
turn it over to the private corporations who send it overseas
and make a big profit off of it.
Where was the taxpayers' return on the investment? It was
in the loss of jobs.
I say that if we are going to use our incentives, tax
policies, whatever, to promote this type of innovation, this
type of R&D, the quid pro quo would be it has to be built in
the United States. That would bring and keep those good, high-
tech--high-wage manufacturing jobs here, or at least go a long
way toward that end.
Chairman Merkley. And can you comment on the Export-Import
Bank and the fact that its authorization is expiring this year
and the role it plays in being able to sell our products to the
world?
Mr. Buffenbarger. The IAM is very much in support of
renewal of the Export-Import Bank. For the aerospace industry,
it is the best example I can draw on right now. It helps us,
the U.S., sell our products overseas, to export products. And
the fact of the matter is it is the one bank that returns its
profit to the United States Treasury each year. Last year, it
was $1 billion. That is $1 billion more than a few other banks
I could think of that we used the taxpayer dollar to bail out
not too long ago.
Chairman Merkley. Let us give the final question to Senator
Warren, and then we are going to have to dash. Normally after
we conclude a hearing, I would be able to stay and chat with
folks. My team will be staying, but I am going to have to run
for the vote.
Senator Warren. So we have time for me to just ask a little
bit more? OK.
So I have a question about worker training and whether or
not worker training is good enough to meet the real-time needs
of manufacturers. A recent National Association of
Manufacturers survey indicates that more than 80 percent of
manufacturers reported a significant shortage in skilled
workers and about 75 percent of manufacturers said that the
skills gap was harming their ability to expand their
businesses.
Community colleges can play a valuable role in closing the
skills gap. In fact, in Massachusetts, we have put something
together called the ``Rapid Response Grants Program'', which
provides money to community colleges so they can respond to
workforce training needs within 90 days of a company's request.
Last year, for example, the State provided funding to MassBay
Community College so that students could receive training to
work at Web Industries, which is an employee-owned advanced
manufacturing company in Holliston.
Also, in February of this year, Greenfield Community
College announced the expansion of its advanced manufacturing
training programs.
These programs make sense if we are helping workers learn
skills that will help them over the course of their careers and
not just subsidizing in-house training for specialized
manufacturers that they ordinarily would provide. And I just am
interested in anyone on the panel's comments about whether this
is an approach that works or not. We hear a lot about it, but I
would just like the views of some of the people who are on the
front lines on this.
Why don't we start with you, President Buffenbarger?
Mr. Buffenbarger. I am the product of a tool-and-die
apprenticeship with General Electric jet engines, a very high-
tech apprenticeship. It also includes that time with the
university. In my case, it was Miami University of Oxford,
Ohio. All the apprentices with General Electric attend
university classes. The concept is not so much the community
college or the university providing the skills. They cannot
alone. With an apprenticeship, it is hands-on, augmented by
that classroom, that instruction, at whatever level it is.
And so whatever we are going to do in the future, there has
to be that emphasis placed by this Government with great
strength and great force behind it to take a serious look at
that original 4-year degree program called an
``apprenticeship.''
Senator Warren. I hear you. Thank you.
Mr. Dietz? And we are going to have to run in just a minute
here. Thank you.
Mr. Dietz. Yes, very quickly, again, that is a very large
issue in construction right now. You can look at Bureau of
Labor Statistics data. The number of open, unfilled
construction sector positions is 127,000, which, given the high
rates of unemployment, is a bit of a paradox, but it has a lot
to do with skills. It is also where the construction is taking
place. But community colleges, job centers, NAHB has a
subsidiary called Home Builders Institute that helps train
workers. That is a necessary part of filling these jobs, which
are available, they are out there, and they are middle class
jobs that pay about $40,000 a year.
Senator Warren. Anyone else want to add to that? Ms.
Erickson, you get the last word, it looks like here.
Ms. Erickson. I just wanted to say I am so grateful that
you brought up apprenticeships, because it is something that we
are very much pushing at the Center for American Progress. We
have about 375,000 apprentices registered right now in the
United States. That is a tiny fraction of the apprenticeships
that we see in countries such as England and Germany, not just
in manufacturing, although that is really important, but we can
expand them into things like IT and health care. And I just
want to note there is a bipartisan bill before the Senate, the
LEAP Act, and so hopefully we will see some progress soon.
Senator Warren. Thank you.
Thank you, Mr. Chairman.
Chairman Merkley. You are welcome, and thank you for your
participation. And I appreciate so much all the perspectives
that you have brought on keeping and expanding living-wage jobs
in America. This is a huge, huge issue for the success of our
Nation. We should not be judging the success of our economy by
the Dow Jones or S&P 500. We should not be judging in by the
GDP. We should be judging it by how many living-wage jobs are
we creating that provide a strong foundation for families to
thrive.
And so each of you have brought insights related to that
central question in our economy. I so much appreciate it. I
apologize I cannot stay and talk, but it is a dialog that we
are continuing to carry on with all of you.
With that, I will note that the record will remain open for
7 days for any questions that Members wish to be submitted, and
with that, I formally adjourn the Banking Committee Economic
Policy Subcommittee hearing on job creation.
Mr. Smith. Thank you both for your leadership.
[Whereupon, at 3:56 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF JENNIFER ERICKSON
Director of Competitiveness and Economic Growth, Center for American
Progress
May 7, 2014
Thank you Chairman Merkley and Ranking Member Heller for inviting
me here to testify. My name is Jennifer Erickson, and I am the Director
of Competitiveness and Economic Growth at the Center for American
Progress.
It is difficult to imagine a more important issue for the security
of both American families and the American economy than creating and
maintaining good, middle-class jobs. With that in mind, my testimony
today will focus on three things: an overview of the current jobs
picture in the United States, policies that can promote job creation in
the short to medium term, and also what we need to do to ensure a
vibrant economic ecosystem in the future.
Central to all of this analysis is the understanding that if we are
going to have a strong and growing economy, we need a strong and
growing middle class. President Barack Obama rightly identified
reigniting the engine of growth of the middle class as the defining
issue of our time. \1\ That is because we know that with a strong and
growing middle class, we have a more stable source of demand, a bigger
pipeline of both entrepreneurs and skilled workers, and the critical
support needed for public institutions that a vibrant middle class
provides. \2\
---------------------------------------------------------------------------
\1\ The White House, ``Remarks by the President on Economic
Mobility'', Press release, December 4, 2013, available at http://
www.whitehouse.gov/the-press-office/2013/12/04/remarks-president-
economic-mobility.
\2\ Heather Boushey and Adam Hersh, ``Middle Class Series: The
American Middle Class, Income Inequality, and the Strength of Our
Economy, New Evidence in Economics'', (Washington: Center for American
Progress, 2013), available at http://www.americanprogress.org/issues/
economy/report/2012/05/17/11628/the-american-middle-class-income-
inequality-and-the-strength-of-our-economy/; David Madland, ``Growth
and the Middle Class, First Principles: Arguing the Economy'',
Democracy Journal (20) (2011), available at http://
www.democracyjournal.org/20/growth-and-the-middle-class.php.
---------------------------------------------------------------------------
Overview of the Current Jobs Picture
Between late 2007 and June 2009, the United States underwent its
longest and most severe economic contraction since the Great
Depression, the result of a real estate bubble and the ensuing crash
that had its roots in lax regulations, opaque financial products, and
unsustainable household debt. \3\
---------------------------------------------------------------------------
\3\ Council of Economic Advisers, ``2010 Economic Report of the
President'' (Executive Office of the President, 2010), available at
http://www.whitehouse.gov/sites/default/files/microsites/economic-
report-president-chapter-2r2.pdf; Bob Willis, ``U.S. Recession Worst
Since Great Depression, Revised Data Show'', Bloomberg News, August 1,
2009, available at http://www.bloomberg.com/apps/
news?pid=newsarchive&sid=aNivTjr852TI.
---------------------------------------------------------------------------
The economy saw a rapid increase in unemployment, from 5 percent in
December 2007 to a peak of 10 percent as of October 2009. \4\ This
decline in employment exceeded that of any recession over the past few
decades \5\ and was the first on record to wipe away all of the
previous job gains of the most recent economic expansion. \6\
---------------------------------------------------------------------------
\4\ U.S. Bureau of Labor Statistics, ``Data, Tables and
Calculators by Subject: Labor Force Statistics From the Current
Population Survey'', available at http://data.bls.gov/timeseries/
LNS14000000 (last accessed May 2014).
\5\ Bureau of Labor Statistics, ``The Recession of 2007-2009''
(U.S. Department of Labor, 2012), available at http://www.bls.gov/
spotlight/2012/recession/pdf/recession_bls_spotlight.pdf.
\6\ Christopher J. Goodman and Steven M. Mance, ``Employment Loss
and the 2007-2009 Recession: An Overview'', Monthly Labor Review
(2011): 3-12, available at http://www.bls.gov/opub/mlr/2011/04/
art1full.pdf.
---------------------------------------------------------------------------
It has been nearly 5 years since the official end of the recession,
\7\ and the economy continues to recover. 2013 was the third straight
year in which private-sector employment rose by more than 2 million
jobs. \8\ And as of last week's jobs numbers, the U.S. economy has seen
50 straight months of private-sector job growth, adding a total of 9.2
million private-sector jobs. \9\
---------------------------------------------------------------------------
\7\ Bureau of Labor Statistics, ``The Recession of 2007-2009''.
\8\ Council of Economic Advisers, ``2014 Economic Report of the
President'' (Executive Office of the President, 2014), available at
http://www.whitehouse.gov/sites/default/files/docs/
full_2014_economic_report_of_the_president.pdf.
\9\ Jason Furman, ``The Employment Situation in April'', The White
House Blog, May 2, 2014, available at http://www.whitehouse.gov/blog/
2014/05/02/employment-situation-april; Center for Budget and Policy
Priorities, ``Chart Book: The Legacy of the Great Recession'',
available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3252 (last
accessed May 2014).
---------------------------------------------------------------------------
While the signs of improvement are encouraging, there is no doubt
that the pace of the recovery in terms of growth and jobs has been
modest and underwhelming when we consider the potential labor-force
growth during this time. Stubbornly high unemployment and low labor-
force participation continue to define today's workforce. As of April
2014, the United States had an unemployment rate of 6.3 percent, down
nearly 4 percentage points from the labor market's recession peak. \10\
While there has been steady private-sector job growth over the past 50
months, the pace has been too slow to restore us to full employment.
\11\ The current share of workers either working or looking for work
falls below the rate at the beginning of the recession--66 percent--and
is equal to the lowest participation rate since around 1978. \12\
---------------------------------------------------------------------------
\10\ U.S. Bureau of Labor Statistics, ``Economic Situation
Summary'', Press release, May 2, 2009, available at http://www.bls.gov/
news.release/empsit.nr0.htm; U.S. Bureau of Labor Statistics, ``Data,
Tables and Calculators by Subject: Labor Force Statistics From the
Current Population Survey'', available at http://data.bls.gov/
timeseries/LNS14000000 (last accessed May 2014).
\11\ Furman, ``The Employment Situation in April''; Center for
Budget and Policy Priorities, ``Chart Book: The Legacy of the Great
Recession''.
\12\ U.S. Bureau of Labor Statistics, ``Data, Tables and
Calculators by Subject: Labor Force Statistics From the Current
Population Survey, LNS11300000'', available at http://data.bls.gov/
timeseries/LNS11300000 (last accessed May 2014).
---------------------------------------------------------------------------
The long-term unemployed have suffered tremendously as we continue
to see an abnormally high number of Americans who want to work but are
unable to find employment. As of April 2014, there were 3.5 million
Americans who have been actively searching for a job for 27 weeks or
more. \13\ At 35.3 percent, the current rate of long-term unemployment
as a share of the unemployed falls below the peak during the recession
but is far and away the highest level on record. \14\ Among those ages
20 to 24, there is an unemployment rate of 10.6 percent, more than 4
percentage points higher than the national average. \15\
---------------------------------------------------------------------------
\13\ U.S. Bureau of Labor Statistics, ``Economic Situation
Summary''.
\14\ The State of Working America, ``The Share of the Unemployed
Who Have Been Jobless for Six Months or More, 1948-2014'', available at
http://www.stateofworkingamerica.org/charts/long-term-unemployment/
(last accessed April 2014).
\15\ U.S. Bureau of Labor Statistics, ``Economic Situation
Summary''.
---------------------------------------------------------------------------
According to Adam Hersh of the Center for American Progress, the
economy is currently growing at around 60 percent of the pace set by
the prior three U.S. expansions from as far back as 1982. \16\ Since
the June 2009 trough, ``the economy has grown just 11 percent
overall.'' \17\ Of the last six recoveries, the most recent recovery
ranks behind all but December 2001, with the smallest share of months
with job growth above 200,000, or 33 percent. \18\ Moreover, at the
current average rate of job growth, analysis done by CAP's Michael
Madowitz using The Hamilton Project's estimates demonstrates that the
U.S. economy will not reach its former level of employment until 2019.
\19\
---------------------------------------------------------------------------
\16\ Adam Hersh, ``Private Debt, Public Penny-Pinching Holding GDP
Back'', Market Watch, April 30, 2014, available at http://
www.marketwatch.com/story/private-debt-public-penny-pinching-holding-
gdp-back-2014-04-30?link=MW_story_latest_news.
\17\ Ibid.
\18\ CAP analysis of Bureau of Labor Statistics and National
Bureau of Economic Research data. See U.S. Bureau of Labor Statistics,
``Labor Force Statistics From the Current Population Survey'',
available at http://www.bls.gov/cps (last accessed May 2014); National
Bureau of Economic Research, ``U.S. Business Cycle Expansion and
Contractions'', available at http://www.nber.org/cycles/cyclesmain.html
(last accessed May 2014).
\19\ Michael Madowitz and Matt Markezich, ``The State of the U.S.
Labor Market: Pre-May 2014 Jobs Release'', Center for American
Progress, May 1, 2014, available at http://www.americanprogress.org/
issues/economy/news/2014/05/01/88688/the-state-of-the-u-s-labor-market-
2/; The Hamilton Project, ``Closing the Jobs Gap'', available at http:/
/www.hamiltonproject.org/jobs_gap/ (last accessed April 2014).
---------------------------------------------------------------------------
Much of the problem has to do with the fact that our economy is
suffering from a large output gap. Through the first quarter of 2014,
demand for goods and services has been more than 4 percent less than
what the economy can supply. \20\ This restrained growth can be largely
attributed to both fiscal austerity and stagnant incomes for families
across the United States. \21\ While businesses continue to see strong
earnings and capture a major share of the income gains throughout the
recovery, this has not translated into more jobs. \22\ This is largely
because businesses have less of an incentive to invest when consumer
demand is weak. \23\
---------------------------------------------------------------------------
\20\ Center for Budget and Policy Priorities, ``Chart Book: The
Legacy of the Great Recession''.
\21\ Hersh, ``Private Debt, Public Penny-Pinching Holding GDP
Back''.
\22\ Matthew Phillips, ``Goldman: Corporate Profits Grew Five
Times Faster Than Wages in 2013'', Bloomberg BusinessWeek, January 24,
2014, available at http://www.businessweek.com/articles/2014-01-24/
goldman-2013-corporate-profits-grew-five-times-faster-than-wages;
Nelson D. Schwartz, ``Recovery in U.S. Is Lifting Profits, but Not
Adding Jobs'', The New York Times, March 3, 2014, available at http://
www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-
worker-income-limps.html?pagewanted=all.
\23\ Bruce Bartlett, ``It's the Aggregate Demand, Stupid'',
Economix, August 16, 2011, available at http://
economix.blogs.nytimes.com/2011/08/16/its-the-aggregate-demand-stupid/
?pagewanted=all.
---------------------------------------------------------------------------
This need to improve our economic prospects has not been helped by
sequestration, debt ceiling debates, and spending cuts on both the
Federal and State levels. In particular, according to the Council of
Economic Advisers, the most recent Government shutdown and debt limit
brinkmanship had a ``substantial negative impact'' on the economy,
resulting in a ``0.25 percentage point reduction in the GDP growth rate
in the fourth quarter and a reduction of about 120,000 private-sector
jobs in the first 2 weeks of October.'' \24\ Additionally, not only
have these austerity policies resulted in cuts to investments and
services critical to economic growth, but they have also led to cutting
jobs--including the loss of hundreds of thousands of public-sector jobs
since the end of the recession. \25\
---------------------------------------------------------------------------
\24\ Council of Economic Advisers, ``Economic Activity During the
Government Shutdown and Debt Limit Brinksmanship'', (Executive Office
of the President, 2013), available at http://www.whitehouse.gov/sites/
default/files/docs/weekly_indicators_report_final_0.pdf.
\25\ Michael Linden, ``It's Time To Hit the Reset Button on the
Fiscal Debate'', (Washington: Center for American Progress, 2013),
available at http://www.americanprogress.org/wp-content/uploads/2013/
06/FiscalReset.pdf; U.S. Bureau of Labor Statistics, ``Top Picks'',
available at http://data.bls.gov/cgi-bin/surveymost?ce (last accessed
May 2014).
---------------------------------------------------------------------------
In short, while we are slowly recovering from the worst economic
crisis since the Great Depression, in February 2014, the Congressional
Budget Office estimated that economic growth from the end of 2017
onward will be ``well below the average seen over the past several
decades'' and that the unemployment rate will remain above 6 percent
until the end of 2016. \26\ Nearly half a decade following the
recession, with 10 million workers unemployed and 3.5 million who have
been looking for work for 6 months or more, \27\ the message could not
be clearer. We need to take steps to accelerate job creation, and we
also need to take care that we are creating an economic environment
that is producing good, middle-class jobs.
---------------------------------------------------------------------------
\26\ Congressional Budget Office, ``The Budget and Economic
Outlook: 2014 to 2024'' (2014), available at http://www.cbo.gov/
publication/45010.
\27\ Hersh, ``Private Debt, Public Penny-Pinching Holding GDP
Back''; U.S. Bureau of Labor Statistics, ``Economic Situation
Summary''.
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Policies That Can Promote Job Creation in the Short to Medium Term
In 2013, the Center for American Progress published an economic
growth strategy, ``300 Million Engines of Growth'', that was centered
on the premise that our economy will do better when all Americans are
able to participate in it at the top of their talents. In ``300 Million
Engines of Growth'', we acknowledge the reality that if we are going to
grow the largest, most dynamic, complex economy the world has ever
seen, we have to do a lot of things right--with the Government both
investing in human capital and setting a competitive environment in
which our workers and businesses can compete at home and abroad.
Today, I would like to highlight a few policies that would have the
benefit of spurring job creation in the shorter term, while at the same
contributing to our longer-term competitiveness.
Infrastructure
At a time when approximately 800,000 construction workers are out
looking for work, \28\ and when the American Society of Civil Engineers
ranks America's infrastructure with a troubling D+ grade, \29\ this is
the perfect time for bipartisan consensus on the importance of
investing in a new generation of infrastructure--from our roads and
bridges, to our railways and ports, to our electric grids and
wastewater systems.
---------------------------------------------------------------------------
\28\ U.S. Bureau of Labor Statistics, ``Table A-14. Unemployed
Persons by Industry and Class of Worker, not Seasonally Adjusted'',
Press release, May 2, 2014, available at http://www.bls.gov/
news.release/empsit.t14.htm.
\29\ American Society of Civil Engineers, ``2013 Report Card for
America's Infrastructure'', available at http://
www.infrastructurereportcard.org/a/#e/welcome (last accessed May 2014).
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Infrastructure investment is a well-known ``two-fer,'' meaning it
results in job creation in the short term and greater economic
competitiveness over the long term. \30\ As of 2008, for every $1
billion in infrastructure spending in a given state, around 9,000 to
15,000 direct and indirect jobs are supported--making infrastructure
one of the single best investments the Government can make. \31\
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\30\ ``President's Council on Jobs and Competitiveness, Taking
Action, Building Confidence: Five Common-Sense Initiatives To Boost
Jobs and Competitiveness'', Interim Report (Executive Office of the
President, 2011), available at http://files.jobs-council.com/
jobscouncil/files/2011/10/JobsCouncil_InterimReport_Oct11.pdf.
\31\ Claudia Copeland, Linda Levine, and William J. Mallett, ``The
Role of Public Works Infrastructure in Economic Recovery'',
(Washington: Congressional Research Service, 2011), available at http:/
/www.fas.org/sgp/crs/misc/R42018.pdf.
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The President's recently released surface transportation
reauthorization proposal calls for $302 billion in expenditures, which
would have a powerful effect on both jobs and competitiveness. \32\ As
valuable as this contribution to the jobs picture would be, the
contribution to our Nation's productivity for years to come would be
enormous as well. After all, the interstate highway system was a
massive investment in our Nation's infrastructure and boosted U.S.
annual productivity growth by double digits for decades. \33\ Yet many
of these critical assets are rapidly approaching the ends of their
useful lives. America's workers stand at the ready to lay the
foundation for the next five decades of prosperity.
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\32\ The White House, ``Fact Sheet: President Obama Lays Out
Vision for 21st Century Transportation Infrastructure'', Press release,
February 26, 2014, available at http://www.whitehouse.gov/the-press-
office/2014/02/26/fact-sheet-president-obama-lays-out-vision-21st-
century-transportation-i.
\33\ Federal Highway Administration, ``Productivity and the
Highway Network: A Look at the Economic Benefits to Industry From
Investment in the Highway Network'', (U.S. Department of
Transportation, 2012), available at http://www.fhwa.dot.gov/policy/
otps/060320b/index.htm.
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Apprenticeships
The latest unemployment statistics highlight that too many of
America's young people are either unemployed or underemployed. \34\
Unemployment does not just hurt these would-be workers now; it can also
depress their earnings for years into the future due to forgone work
experience and missed opportunities to develop skills. \35\ The fact
that the number of unemployed and underemployed young Americans is
greater than the entire population of New York City has extremely
damaging implications for our economic prospects as a Nation. \36\
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\34\ U.S. Bureau of Labor Statistics, ``Economic Situation
Summary''; Sarah Ayres, ``The High Cost of Youth Unemployment''
(Washington: Center for American Progress, 2013), available at http://
www.americanprogress.org/wp-content/uploads/2013/04/
AyresYouthUnemployment1.pdf; U.S. Bureau of Labor Statistics,
``Employment and Unemployment Among Youth Summary'', Press release,
August 20, 2013, available at http://www.bls.gov/news.release/
youth.nr0.htm.
\35\ Ayres, ``The High Cost of Youth Unemployment''.
\36\ Sarah Ayres, ``America's Ten Million Unemployed Youth Spell
Danger for Future Economic Growth'' (Washington: Center for American
Progress, 2013), available at http://www.americanprogress.org/issues/
economy/report/2013/06/05/65373/americas-10-million-unemployed-youth-
spell-danger-for-future-economic-growth/.
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One immediate opportunity to address part of this problem is
through dramatically expanding apprenticeships, a structured form of
paid worker training that combines on-the-job learning and classroom
instruction. Apprenticeships have been shown to boost workers' earnings
and raise sponsoring companies' productivity levels, which is why many
other countries rely on them as a central tool to develop a highly
skilled, competitive workforce. \37\ But even though, according to the
U.S. Department of Labor's Employment and Training Administration,
there are currently more than 375,000 registered apprentices in the
United States, the training model is largely unfamiliar to Americans
and considerably less widely used than in countries such as Germany and
the United Kingdom. \38\
---------------------------------------------------------------------------
\37\ Ben Olinsky and Sarah Ayres, ``Training for Success: A Policy
To Expand Apprenticeships in the United States'' (Washington: Center
for American Progress, 2013), available at http://
www.americanprogress.org/wp-content/uploads/2013/11/
apprenticeship_report.pdf; London School of Economics and Political
Science and Centre for Economic Performance, ``The State of
Apprenticeship in 2010'' (2010), available at http://cep.lse.ac.uk/
pubs/download/special/cepsp22.pdf.
\38\ U.S. Employment and Training Administration, ``Registered
Apprenticeship Data and Statistics'', available at http://
www.doleta.gov/OA/data_statistics.cfm (last accessed May 2014); Olinsky
and Ayres, ``Training for Success: A Policy To Expand Apprenticeships
in the United States''.
---------------------------------------------------------------------------
Expanding the U.S. apprenticeship system both in number of
participants and available occupations would strengthen employment
outcomes for young Americans by creating pathways for young workers to
good-paying, middle-class jobs. Apprentices get a job today and higher
wages for a lifetime. Researchers have found that, including nonwage
benefits, workers who complete an apprenticeship make an average of
$300,000 more than comparable job seekers in their lifetimes. \39\
Importantly, the wage premium in many cases comes with little or no
educational debt. \40\
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\39\ Debbie Reed and others, ``An Effectiveness Assessment and
Cost-Benefit Analysis of Registered Apprenticeship in 10 States''
(Oakland, CA: Mathematica Policy Research, 2012), available at http://
wdr.doleta.gov/research/FullText_Documents/ETAOP_2012_10.pdf; Sarah
Ayres, ``5 Reasons Expanding Apprenticeships Will Benefit
Millennials'', Center for American Progress, December 2, 2013,
available at http://www.americanprogress.org/issues/economy/news/2013/
12/02/79872/5-reasons-expanding-apprenticeships-will-benefit-
millennials/.
\40\ Ayres, ``5 Reasons Expanding Apprenticeships Will Benefit
Millennials''.
---------------------------------------------------------------------------
Given these benefits, we should welcome the President's recent
announcement of $100 million in grants to support new apprenticeships,
and Congress should pass the bipartisan Leveraging and Energizing
America's Apprenticeship Programs, or LEAP, Act, which would provide
businesses with a tax credit for each apprentice they hire, expanding
these highly successful private-sector-led training programs. \41\
---------------------------------------------------------------------------
\41\ The White House, ``Fact Sheet: American Job Training
Investments: Skills and Jobs To Build a Stronger Middle Class'', Press
release, April 16, 2014, available at http://www.whitehouse.gov/the-
press-office/2014/04/16/fact-sheet-american-job-training-investments-
skills-and-jobs-build-stron; Nia Hamm, ``Bill Aims To Spur Job Growth
for the Unemployed'', CNBC, April 15, 2014, available at http://
www.cnbc.com/id/101581979.
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Policies That Can Promote Job Creation in the Longer Term
While investing in infrastructure and apprentices can help create
jobs in the near term, there is much more to be done to drive job
creation in the longer term.
Investments in the middle class following World War II helped build
the most prosperous economy in the world. Congress made those
investments in core areas of U.S. competitiveness--our people, our
infrastructure, and our innovation.
The G.I. Bill helped almost 8 million American veterans go to
college or get training and was seen as so successful that it was
repeated for Korean and Vietnam veterans and further expanded after
September 11, 2001. \42\ From 1944 to 1956, we invested the equivalent
of more than $100 billion in 2011 dollars, and our return on that
investment was the engine of middle-class growth that powered the
American economy following the Great Depression and World War II. \43\
---------------------------------------------------------------------------
\42\ Jennifer Erickson, ``Top 10 U.S. Government Investments in
20th Century American Competitiveness: Why Federal Funding in the 21st
Century Is Equally Critical to U.S. Science and Economic
Competitiveness'' (Washington: Center for American Progress, 2012),
available at http://www.americanprogress.org/issues/economy/report/
2012/01/06/10930/top-10-u-s-government-investments-in-20th-century-
american-competitiveness/.
\43\ Ibid.
---------------------------------------------------------------------------
President Dwight D. Eisenhower embarked on one of the most
ambitious Government spending programs America has ever seen in the
form of the interstate highway system. In 2011 dollars, we invested
$468 billion--across multiple administrations headed by both
Republicans and Democrats--to connect the country with more than 42,000
center-line miles of road, in what President Eisenhower referred to as
a ``mighty network'' critical to U.S. competitiveness, safety, and
defense. \44\
---------------------------------------------------------------------------
\44\ Ibid.
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Taking one example of our research and development investment
following World War II, in 2011 dollars, we invested $150 billion in
the Apollo space program. At the height of its efforts, it employed
400,000 Americans and worked with 20,000 partnering institutions. This
investment led to massive technological advancement and technology
transfer in the private sector, leading to more than 1,500 successful
spinoffs in areas from heart monitors to solar panels. \45\
---------------------------------------------------------------------------
\45\ Ibid.
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The point of these three examples is that we know what works and
leads to big returns on public investment: investments in our people
and our innovative environment.
The question now is this: Are we prepared to invest in ourselves
once again?
When it comes to human capital, will we invest in our future
workers by ensuring all our children have access to high-quality
preschool education, where economist James Heckman has shown we can
earn a high return on our educational investment? \46\ Or--in a clear-
eyed realization of the economic and entrepreneurial value of giving
legal status to aspiring Americans--will we ensure there is a pathway
to citizenship for the 11 million undocumented immigrants currently
living in the United States, knowing that the extra jobs and money that
their status would create would lead to an average annual increase of
121,000 jobs and a cumulative 10-year boost to GDP of $832 billion?
\47\ The Senate has already spoken on this, passing a bipartisan bill
that is still waiting for a vote in the House.
---------------------------------------------------------------------------
\46\ James J. Heckman and Dimitriy V. Masterov, ``The Productivity
Argument for Investing in Young Children''. Working Paper 5 (Committee
on Economic Development, 2004); James J. Heckman, ``Schools, Skills,
And Synapses'', Economic Inquiry 46(3) (2008): 289-324; James Heckman,
Seong H. Moon, Rodrigo Pinto, Peter A. Savelyev, and Adam Yavitz, ``The
Rate of the Return to the High Scope Perry Preschool Program'', Journal
of Public Economics 94 (2010): p. 114-128.
\47\ Robert Lynch and Patrick Oakford, ``The Economic Effects of
Granting Legal Status and Citizenship to Undocumented Immigrants''
(Washington: Center for American Progress, 2013), available at http://
www.americanprogress.org/wp-content/uploads/2013/03/
EconomicEffectsCitizenship-6.pdf; Jennifer Erickson and Michael
Ettlinger, ``300 Million Engines of Growth: A Middle-Out Plan for Jobs,
Business, and a Growing Economy'' (Washington: Center for American
Progress, 2013), available at http://www.americanprogress.org/issues/
economy/report/2013/06/13/66204/300-million-engines-of-growth/.
---------------------------------------------------------------------------
And when it comes to improving our economic environment, since we
know that advances in science and technology account for roughly half
of the growth in the U.S. economy since World War II, \48\ are we
prepared to boost investment in general science, space, and technology
funding, which was reduced in real terms by about 12 percent from 2010
to 2013? \49\
---------------------------------------------------------------------------
\48\ Michael J. Boskin and Lawrence J. Lau, ``Generalized Solow-
Neutral Technical Progress and Postwar Economic Growth'', Working Paper
8023 (National Bureau of Economic Research, 2000), available at http://
www.nber.org/papers/w8023; Robert M. Solow, ``Technical Change and the
Aggregate Production Function'', Review of Economics and Statistics
39(3) (1957):312-320, available at http://www9.georgetown.edu/faculty/
mh5/class/econ489/Solow-Growth-Accounting.pdf.
\49\ Office of Management and Budget, ``Historical Tables'',
available at http://www.whitehouse.gov/omb/budget/Historicals (last
accessed May 2014).
---------------------------------------------------------------------------
In fact, according to Michael Linden, the period from 2010 to 2013
saw ``the largest three-year reduction in Federal spending since the
demobilization at the end of the Korean War.'' \50\ Since we all have
an interest in responsible public finance, we must recognize that
responsible public finance includes responsible public investment.
Cutting investments at a time when the global economy is getting ever
more competitive is short sighted in the extreme and risks the very
innovation economy that our workers and our businesses--aided by smart
Government investment--have worked so diligently to build.
---------------------------------------------------------------------------
\50\ Linden, ``It's Time To Hit the Reset Button on the Fiscal
Debate''.
---------------------------------------------------------------------------
Additionally, while we need to invest in our human capital and our
economic environment, we also must take great care not to repeat the
mistakes of the past that will decimate employment. Millions of
Americans are still reeling from the after-effects of the financial
crisis and Great Recession, including long-term unemployment and lost
household wealth. In fact, the Council of Economic Advisers calculated
that during this period, Americans lost more than $13 trillion in
wealth. \51\ So as a start, we must see through the landmark reforms
from the Dodd-Frank Wall Street Reform and Consumer Protection Act to
ensure that the era of ``too big to fail'' has truly passed and empower
regulators with the tools they need to do the job required for the
American people.
---------------------------------------------------------------------------
\51\ Council of Economic Advisers, The Economic Impact of the
American Recovery and Reinvestment Act Five Years Later (Executive
Office of the President, 2014), available at http://www.whitehouse.gov/
sites/default/files/docs/cea_arra_report.pdf.
---------------------------------------------------------------------------
Conclusion
We know how the economy works: Securing America's middle class is
the path to strengthening U.S. economic growth now and for the long
term. If we are going to have a vibrant economy producing good-paying
jobs, we need that economy to be fueled by a strong and growing middle
class that can supply the human capital, entrepreneurship, and stable
demand to drive our economy.
Some of the policies discussed today can have an immediate effect
in driving job creation, such as investing in infrastructure and
expanding apprenticeships. Others, such as investing in our next
generation of workers who are just starting their educational journeys
and funding research and development, will take decades to bear fruit.
But the sooner we acknowledge that smart Government policies that
support a strong and growing middle class are key to our economic
success, the sooner we will see more Americans in good-paying, middle-
class jobs.
PREPARED STATEMENT OF DEREK SMITH
Chief Executive Officer, Clean Energy Works Oregon
May 7, 2014
Mr. Chair, Members of the Committee, my name is Derek Smith. I am
CEO of Clean Energy Works, based in Portland, Oregon. Thank you for the
opportunity to speak with you this afternoon; and thank you, Senator
Merkley, for your leadership on clean energy and economic development.
Clean Energy Works is a nonprofit, public-private partnership. Our
mission is to create jobs and reduce energy waste through the
facilitation of home energy retrofits. We coordinate and deploy public,
private, and utility dollars to scale up the residential energy
efficiency sector.
We were founded four years ago as a City of Portland pilot project
seeded with Recovery Act dollars. I am here to report that this smart
Federal investment is proving that residential energy efficiency can
create quality jobs and unlock private capital to grow a vibrant
marketplace.
To date, our statistics include:
12,000 sign-ups
3,700 homes upgraded in rural, suburban and urban
communities
30 percent average energy savings per home
More than $1.5 million put back into the pocketbooks of
Americans instead of being spent on energy waste
As for jobs, we know through our work that, for every 10 homes
upgraded, one job gets created. To date, we've enabled:
1,300 workers receiving paychecks
400 new-hires in the hard-hit construction industry
$21/hour average wages across multiple trades, from
weatherization to plumbing to electrical to HVAC
56 percent of work hours performed by women and people of
color
36 veterans working on projects
$65 million in economic development
And counting . . .
Before we began our work, this market was 200 homes per year and
workers were paid piece-rate wages averaging around $9/hour. We are now
lifting people out of poverty and into career pathway professions.
How do we generate these numbers? It all comes down to making it
easy for citizens to upgrade their homes for energy efficiency. The way
it works for a homeowner is:
1. They sign up at our Web site
2. We arrange for an assessment of their home and pair them with a
vetted contractor
3. A scope of work is drafted and agreed upon by the contractor and
homeowner
4. We arrange financing from a local lender
5. We provide quality control and customer service throughout the
project
Currently, more than 100 small- to medium-sized contracting firms
are growing their businesses in the program. And multiple private
lenders are providing unsubsidized financing. These lenders include
several credit unions, a regional bank and a community development
financial institution. Loan products include secured, unsecured, home
equity and ``on-bill,'' meaning customers can pay back their loans on
their utility bills. So private investment is happening, initially
spurred on by public investment.
As you know, retrofitting inefficient homes puts energy savings
back into the wallets of American families and communities. A
coordinated effort to retrofit America's housing stock would create
hundreds of thousands of U.S. jobs in some of the hardest hit
industries, including construction and manufacturing. These are
primarily small business jobs that cannot be outsourced, using
materials that are on average 90 percent made in the U.S.A. \1\ In
Oregon alone, we estimate there are 600,000 homes in need of
weatherization, an $8 billion opportunity that could create 60,000
jobs.
---------------------------------------------------------------------------
\1\ Home Performance Resource Center: Manufacturing Shares of
Common Energy Remodeling Products.
---------------------------------------------------------------------------
Plus, energy efficiency is unique in that it creates its own cash
flow--less money spent on energy means more money to purchase groceries
and save for college. Simply put, saving energy pays for itself.
So I'd like to conclude by highlighting a few policy issues for
your consideration.
National Policy Challenge--Utility Coordination
Utility dollars are regulated at a State level and are exclusively
focused on energy savings, blind to economic opportunity, driven by
lowest cost, and so they inadvertently foster cheap wages and minimal
career advancement. Even though there may not be direct Federal
jurisdiction, I point this out as a national policy issue because, when
you send public dollars into the energy efficiency sector--a proven
smart investment that creates jobs and unlocks private capital--public
utility commission oversight formulas consider this leverage an
unwelcome challenge. The result is the potential pullback of utility
investment. It is our experience that continued growth in energy
efficiency can be optimized when public, private and ratepayer dollars
are effectively coordinated.
National Policy Opportunities--Real Estate Valuation
The Sensible Accounting to Value Energy (SAVE) Act, S. 1106, was
introduced by Senators Bennet (D-Colo.) and Isakson (R-Ga.) in June of
last year. This legislation would improve the accuracy of mortgage
underwriting used by Federal mortgage agencies by including energy
efficiency as a factor in determining the value and affordability of a
home.
The SAVE Act is a prudent addition to Federal underwriting
guidelines as it incorporates the second largest cost of home
ownership--energy costs, which exceed both taxes and insurance as a
monthly expense. It is not a mandatory addition to such policies, but
only comes into play if the consumer is buying a new energy efficient
home or seeking to improve the efficiency of an older home. In fact,
consumers in older homes have been significantly allocated a larger
part of their remodeling expenditures to energy efficiency according to
the Harvard Joint Center. \2\
---------------------------------------------------------------------------
\2\ http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/
harvard_jchs_remodeling_report_2013.pdf
---------------------------------------------------------------------------
The inclusion of net energy savings in the debt-to-income
calculation is not a liberalization, but a long overdue prudent
addition to correct a ``blindspot'' in underwriting. A car loan or
credit card debt is included in the debt burden, but not the energy
cost, which may be higher. Although the SAVE Act does not call for a
mandatory inclusion, it allows for the recognition of cost-effective
savings from rated properties to be included. For example, if the
monthly additional mortgage cost to obtain a new or improved home is
$50 a month, but the monthly savings are $95, the residual $45 only can
be recognized as a net energy savings. I would argue that it is not a
coincidence that the Veterans Administration, the only federally
insured entity that includes a proxy for energy costs, had the best
mortgage performance over the recent housing crisis cycle. Although
anecdotal, many housing counselors have reported that, in performing
troubled homeowner counseling, energy costs were a large and relatively
fixed component of monthly expenses that were harder to adjust relative
to other expenses such as cutting down discretionary spending or
selling a second car.
The appraisal feature of the bill has been supported by the
Appraisal Institute and the Congressionally chartered Appraisal
Foundation as consistent with generally recognized valuation methods
and techniques.
It is also important to note how mortgages for such homes actually
have actually performed over time. The University of North Carolina
studied the performance of energy efficient homes versus a matched
sample for the period from 2001 to 2012. \3\ It found that the energy
efficient homes foreclosed on average 32 percent less than their
similar neighbors. Furthermore, they stayed in their homes on average
25 percent greater period of time possibly indicating greater
satisfaction due to comfort and lower operating costs.
---------------------------------------------------------------------------
\3\ http://www.imt.org/uploads/resources/files/
IMT_UNC_HomeEEMortgageRisksfinal.pdf
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Over 50 national organizations have signed on as supporters of the
SAVE Act. What is of interest is the diversity of the group, including
leading organizations representing business (NAM and the Chamber),
housing (NAHB, NAR, and LBA), industry (Dow, Johns-Manville, and BASF),
as well as energy efficiency-focused NGOs (ACEEE, NRDC, and ASE) and
Efficiency First, a home performance business trade association of
which Clean Energy Works is proud to be a member. They all recognize
the changes happening in the housing industry and agree on the benefits
of prudent underwriting support as well as savings to consumers and
strengthening of the economy and job formation in our communities.
National Policy Opportunities--Financing
While I have noted here today how valuable home energy efficiency
may be, despite its value, it is severely under-utilized. There remain
significant market barriers that prevent this vital resource--energy
efficiency--from being tapped more effectively. Homeowners are being
asked to make these investments not only because we want them to save
money on their utility bills, but because this reduces costs across the
energy system as a whole, and also to achieve broader goals such as
energy independence, pollution reduction, job creation. However, we are
not properly valuing these very real public and resource benefits
energy efficiency provides. Instead, we are asking homeowners to pay
for the full cost of these improvements, often up front and out of
pocket.
One of the key shifts to begin accounting for the multiple benefits
of energy efficiency is to move towards accounting for energy
efficiency as a resource, the demand reduction equivalent of supply-
side energy production. Reducing demand on the grid through energy
efficiency is akin to building power plants, only cheaper, 100 percent
domestic and completely clean.
We know how to finance power plants. Due to the structure,
protections and oversight in place, power plants supply a stable and
predictable amount of energy to an established and reliable market.
Utilities can raise capital to make investments in projects to
increasing the Nation's energy supply, however, we lack the same mature
capital sources and markets for energy efficiency, even though it is
widely understood to be the most cost effective resource for meeting
our energy needs.
We need to begin to treat residential energy savings as distributed
demand-side power plants that will ultimately, at least in part, be
paid for based on their ability to deliver an energy saving resource to
the grid. To accomplish this, we must more rigorously measure and
account for the performance of energy efficiency improvements.
Historically, energy efficiency incentives have largely been
targeted at specific technologies and individual improvements.
Transitioning these incentives to a performance-based paradigm that
links incentives to actual savings allows for technology and business
model neutrality. Rather than attempting to maintain an up-to-date list
of equipment specification or picking winning technologies or special
interests, offering incentives based on savings at the meter can free
up the tax code from keeping pace with an ever-changing industry. Most
importantly, it creates a system that is flexible and rewards
innovation.
Senators Cardin, Feinstein, and Schatz introduced S. 2189, the
Energy Efficiency Tax Incentives Act last month. This legislation
includes the first performance based energy efficiency tax incentive--
25E in the tax code. This tax incentive would provide between $2,000-
$5,000 to homeowners based on their energy savings. And, public dollars
would be targeted toward public goods, energy savings. This approach
would let the market determine the technology put in the home. Tax
dollars would be investing in those minipower plant savings and the
multipublic benefits those savings provide.
Thank you very much for your support and consideration.
______
PREPARED STATEMENT OF EMIL H. FRANKEL
Visiting Scholar, Bipartisan Policy Center
May 7, 2014
Thank you, Chairman Merkley, Ranking Member Heller, and Members of
this Senate Banking, Housing, and Urban Affairs Subcommittee on
Economic Policy for the opportunity to address on the important issue
of the economic returns and job growth benefits of investment in
infrastructure. This has been a matter that has dominated our work on
transportation and infrastructure policy at the Bipartisan Policy
Center (BPC), where I am currently a Visiting Scholar. I directed BPC's
National Transportation Policy Project (NTPP) that issued a series of
reports and white papers between 2009 and 2012, which, among other
matters, addressed the inter-relationship between transportation and
infrastructure investment and benefits to the broader economy.
Most relevant, in January, 2011, NTPP issued a white paper,
entitled ``Strengthening Connections Between Transportation Investments
and Economic Growth'', coauthored by two members of NTPP, Douglas
Holtz-Eakin, a distinguished economist and former Director of the
Congressional Budget Office (CBO), and Martin Wachs, one of America's
leading scholars of transportation and urban planning during a long
career at the University of California, Berkeley, UCLA, and RAND
Corporation. I will refer to this white paper during my testimony this
morning.
Increasingly, over the past 25 years, as a State and Federal
transportation official, a consultant, teacher, and policy contributor
on transportation and infrastructure issues, I have come to appreciate
the role that these investments play in building economic growth and
prosperity. Throughout American history, even before the birth of the
Republic, investments in roads and canals (the so-called ``internal
improvements'' that Henry Clay and Abraham Lincoln and their Whig
colleagues espoused), railroads and ports, highways and aviation have
characterized public policy and have influenced--perhaps, more than any
other single thing--where cities are located and whether they grow or
decline. From Albert Gallatin, Thomas Jefferson's Treasury Secretary,
to Dwight Eisenhower, America's leaders have spoken of the economic and
political significance of wise infrastructure investments. In the words
of Gallatin, ``Good roads and canals will shorten distances, facilitate
commercial and personal intercourse, and unite, by a still more
intimate community of interests, the most remote quarters of the United
States. No other single operation, within the power of Government, can
more effectually tend to strengthen and perpetuate that Union which
secures external independence, domestic peace, and internal liberty.''
In my own teaching I have made extensive use of a book by a
distinguished economist, Peter Bernstein, Wedding of the Waters. It's
about the construction of the Erie Canal in the early years of the 19th
Century. Its development was, of course, a marvel of surveying,
engineering, and construction at the time, but what Bernstein is most
interested in is the extraordinary impact that this infrastructure
investment had on the economy of the State, the region, and the Nation.
The Erie Canal connected the newly settled areas of the Mid-West and
Great Lakes regions to the original States, and allowed the
agricultural products and natural resources to reach Eastern and world
markets, and for industrial products to reach what was then America's
frontier. New cities were born, like Buffalo and Syracuse, and older
cities took on new and prosperous economic functions, like Albany and,
of course, New York City. The Erie Canal reinforced New York City's
preeminent position, as America's center of finance, commerce, and
international trade, a position that it has held for over 200 years. In
a word, the Erie Canal created what we have known as the American
economy.
Similarly, as William Cronan, distinguished University of Wisconsin
historian, demonstrated in his monumental Nature's Metropolis, the
coming of the railroads to Chicago fundamentally changed the economies
and the natural and built environments of that great city and of the
Plains and other western regions of America, by making it possible for
the products of America's ``Great West'' to reach national and regional
markets.
In a March 2012 report of President Obama's Treasury Department
with the Council of Economic Advisors (CEA), it was noted that the
United States has a rich history of investing in infrastructure and
reaping the long-term benefits. Those benefits include both the short-
term effects of stimulating the maintenance and creation of
construction and construction-related jobs and long-term economic
growth. It seems that every surface transportation authorization bill,
at least since ISTEA in 1991 (and probably before), has been justified
on the basis of stimulating construction employment, the so-called
``jobs' multiplier'' effect. Elected and appointed officials are fond
of talking about 20,000 or 30,000 or 50,000 new jobs' being created for
every $1 billion of investment, as justification for legislation. I
have done so, myself.
While infrastructure investments play an important role, in
stimulating construction jobs, quantifying the so-called multiplier
effect is, perhaps, more difficult than it sometime appears. Certainly,
infrastructure projects can be important, in stimulating new
construction and construction-related positions, particularly, in times
of severe unemployment in construction, as was the case during the
``Great Recession,'' which America has recently endured. However, there
are substantial uncertainties, in predicting such job growth, and
therefore it should not be the sole basis for justifying public
investment in infrastructure.
As Holtz-Eakin and Wachs noted in the BPC white paper, to which I
have referred, ``Spending on transportation is often justified on the
basis of jobs impacts, but estimated multiplier effects carry
substantial uncertainty. Generally, they are not purely data-driven;
rather they rely on judgments and assumptions, may not take into
account aspects of the structure or timing of an investment that would
have an impact on its actual multiplier effects, and may miss qualities
of the specific economic environment in which an investment is being
made. These uncertain estimates about how many jobs will be created by
a given increment of transportation spending too often obscure
meaningful comparative assessment of different investment
opportunities.''
As the BPC white paper further noted, ``Short-term job creation,
while vitally important, must be viewed within the context provided by
a long-term view. Over the long-term, higher productivity . . . is the
key to higher labor earnings and improved standards of living.'' It is
the long-term economic benefits, in terms of productivity, efficiency,
access to markets, and labor force flexibility, which should be the
goals and purposes of public investment in transportation and other
infrastructure projects and programs. The March 2012 Treasury-CEA
report noted that investments in infrastructure allow goods and
services to be transported more quickly and at lower costs, resulting
in both lower prices for consumers and increased profitability for
firms. This report also concluded that infrastructure investment
created middle-class jobs. It reached this conclusion, based on an
analysis that 80 percent of the jobs created by investing in
infrastructure would be in the construction, manufacturing, and retail
sectors and that, by distribution of wages in these three sectors, 90
percent of these jobs would be defined as middle-class jobs, that is,
between the 25th and 75th percentiles in the national distribution of
wages.
However, selecting and supporting those infrastructure investments
that promise the greatest short- and long-term economic benefits in a
time of persistent budget deficits and stagnant public spending is a
difficult challenge to public policy leaders. Public investment capital
is constrained, not least by a political environment that often views
``investment,'' as just another category of spending, and by a
political process that seems incapable of establishing sustainable
revenue streams for such investments.
Surface transportation funding at the Federal level has been
stagnant for several years, and the motor fuels taxes, on which such
funding depends, have not been increased in over 20 years. As BPC's
transportation policy project noted in its June 2011 report, ``The
reality is that Federal transportation spending is likely to be under
enormous pressure for some time to come, despite compelling evidence
that we have been falling consistently short of making the
infrastructure investments needed to sustain an efficient, safe,
environmentally sustainable, and well-functioning transportation
network.'' The same may be said about all other areas and categories of
infrastructure.
The priority, then, needs to be on making ``wise'' infrastructure
investments, that is, those that promise the greatest economic
benefits, in terms of increased productivity, efficiency, and job
creation. Unfortunately, although there are exceptions, America does
not have in place an analytical, planning, and capital programming
framework that allows such investment decision-making to occur. We need
to be able to develop comprehensive strategic capital programs, in
which investments are synergistic and prioritized, and, pursuant to
which, scarce resources are directed to the most promising projects.
For many years, Edward Gramlich, a distinguished economist and
former Federal Reserve Governor, argued that the greatest returns could
be found with investments in existing assets. This view was consistent
with the analytical approach of a report several years ago to the
United Kingdom's Treasury and Department for Transport (DfT) by Sir Rod
Eddington, former CEO of British Airways (the Eddington Report). The
Eddington Report concluded that, generally, the most positive benefits,
in relation to costs occurred with incremental improvements to existing
facilities and networks, rather than from large ``build-it-and-they-
will-come'' projects.
Most important, and relevant, about the Eddington Report, however,
was its application of benefit-cost analyses to competing projects and
its reliance on economic factors, in making choices about the
investment of constrained public resources. For example, it found that,
given the tremendously important role of the London metropolitan region
to the national economy and of the movement of goods and services to,
from, and through a national system deeply dependent upon global trade
and finance, investments in the assets and networks critical to these
elements of the British economy were, by far, the most beneficial.
Similarly, the decision about an enormous public infrastructure
investment--about $20 billion (U.S.) for the development and
construction of an entirely new subway line across metropolitan
London--in a time of severe austerity was justified on the basis of a
strong business case that completion of the new Crossrail line would
serve to enhance mobility and access in London and benefit the
agglomeration of financial and related services, on which the British
economy has come to depend for economic growth and prosperity.
Of course, neither the Eddington Report nor the business case for
Crossrail has perfect application to the decisions that America's
public leaders have to make about infrastructure investments, but the
analytical and decision-making processes that have been used in those
cases do seem relevant to the United States. We need to be able to make
better and ``wiser'' infrastructure decisions in the context of scarce
public investment resources, stagnant Federal infrastructure funding,
and the unwillingness of Congress to provide for sustainable revenue
sources to support such investments.
Of course, these circumstances stimulate other significant Federal
policy changes, in order to respond to the need for greater
infrastructure investment. For one thing, as Federal infrastructure
funding stagnates, the investment burden is falling more heavily on
States and localities. Limited Federal funds have to be used more
effectively to leverage greater public and private investment at those
levels. My BPC colleague, Aaron Klein (a distinguished alumnus of this
Committee staff) and I argued in an OP/ED a few months ago that the
Federal role in infrastructure was, increasingly, moving from funding
to financing. This calls for the expansion of existing Federal loan and
credit enhancement vehicles, like TIFIA, as well as consideration of
new ones, such as infrastructure banks and financing authorities. But
expanded Federal financing requires the establishment of appropriate
revenue streams at the State and local level to support Federal credit
and provide returns to private investors. To that end, Federal barriers
to State and local innovations to establish such sustainable revenue
sources should be eliminated, and such State and local innovations
should be incentivized by Federal policy.
None of these policy initiatives, however, remove the need to make
better and wiser choices. Public capital resources at all levels will
remain scarce for the indefinite future, so investments must be made in
those infrastructure projects and programs that promise the greatest
economic returns, both in the short-term and the long-term. Analytical
and decision-making tools are available to us, in order to select the
right infrastructure investments. It is critical that America's public
officials use those tools on a consistent basis.
______
PREPARED STATEMENT OF ROBERT DIETZ
Vice President for Tax and Market Analysis, National Association of
Home Builders
May 7, 2014
On behalf of the 140,000 members of the National Association of
Home Builders (NAHB), I appreciate the opportunity to testify today. My
name is Robert Dietz, and I am an economist and Vice President for Tax
and Market Analysis at NAHB. My area of focus includes housing market
and home building industry analysis, as well as tax and other policy
issues. I received a Ph.D. in economics from The Ohio State University
in 2003.
NAHB is a Washington, DC-based trade association whose broad
mission is to enhance the climate for housing, home ownership and the
residential building industry. We represent builders and developers who
construct housing ranging from single-family for-sale homes to
affordable rental apartments and remodelers. About one-third of NAHB's
members are home builders and/or remodelers. The others are associates
working in closely related specialties such as sales and marketing,
housing finance, and manufacturing and supplying building materials.
The State of Employment in the Residential Construction Sector
After experiencing significant job losses during the Great
Recession, the residential construction sector is adding jobs to the
national economy as housing construction recovers. According to Census
Bureau data, in 2005 total housing starts reached an historic high of
2.068 million: 1.716 million single-family and 352,000 multifamily
homes. Leading into the housing crisis and the Great Recession, the
pace of home construction declined significantly. Construction activity
declined from 2006 to 2009, reaching an annual total of only 554,000
total housing starts in that year: 445,000 single-family and 109,000
multifamily.
Since that time, and particularly over the course of 2012 and 2013,
home construction recovered as housing demand strengthened due to
overall job growth and household balance sheet repair. For 2013,
housing starts totaled 925,000: 618,000 single-family and 307,000
multifamily units.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Driven by declines in home equity and the volume of existing home
sales, remodeling activity also declined during the recession--although
not as much--and has also begun to expand. In 2006, home improvement
related spending peaked at $144.9 billion. As the pace of existing home
sales declined during the recession, remodeling felt the impact,
falling to $111.6 billion in 2010. For 2013, the sector expanded off
cycle lows, reaching $134 billion for the year.
With activity declines in all three subsectors of the residential
construction industry (single-family, multifamily, and remodeling),
significant jobs losses were incurred. Data from the Bureau of Labor
Statistics reveals that at peak employment in April 2006, the
residential construction sector employed 3.45 million people (1.022
million builders and 2.428 specialty contractors). \1\ From April 2006
until January 2011, the industry lost 1.466 million jobs.
---------------------------------------------------------------------------
\1\ ``Construction Job Openings Cool at the Start of 2014''. NAHB
Economics and Housing Policy blog post: http://eyeonhousing.org/2014/
04/08/construction-job-openings-cool-at-the-start-of-2014/
---------------------------------------------------------------------------
Since that time, the expansion in home building and remodeling has
added jobs back to the sector. Over the last two and half years,
274,000 jobs have been added by home builders and remodelers. Over the
course of the last year alone, 108,000 jobs were added. \2\ More are
expected with continued gains in construction activity. Currently the
industry employs 659,000 individuals in the builder category and 1.598
million as residential specialty contractors, for an industry total of
2.257 million.
---------------------------------------------------------------------------
\2\ ABLS Data and NAHB Calculations''. April BLS Employment
Report. May 2, 2014.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
NAHB is forecasting that single-family construction activity will
expand by 22 percent in 2014 to a total of 760,000 starts. The
multifamily sector should see modest growth of 6 percent to a total of
326,000 starts. This represents a slightly cooling from the substantial
growth witnessed during the 2011-2013 period. Finally, NAHB is
forecasting that remodeling related activity will grow 3.1 percent
during 2014, which represents a slowing of growth as existing home
sales subside.
The industry still has room to grow. At its most fundamental level,
the demand for new homes is determined by the growth of population and
households, as well as the need to replace older housing stock or to
accommodate changes in the location of regional economic activity.
Thus, while the forecasted 2014 numbers for home construction represent
substantial improvements over the lows set after the recession, these
totals are still off from the potential or normal levels of activity.
As the following chart illustrates, the Nation can expect
population growth and rising household formation in the years ahead.
The yellow bar in the graph highlights key ages for household formation
(25-35). We are currently entering a period in which the size of the
population entering these key years is on the rise, with roughly 4
million currently aged 35 but 4.6 million aged 22. These ``echo
boomers'' will increase demand for both rental and owner-occupied
housing in the years ahead.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
NAHB estimates that total housing construction should over the next
few years return to a level just under 1.7 million combined single-
family and multifamily starts per year. The forecasted first quarter
2014 level of single-family construction represents only 45 percent of
this normal or expected level of activity. By the end of 2015, NAHB is
forecasting that single-family activity will have improved to
approximately 93 percent of this benchmark.
Virtuous Circle of Housing and Jobs
Housing and jobs form a virtuous circle in which employment growth
for a local economy increases the demand for home construction, which
in turn creates additional jobs. NAHB has developed a model that uses
Government data to estimate the complete interactive economic benefits
that arise with residential construction. \3\ The model employs the
input-output accounts from the Bureau of Economic Analysis to track the
impacts from home construction on other sectors of the economy. These
additional impacts are traced and summed to estimate the aggregate
impacts on wages, business income, jobs, and taxes.
---------------------------------------------------------------------------
\3\ ``Impact of Home Building and Remodeling on the U.S.
Economy''. NAHB Economics and Housing Policy. http://www.nahb.org/
generic.aspx?sectionID=734&genericContentID=227858&channelID=311
---------------------------------------------------------------------------
The 2014 estimates for this model find the following:
Building an average single-family home produces 2.97 jobs
(full-time equivalents) o $110,957 in Federal, State, and local
taxes
$162,080 in wages and salaries
$118,354 in business income
Of the 2.97 jobs per home, 1.76 are in construction, with the
remainder in other sectors including manufacturing, wholesale and
retail trades and other industries.
Building an average rental apartment produces 1.13 jobs
(full-time equivalents)
$42,383 in Federal, State, and local taxes
$60,877 in wages and salaries
$46,838 in business income
Of the 1.13 jobs per multifamily unit, 0.68 are in construction,
with the remainder in other sectors including manufacturing, wholesale
and retail trades and other industries.
$100,000 in remodeling expenditures produces 0.89 jobs
(full-time equivalents)
$29,779 in Federal, State, and local taxes
$48,212 in wages and salaries
$35,190 in business income
Of the 0.89 jobs per multifamily unit, 0.55 are in construction,
with the remainder in other sectors including manufacturing, wholesale
and retail trades and other industries.
Additional data from the Bureau of Labor Statistics Occupational
Employment Statistics (OES) provide details concerning the types of
jobs created by home builders. \4\ The OES survey defines employment as
the number of workers who are classified as full- or part-time
employees. The following profile examines the Residential Building
Construction industry group, which includes builders of for-sale and
owner/contractor built single-family and multifamily housing, as well
as residential remodelers.
---------------------------------------------------------------------------
\4\ ``Jobs in Home Building and Remodeling''. NAHB Economics and
Housing Policy. http://eyeonhousing.org/2014/02/11/jobs-in-home-
building-and-remodeling/
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
According to the 2012 OES, management jobs constituted
approximately 9 percent of jobs in the residential construction
industry, for a total of more than 48,000 positions. Office and
administrative support made up the second largest category, which at
just under 80,000 jobs represented 14 percent of sector employment.
Sales staff and business/finance roles each made up about 4 percent of
home building business jobs, each contributing approximately 24,000
jobs.
Other jobs in home building, generally representing about 6 percent
in combination, include architects, lawyers, designers, building/
grounds maintenance staff, security guards, drivers, and IT staff.
Not surprisingly, the largest share of home building/remodeling
employment is concentrated in construction and extraction jobs. For
2012, more than 363,000 jobs were in such fields. The following chart
provides a breakdown of these jobs.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Carpenters make up almost half of construction/extraction jobs (47
percent), for a total of more than 171,000 jobs. The OES defines
carpenters as workers who construct, erect, install, or repair
structures made of wood. It also includes workers who install cabinets,
drywall, siding, and insulation. Approximately 30 percent of carpenters
nationwide are employed by the residential building construction
sector.
Rounding out the construction segment of industry employment are
construction laborers, worksite supervisors, brickmasons, stonemasons,
carpet/tile installers, cement masons, equipment operators, drywall
installers, electricians, glaziers, insulation workers, painters,
plumbers, plasters, rebar workers, roofers, and sheet metal workers.
Besides involving a variety of occupations, this base of employment
has wide geographic scope. The following map uses 2011 data from the
U.S. Census to chart by county builder and remodeler employment across
the Nation. \5\
---------------------------------------------------------------------------
\5\ ``A Nation of Builders''. NAHB Economics and Housing Policy.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Additional data from the 2012 OES provides details concerning the
wages paid by these occupations. \6\ The following charts present
median wages by occupations for workers in home building and
remodeling. Annual wages are calculated, by the BLS, as the hourly wage
paid on a 2,800 hour annual basis. Wages are measured on a gross pay
basis, but certain bonuses and employer paid benefits are excluded.
Occupations with median wages in excess of the U.S. median represent
approximately 80 percent of total employees.
---------------------------------------------------------------------------
\6\ ``Wages in Home Building and Remodeling''. NAHB Economics and
Housing Policy. http://eyeonhousing.org/2014/02/12/wages-in-home-
building-and-remodeling/
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The second chart breaks out shares of the large element of the
industry--construction and extraction occupations, which constitute 64
percent of industry employment. The percentages on this second chart
are percentages of this 64 percent only.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Taken together, these data demonstrate that as the residential
construction sector continues its post-Great Recession recovery,
hundreds of thousands of jobs will be created within the construction
sector and within other sectors of the economy. These jobs will, among
other economic impacts, also boost demand for rental and owner-occupied
housing. For example, given NAHB's forecast for significant single-
family construction growth, approximately 420,000 jobs will be created
for 2014 in the construction and related business sectors due to
residential construction growth.
Housing's Contribution to GDP and National Wealth
From a macroeconomic perspective, housing plays a key role in our
Nation's economy. As of the first quarter of 2014, housing's share of
gross domestic product (GDP) was 15.5 percent, with home building
yielding 3 percentage points of that total. \7\
---------------------------------------------------------------------------
\7\ ``First Quarter 2014L Housing Share of the Economy at 15.5
percent''. NAHB Economics and Housing Policy. http://eyeonhousing.org/
2014/04/30/first-quarter-2014-housing-share-of-the-economy-at-15-5/
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Housing-related activities contribute to GDP in two basic ways.
The first is through residential fixed investment (RFI). RFI is
effectively the measure of the home building and remodeling
contribution to GDP. It includes construction of new single-family and
multifamily structures, residential remodeling, production of
manufactured homes and brokers' fees. For the fourth quarter, RFI was 3
percent of the economy.
While the first quarter of 2014 was the fourth strongest level of
RFI after the Great Recession ($482 billion annualized pace), the
slowing of the rate of growth for home building was a drag on quarterly
GDP growth. This was the second consecutive quarter of drag after 12
straight quarters of boosting economic growth. Nonetheless, the trend
in recent quarters indicates that RFI is growing faster than the
economy as a whole. For example, over the last 2 years, the quarterly
annualized measure of GDP has grown about 3.7 percent, while RFI is up
15.5 percent.
The second impact of housing on GDP is the measure of housing
services, which includes gross rents (including utilities) paid by
renters, and owners' imputed rent (an estimate of how much it would
cost to rent owner-occupied units) and utility payments. The inclusion
of owners' imputed rent is necessary from a national income accounting
approach because without this measure increases in home ownership would
result in declines for GDP. For the fourth quarter, housing services
was 12.5 percent of the economy.
Historically, RFI has averaged roughly 5 percent of GDP while
housing services have averaged between 12 percent and 13 percent, for a
combined 17 percent to 18 percent of GDP. These data illustrate once
again the room housing has to grow, increasing national income and
creating jobs.
Home ownership also represents the most important investment and
source of savings that most middle class households will undertake. \8\
Nationally, the primary residence represents the largest asset category
on the balance sheets of households. At $20.7 trillion, the primary
residence accounted for almost one-third, 30 percent, of all assets
held by households in 2010. The primary residence represented 62
percent of the median homeowner's total assets and 42 percent of the
median home owner's wealth. It is also a widely held asset. A greater
share of households (67 percent) owned a primary residence than held a
retirement account (50 percent) or stocks and bonds (16 percent).
---------------------------------------------------------------------------
\8\ ``Homeownership Remains a Key Component of Household Wealth''.
NAHB Economics and Housing Policy. http://www.nahb.org/
generic.aspx?sectionID=734&genericContentID=215073&channelID=311
---------------------------------------------------------------------------
Equity in residential property tends to be a particularly important
component of wealth for lower income, older households. For age 75+
households with incomes under $35,000, the median share of net worth
held as equity in a primary residence is 60 percent. Higher income
households over age 75 have higher net worth and more equity in a home
in absolute terms, but equity in a primary residence accounts for a
smaller share of total net worth. The median residential equity share
of net worth for households age 75 or older with total income between
$35,000 and $60,000 was 47 percent and 36 percent for older households
with income between $60,000 and $100,000. The median residential equity
share of net worth for the highest-income, older households was 30
percent.
Housing's Social and Community Benefits
The impact of housing is not limited to savings and other economic
outcomes. Be it rental or owner-occupied housing, the residential
capital stock provides a basic need for shelter. There is a time to
rent and a time to own a home, with the right decision determined by
factors such as age, income, family size, expected length of stay in a
given area, and other factors.
Hence, ensuring the availability of safe and decent rental housing
is an important social policy objective. The Low-Income Housing Tax
Credit (LIHTC), the Nation's only affordable housing production
program, serves in a critical role in this regard. Since its inception,
the LIHTC has produced and financed more than 2 million affordable
apartments. As LIHTC properties must generally remain affordable for 30
years, they provide long-term rent stability for low-income households
around the country. But the demand for affordable housing is acute and
exceeds the availability of financing through the LIHTC program.
For those ready to meet the financial obligations of owning a home,
home ownership offers a wide range of benefits to individuals and
households. \9\ These include increased wealth accumulation, improved
labor market outcomes, better mental and physical health, increased
financial and physical health for seniors, reduced rates of divorce,
and improved school performance and development of children.
---------------------------------------------------------------------------
\9\ R.D. Dietz and D.R. Haurin, ``The Social and Private Micro-
Level Consequences of Homeownership'', Journal of Urban Economics 54
(2003) 401-450.
---------------------------------------------------------------------------
These beneficial financial and social outcomes are due to the
stability offered by home ownership, as well as the incentives created
by the process and responsibilities of becoming and remaining a
homeowner.
An important motivating factor in the pursuit of home ownership is
the investment opportunity it offers for many families. As noted
earlier, despite recent price declines, equity in a home constitutes a
substantial proportion of a typical American family's wealth. According
to the 2010 Federal Reserve Survey of Consumer Finances (SCF), the
median family net worth of a homeowner is $174,500; for renters, it was
$5,100.
Home ownership also provides advantages for seniors. A significant
proportion of a household's wealth is in the form of equity of owner-
occupied housing, and this wealth provides significant advantages in
retirement. Mayer and Simons (1994) indicate that equity in the home
and the use of a reverse mortgage could increase liquidity for senior
households by as much as 200 percent. \10\
---------------------------------------------------------------------------
\10\ C.J. Mayer, K.V. Simons, ``Reverse Mortgages and the
Liquidity of Housing Wealth'', AREUEA Journal 22 (1994) 235-255.
---------------------------------------------------------------------------
These data illustrate the importance of housing wealth and suggest
caution with respect to policies that would reduce these wealth
holdings, based on decisions made over a lifetime, via direct policy
changes or indirect changes.
Overall, economists, sociologists and other social scientists have
found significant, positive home ownership-related impacts on a large
set of outcomes associated with households and communities. \11\ For
these and other positive impacts, home ownership has and should
continue to remain an important national policy objective.
---------------------------------------------------------------------------
\11\ Two comprehensive literature reviews detailing the impacts of
home ownership are: W. M. Rohe, G. McCarthy, S. Van Zandt, ``The Social
Benefits and Costs of Home Ownership: A Critical Assessment of the
Research'', Research Institute for Housing America, Working Paper No.
00-01 (2000); R. Dietz and D. Haurin, ``The Social and Private
Microlevel Consequences of Home Ownership'', Journal of Urban Economics
54 (2003) 401-450.
---------------------------------------------------------------------------
Industry Headwinds
While the housing sector has considerable room to grow given
population and household growth, the ongoing recovery has seen month-
to-month volatility. In fact, recent data (particularly for existing
home sales, but also for housing starts) indicate that the unseasonably
cold winter sapped some of the momentum that the housing market carried
into 2013. Beyond seasonal factors, other headwinds will challenge the
recovery in home construction. These factors include access to building
lots, rising building materials, access to builder credit, and labor
shortages for some tasks in some markets.
As noted earlier, housing demand is recovering in most markets.
However, to meet that demand, home builders must have access to
developed, ready-to-build lots. The supply of lots in many markets is
low, and for smaller builders this constraint is the primary reason for
not being able to build homes. Partially, the lack of lots is connected
to another headwind: lack of credit. Home builders and developers must
have access to credit or equity to build homes or develop lots. Such
lending, which typically comes from community bank, \12\ is known as
acquisition, development and construction (AD&C) financing.
---------------------------------------------------------------------------
\12\ ``Smaller Banks Are the Largest Source of AD&C Lending''.
NAHB Economics and Housing Policy. http://eyeonhousing.org/2014/04/21/
smaller-banks-are-the-largest-source-of-adc-lending/
---------------------------------------------------------------------------
AD&C lending was severely curtailed during the housing crisis. \13\
At the low point for lending, the stock of loans was down approximately
80 percent. While lending conditions have begun to ease (according to
NAHB industry surveys \14\ and FDIC indicates that the stock of
outstanding loans rose by approximately 7 percent over the course of
2013, a lending gap persists that is filled, when possible, by
nontraditional sources of financing. Nonetheless, lending for smaller
builders and developers represents a significant bottleneck for the
ongoing recovery in home construction.
---------------------------------------------------------------------------
\13\ ``Stock of AD&C Loans up More Than 7 Percent During 2013''.
NAHB Economics and Housing Policy. http://eyeonhousing.org/2014/02/27/
stock-of-adc-loans-up-more-than-7-during-2013/
\14\ ``AD&C Lending Conditions Ease Slightly at the End of 2013''.
NAHB Economics and Housing Policy. http://eyeonhousing.org/2014/02/24/
adc-lending-conditions-ease-slightly-at-the-end-of-2013/
---------------------------------------------------------------------------
Rising building material prices are both a challenge and a sign of
the recovery and growth in residential construction. \15\ Gypsum prices
have risen by 10 percent to 20 percent at the beginning of the last
three years. And softwood lumber and oriented strandboard prices have
risen significantly over the last three years, with occasional spikes
in prices when demand exceeds manufacturing capacity. Some easing in
building material prices has been seen when new factories and material
sources come online, but the rising cost of construction is a factor
that keeps some building projects from proceeding.
---------------------------------------------------------------------------
\15\ ``Producer Price Index Up for March''. Economics and Housing
Policy. http://eyeonhousing.org/2014/04/11/producer-price-index-up-for-
march/
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Another significant headwind is local labor shortages, particularly
for some skilled labor positions. \16\ NAHB industry surveys report
that securing workers for projects for specific time periods has become
increasingly difficult as the pace of home construction accelerated.
Data from the Bureau of Labor Statistics Job Openings and Labor
Turnover Survey (JOLTS) provides an illustration of the degree to which
the rate of unfilled job openings in the construction sector is rising.
---------------------------------------------------------------------------
\16\ ``Construction Jobs Openings Cool at the Start of 2014''.
NAHB Economics and Housing Policy. http://eyeonhousing.org/2014/04/08/
construction-job-openings-cool-at-the-start-of-2014/
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As of February 2014, the 3-month moving average of the construction
job openings rate stood at 2 percent, slightly lower than the 2.33
percent in December but a higher rate of unfilled jobs than any post-
recession period before October 2013. Currently there are 273,000
unfilled jobs in the construction industry. The rate of open jobs in
the construction industry has risen significantly since the spring of
2012.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Finally, while housing demand should improve, given the sources of
pent up demand and population growth, uncertainties with respect to the
tax and finance rules that govern homebuying and home building act as
additional business challenges to builders. These uncertainties include
the future of housing tax rules in the Internal Revenue Code, including
the mortgage interest deduction and the Low-Income Housing Tax Credit,
as well as the future of the housing finance system and the secondary
mortgage market. At the local level and Federal levels, regulatory
burdens also increase the cost of building and deter job creation.
Policy Recommendations
The home building industry can be a key engine of job creation that
this Nation needs. That said, certain policy decisions will help the
industry play its traditional role as a job creator as the economy
moves out of periods of weakness.
First, mindful of the job destroying potential of onerous
regulations, ensuring that undue regulatory burdens do not hinder
economic growth will ensure the sector can continue to create jobs.
NAHB industry surveys and analysis shows the degree to which these
regulations increase the cost of a home. \17\ These estimates show
that, on average, regulations imposed by Government at all levels
account for 25 percent of the final price of a new single-family home
built for sale. Nearly two-thirds of this--16.4 percent of the final
house price--is due to a higher price for a finished lot resulting from
regulations imposed during the lot's development. A little over one-
third--8.6 percent of the house price--is the result of costs incurred
by the builder after purchasing the finished lot.
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\17\ ``How Government Regulation Affects the Price of a New
Home''. NAHB Economics and Housing Policy. http://www.nahb.org/
generic.aspx?sectionID=734&genericContentID=161065&channelID=311
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Fostering skill training and ensuring young workers are interested
in the construction trades is another policy that will increase the
growth of the industry, while raising wages and employment of younger
workers. Multiple approaches can be taken in this regard, including job
centers and protecting the role of the community college system in our
Nation. The BLS JOLTS data cited earlier indicates that there are
currently many unfilled construction sector jobs waiting to be claimed
by individuals with the right training.
At the Federal level, Congress should maintain its important and
historic support of home ownership and affordable housing. Protecting
policies like the mortgage interest deduction and the LIHTC are
critical to ensuring the growth of the middle class and access to
housing. The future of the housing finance system, including enabling a
liquid secondary mortgage market that serves the entire country, is
also key to how people buy homes in the future. Passing comprehensive
housing finance reform is a part of this process. Providing certainty
with respect to these housing-related policies is an important goal.
In the short-run, one element of certainty can be obtained by
passing a tax extenders bill that would extend tax rules such as the
minimum 9 percent credit rate for the LIHTC and the continued existence
of residential energy efficient tax credits (45L for new construction
and 25C for retrofitting existing homes). \18\
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\18\ http://eyeonhousing.org/2013/10/23/housing-related-tax-
provisions-expiring-at-the-end-of-2013-2/
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Summary
Residential construction plays a key role in creating jobs and
generating economic growth, particularly as the economy emerges from
recessions. After a multiyear transition period, housing is once again
playing that role and the industry is ready to get back to work.
Housing creates jobs, and job growth for builders and other sectors of
the economy in turn foster demand for rental and owner-occupied
housing.
Given the underlying demand for new homes in the county, the
industry is poised to build on the 274,000 jobs created over the last
2\1/2\ years with hundreds of thousands more as housing starts return
to more normal levels of production.
______
PREPARED STATEMENT OF R. THOMAS BUFFENBARGER
International President, International Association of Machinists and
Aerospace Workers
May 7, 2014
Thank you, Chairman Merkley, Ranking Member Heller, and Members of
this Committee for the opportunity to testify before you today on the
vital importance of manufacturing to the creation and preservation of
American jobs. My name is Tom Buffenbarger and I serve as International
President of the International Association of Machinists and Aerospace
Workers, also known as the IAM. Our members work in a variety of
manufacturing industries including aerospace, electronics, defense,
shipbuilding, transportation, and woodworking. The IAM is a broadly
diversified manufacturing union and the largest aerospace union in
North America. We strongly believe that manufacturing is critical to
our national economic recovery. Manufacturing is responsible for the
good jobs that our Nation needs. It also generates the innovation and
new technology which our Nation depends upon to ensure a healthy,
robust, and sustainable economy in the future.
According to the U.S. Bureau of Labor Statistics, the manufacturing
sector contributes $1.6 trillion in value to our economy, or about 9
percent of GDP. A recent study by the Congressional Research Service
notes that manufacturers have been responsible for approximately 70
percent of all research and development conducted by businesses in the
United States.
Manufacturing jobs are good jobs. Workers in the manufacturing
sector enjoy an 8.9 percent compensation premium over other working
Americans and are more likely to have employer paid health care and
other benefits. Since the start of the 21st Century education levels
for manufacturing workers have improved; nearly 30 percent have at
least a college degree and the percentage with less than a high school
diploma as shrunk to 10 percent. However, what has made manufacturing a
source of middle class jobs has been the traditionally high rate of
unionization within the sector. The Center for American Progress notes
the disturbing correlation between the decline of union density and the
share of the Nation's income going to the middle 60 percent of
households, which has fallen from 52.3 percent to 45.7 percent since
peaking in the late 1960s. If this trend continues then manufacturing
work will not be the ladder to the middle class as it historically has
been.
The effect of the manufacturing sector and the jobs that it
produces can be found in the sector's multiplier effect. This can be
seen in two ways; the Manufacturing Institute has found that every
dollar of manufactured products supports $1.33 in output from other
sectors, a larger multiplier than any other economic sector. In other
words, manufacturing creates the wealth that drives much of our
economy.
Moreover, manufacturing jobs support additional jobs, both direct
and indirectly related to manufacturing, throughout the economy and the
multiplier ratios from manufacturing vary from a low of 1:3 to high of
1:16. The difficulty in coming up with a precise ratio derives from the
changing nature of manufacturing jobs and what is counted as a
manufacturing job. In the past, many manufacturing enterprises were
vertically integrated operations that included a variety of support
functions, such as, shipping and transportation, as well as
professional and business services like accounting, legal, and
consulting. If any of these functions are directly employed by a
manufacturer, then they are counted as manufacturing jobs, otherwise
the jobs are considered indirectly related to manufacturing. Other
examples of indirect employment impacted by manufacturing activity
include jobs in restaurants, retail, as well as local and State
government.
According to last week's employment report, manufacturing
employment currently stands at 12.1 million jobs, nearly 9 percent of
U.S. payrolls. Significantly, even with the addition of 650,000
manufacturing jobs since the bottom of the Great Recession, the U.S.
has still lost over five million manufacturing jobs since the start of
this century. While a variety of factors, including technological
changes and lean manufacturing practices, have reduced overall
manufacturing employment, the lack of a comprehensive manufacturing
policy that is directly related to jobs, our flawed trade policies and
a ballooning trade imbalance, $475 billion in 2013, have also
contributed to this decline.
This year marks the 20th anniversary of NAFTA, which increased our
trade deficit with Canada and Mexico by $150 billion resulting in a
loss of an estimated one million U.S. jobs. For our members at
companies like Maytag and Freightliner who saw their work and jobs
moved to Mexico, the harsh reality of this model of trade is not a
theoretical discussion.
An even bigger killer of U.S. manufacturing jobs has been the
implementation of Permanent Normal Trade Relations (PNTR) with China.
When China PNTR was passed in 2000, the U.S. exported three times as
many manufactured goods as China, but within a decade China surpassed
the U.S. in exports and became the world's leading manufacturer and
exporter. By 2012 our share of global manufacturing activity had
declined to 17 percent from 30 percent just a decade earlier even as
the value of our exports had more than doubled. Now, two-thirds of our
global trade deficit is with China, a rapidly growing country that
engages in a variety of unfair trade practices--illegal subsidies,
forced technology transfer, currency manipulation, and an appalling
lack of labor rights. The Economic Policy Institute estimates that over
the last decade our trade imbalance just with China has cost the U.S.
nearly three million jobs and put downward pressure on U.S. wages. And
now, just two years after the passage of the U.S.-Korea FTA we have
seen our exports to Korea drop and our trade deficit with that country
grow with a loss of an estimated 60,000 American jobs, mostly in
manufacturing.
Successful countries recognize the importance of a strong
manufacturing sector and the true nature of global competition. These
countries know that there is no such thing as a ``free market,'' and
provide strong support for critical wealth and job creating sectors
like manufacturing.
The IAM has long called for the development of a national
manufacturing strategy as our global competitors have done. This is not
about picking winners and losers, but, rather, creating the foundation
for future prosperity. We applaud the President for taking some
important first steps to make this happen. The creation of the Office
of Manufacturing Policy reporting to the National Economic Council, as
well as the Advanced Manufacturing Partnership (AMP), which includes
representatives from labor, industry, academia, and the Federal
Government, has put a new focus on manufacturing at the highest levels
of our Government.
We look for the Advanced Manufacturing Partnership to develop a
national manufacturing strategy that links Government policies and
investment to actual job creation. This could be accomplished by
requiring employment impact statements as part of the decision making
process for Government procurement contracts, grants, and awards.
Simply stated, contracting agencies and policy makers should know how
many good domestic jobs will be created and maintained by a contractor
or grantee.
Our trade policies must be reformed to include enforceable labor
rights and environmental protections. This is particularly important as
the U.S. negotiates the Trans-Pacific Partnership (TPP) with countries
like Vietnam and Brunei that lack free and independent labor unions.
Also, enforcement action must be taken to end currency manipulation by
our global competitors.
Other important steps to facilitate the growth of manufacturing
jobs include strengthening and standardizing the measure of ``Made in
the U.S.'' and Buy American requirements for Government procurement
contracts. In some cases, the domestic content requirement is as low as
51 percent and it is not always clear that agencies limit their
calculation of domestic content to direct factors of production.
The American Society of Civil Engineers estimates that the U.S. has
an infrastructure deficit of over $3 trillion. Infrastructure
investments make our Nation more efficient and are crucial to our
ability to compete globally. Strong Buy American requirements coupled
with investments in our crumbling infrastructure would spur
manufacturing growth. We have already seen this in mass transit as
foreign rail manufacturers have set up production in the U.S. to meet
domestic content requirements. This has spurred the creation of a
domestic supply chain to meet the needs of these transplanted
manufacturers. Ending the misguided policy of sequestration will enable
the rebuilding of our infrastructure and protect our defense industrial
base, a critical component of U.S. manufacturing and an ongoing source
of innovation.
One Government initiative, the Export-Import Bank, stands out as a
success. The Export-Import Bank provides critical financing for the
export of American made goods and services. Last year, the Bank
provided over $37 billion worth of export financing that supported over
200,000 American jobs, mostly in manufacturing, and returned over $1
billion to the U.S. Treasury. All of our important global competitors
provide similar financing and Congress must reauthorize this important
program this year.
Manufacturing plays a critical role in our economy. The sector is
an engine of innovation and a source of middle class jobs. We must not,
however, take the sector for granted. America needs to think
strategically about how we prepare our workforce, what investments we
make to remain globally competitive, and how we trade with other
Nations. For too long our focus has been on meeting the needs of U.S.-
based multinational corporations at the expense of working Americans.
This culture must change. Only then will we see a rebirth of American
manufacturing--a rebirth that is essential for our national and
economic security, and the future of America's hard-working men and
women and their families and communities.
I would be happy to answer any questions that the Committee may
have.
Policies To Promote U.S. Manufacturing Jobs
1. Develop a comprehensive manufacturing strategy that reviews all
Federal incentives to corporations to outsource manufacturing
(tax policy, currency, trade, and investment policies).
2. Require that all contracting agencies adopt and implement
employment impact statements. Policy makers and Government
procurement officers should know how many domestic jobs will be
created and maintained by each contractor/grantee who submits a
proposal. Contractors should be accountable for making sure
that they met their job estimates. If they do, then this should
also be a factor in future contracts. If they do not, then they
should be barred from future Government contracts.
3. All trade and investment deals must undergo a careful analysis to
determine the jobs impact they will have on specific U.S.
industries and communities before negotiations are commenced.
In this vein the IAM continues to demand that all past trade
and investment deals be reviewed to determine their specific
job/community impact. Include enforceable labor and
environmental protections in all trade agreements.
4. End currency manipulation by our global competitors.
5. Reauthorize the Export-Import Bank for 5 years and increase its
lending cap.
6. Strengthen Buy American requirements and more limits on Buy
American waivers, which are currently too vague and broad. Make
certain that Made in the U.S.A. actually means Made in the
U.S.A. Review all domestic content requirements to make certain
that these requirements are directly related to jobs and do not
contain intangibles not directly related to production costs.
7. Create a manufacturing development bank with below market loans
for establishing manufacturing plants in this country that are
directly related to creating American jobs.
8. End sequestration and make investments in our crumbling
infrastructure.