[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 114-106
WHAT LOWER LABOR FORCE PARTICIPATION
RATES TELL US ABOUT WORK OPPORTUNITIES
AND INCENTIVES
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JULY 15, 2015
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Daniel Coats, Indiana, Chairman Kevin Brady, Texas, Vice Chairman
Mike Lee, Utah Justin Amash, Michigan
Tom Cotton, Arkansas Erik Paulsen, Minnesota
Ben Sasse, Nebraska Richard L. Hanna, New York
Ted Cruz, Texas David Schweikert, Arizona
Bill Cassidy, M.D., Louisiana Glenn Grothman, Wisconsin
Amy Klobuchar, Minnesota Carolyn B. Maloney, New York,
Robert P. Casey, Jr., Pennsylvania Ranking
Martin Heinrich, New Mexico John Delaney, Maryland
Gary C. Peters, Michigan Alma S. Adams, Ph.D., North
Carolina
Donald S. Beyer, Jr., Virginia
Viraj M. Mirani, Executive Director
Harry Gural, Democratic Staff Director
C O N T E N T S
----------
Opening Statements of Members
Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana......... 1
Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative
from New York.................................................. 9
Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas 10
Witnesses
Dr. Scott Winship, Manhattan Institute For Policy Research, New
York, NY....................................................... 3
Dr. Aparna Mathur, Resident Scholar and Jacobs Associate,
American Enterprise Institute, Washington, DC.................. 5
Dr. Elisabeth Jacobs, Senior Director for Policy and Academic
Programs, Washington Center for Equitable Growth, Washington,
DC............................................................. 7
Submissions for the Record
Prepared statement of Hon. Daniel Coats.......................... 32
Prepared statement of Hon. Carolyn B. Maloney.................... 33
Chart titled ``Longest Streak of Private-Sector Job Growth
Continues''................................................ 36
Chart titled ``Unemployment and Underemployment Rates Have
Declined Significantly from Recession Peak''............... 37
Chart titled ``Labor Force Participation Rates by Gender''... 38
Chart titled ``Labor Force Participation Rate and Share of
Adult Population in Prime Working Years (Ages 25-54)''..... 39
Chart titled ``Share of Young People Going to College''...... 40
Chart titled ``Current Labor Force Participation Rates by
Age''...................................................... 41
Chart titled ``Labor Force Participation Rates of Young
People by Race''........................................... 42
Chart titled ``Aging Trends Explain Half of Decline in Labor
Force Participation Rate''................................. 43
Dr. Scott Winship, Manhattan Institute For Policy Research, New
York, NY....................................................... 44
Dr. Aparna Mathur, Resident Scholar and Jacobs Associate,
American Enterprise Institute, Washington, DC.................. 55
Dr. Elisabeth Jacobs, Senior Director for Policy and Academic
Programs, Washington Center for Equitable Growth, Washington,
DC............................................................. 77
Questions for the Record for Dr. Winship and Responses submitted
by Representative Beyer........................................ 89
Questions for the Record for Dr. Winship, Dr. Mathur, and Dr.
Jacobs and Responses submitted by Representative Maloney....... 92
Questions for the Record for Dr. Mathur and Dr. Jacobs and
Responses submitted by Senator Klobuchar....................... 106
WHAT LOWER LABOR FORCE
PARTICIPATION RATES TELL US
ABOUT WORK OPPORTUNITIES
AND INCENTIVES
----------
WEDNESDAY, JULY 15, 2015
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to call, at 2:30 p.m. in Room
562 of the Dirksen Senate Office Building, the Honorable Daniel
Coats, Chairman, presiding.
Representatives present: Brady, Paulsen, Hanna, Schweikert,
Grothman, Maloney, Delaney, Adams.
Senators present: Coats, Lee, Cassidy, Peters, Sasse.
Staff present: Barry Dexter, Cary Elliott, Connie Foster,
Harry Gural, Colleen Healy, Karin Hope, Jason Kanter, Christina
King, Kristine Michalson, Viraj Mirani, Thomas Nicholas, Robert
O'Quinn, Brian Phillips, Aaron Smith, Phoebe Wong.
OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A U.S.
SENATOR FROM INDIANA
Chairman Coats. I'll call this hearing to order. Here we
are in a somewhat unique situation. The Senate will be
beginning a long series of votes at about 3:15, which means
that close to 3:30 we will have to adjourn and not be able to
come back because these votes will last for about a two-hour
period of time.
The House is in a very similar situation, different
procedurally, but they only also have about an hour. So we are
going to have to expedite the process here.
We have three very good witnesses that we want to hear
from. Our members may be in short supply, which will give each
of us more time to interact with our witnesses. My pastor says
that the more efficient and less time he puts into the sermon,
the more people want to come to church.
[Laughter.]
And the more they leave with, rather than a long sermon. So
let me welcome our witnesses and thank them for being here
today to discuss the decline in the labor force participation
rate, the underlying reasons for it, and for what it means for
American workers.
We have seen a steady decline in the labor force
participation rate since the early 2000s. June's employment
numbers reveal another drop in labor force participation to
62.6 percent, a record low for the post-recession period and
the lowest we have seen since the late 1970s.
Today's hearing will explore the questions of why the
proportion of Americans looking for work has fallen, what does
this mean for our country and these Americans and their
wellbeing, and how much of this is due to the economy, how much
is due to demographics, social and cultural trends, and to
policies that reduce the reward of working.
The discussion will center on the notable decline in
workforce participation, including how the long-term and short-
term trends factor into the issue; who is working less; where
workforce trends are expected to go from here; and what that
means for Americans' wellbeing and future growth.
The combination of longer- and shorter-term trends in the
midst of an uncharacteristically slow recovery has made it
difficult to determine the expectations for future economic
growth and workforce participation.
And that is why we are spending time here today, asking
these questions in hopes of shedding light on this topic. While
many believe that America has entered a, quote, ``new normal''
characterized by lower economic growth and workforce
participation, and subsequently require policies that lessen
the negative consequences, is it too soon to claim that these
trends are a permanent feature of the American economy?
Our witnesses, we hope, will shed some light on all of
this. As we know, we are not growing at a rate in terms of our
GDP growth that is allowing Americans more opportunities to
participate in a dynamic, growing economy. And so I think the
wisdom that can be brought to us by our witnesses today in the
questioning that will take place is appropriate.
With that, I am going to turn to our witnesses.
Dr. Scott Winship is the Walter B. Wriston Fellow at the
Manhattan Institute for Policy Research, previously a fellow at
the Brookings Institution, a research manager of economic
mobility projects of the Pew Charitable Trust, and a senior
policy advisor at Third Way.
Dr. Winship, thank you for joining us.
Dr. Mathur is a Resident Scholar and Jacobs Associate in
Economic Policy Studies at the American Enterprise Institute.
She has been a consultant at the World Bank and an Adjunct
Professor at Georgetown University School of Public Policy and
Economics; a professor at the University of Maryland. Thank
you, Doctor.
And finally, Dr. Jacobs, Elisabeth Jacobs, Senior Director
for Policy and Academic Programs at the Washington Center for
Equitable Growth. Before that, she was a Fellow in Governance
Studies at the Brookings Institution. Dr. Jacobs has also
previously served as Senior Policy Advisor here at the Joint
Economic Committee--welcome back. And, as an Advisor to the
Senate Committee on Health, Education, Labor, and Pensions.
I welcome all three of you. And, Dr. Winship, we will start
with your remarks. If you can condense those to about five
minutes, that will leave us more time for questions.
[The prepared statement of Chairman Coats appears in the
Submissions for the Record on page 32.]
STATEMENT OF DR. SCOTT WINSHIP, WALTER B. WRISTON FELLOW,
MANHATTAN INSTITUTE FOR POLICY RESEARCH, NEW YORK, NY
Dr. Winship. Thank you, Mr. Chairman.
Chairman Coats, Ranking Member Maloney, and Members of the
Committee:
Thank you for the opportunity to testify before the Joint
Economic Committee today. Policy cannot succeed but
accidentally if we do not have a clear understanding of the
problems that face us.
It is my belief that much of what we think we know about
labor force participation and the state of the job market is
incorrect, based on a mistaken read of the available data.
In my past research I have examined trends in the labor
force participation of men between the ages of 25 and 54. A
strong majority of men in this age range who are out of the
labor force, roughly 70 percent on the eve of the Great
Recession, tell government surveyors when asked outright that
they do not want a job.
The increase in their numbers between 1979 and 2006
explains nearly the entire decline in their labor force
participation over that period.
Furthermore, roughly half of men in this age range and out
of the labor force cite a disability when asked the reason for
not working or looking for work.
The increase in their ranks explains about one-third of the
decline of labor force participation. Most data on health
indicators offer little reason to think that disabilities are
becoming more common. But receipt of federal disability
benefits has increased significantly since the 1980s.
Federal disability benefits increasingly serve as a shadow
long-term unemployment program for able-bodied men who struggle
to find work.
Today I will focus my remarks on the labor force
participation of black and white men and women under age 25.
Figure 1 displays trends for these groups over the past 52
years. A number of apparently worrisome features are evident.
The labor force participation of all four groups has been
declining for 16 years or more, much more for men, and much,
much more for black men in particular.
The participation rate of young black men has fallen fairly
consistently since at least 1962, while the rate for non-
Hispanic white men has ``only'' fallen for the past 33 years.
Sizeable participation gaps between blacks and whites remain.
As I discuss in my written testimony, labor force
participation can decline for good reasons, and increase for
bad ones.
In particular, taking into account rising school enrollment
among young adults goes some ways toward explaining the
``problems'' shown in Figure 1. African American enrollment
rates have risen steadily over these 52 years, while white
rates began rising in the mid-1980s.
All four groups are equally likely today to be out of the
labor force but in school. The labor force participation rate
for white men in the 1960s was artificially low due to the
inflated school enrollment inspired by the Vietnam draft, and
to a lesser extent benefits from the GI bill.
With the end of the draft, many fewer white men enrolled in
school. As a result, their labor force participation rose,
opening up a gap compared with black men among whom school
enrollment continued to increase.
To illustrate the impact of taking school enrollment
patterns into account, the next chart shows the percent of
young adults in the labor force or in school. The number of
young adults we might worry are idle shrinks considerably
versus in Figure 1.
For instance, 43 percent of young black men were out of the
labor force last year, but just 15 percent were out of the
labor force and not in school. The declines in male labor force
participation are much smaller after taking school enrollment
into account, and the female declines disappear altogether.
The American jobs machine is not fundamentally broken. A
war on robots is premature, and always will be. The remaining
features of this chart to be explained also illustrate the
importance of opportunity and work incentives.
The chart shows a dramatic increase in labor force
participation among black women between 1993 and 1997, a period
during which unprecedented state and federal welfare reforms
were implemented.
Because the African American poverty rate and rate of
single parenthood are significantly higher than the rates for
whites, reforms to the safety net disproportionately affect
them.
Once receipt of federal means-tested cash assistance is
taken into account, the historic and recent labor force
participation gaps between black and white women disappear
entirely. The implication is that work promoting safety net
reforms can successfully increase labor force participation and
consequently as other research on the 1990s reforms has shown
reduce poverty.
As for young men among those out of the labor force, the
share indicating to federal surveyors that they want a job has
declined since the early 1980s.
Taking that into account, the share of young men out of the
labor force not in school and who would like to work has been
low and stable since at least the mid-1970s.
Because the decline in wanting a job was larger among black
men, the black/white labor force participation gap largely
vanishes after we account for this factor. Whether or not it is
a problem that a rising share of men do not want a job depends
on the reasons for this increase.
Certainly the increasing number of men receiving federal
disability benefits bears scrutiny and offers another way for
policy to encourage opportunity-promoting initiatives.
Thank you.
[The prepared statement of Dr. Winship appears in the
Submissions for the Record on page 44.]
Chairman Coats. Thank you.
Dr. Mathur.
STATEMENT OF DR. APARNA MATHUR, RESIDENT SCHOLAR AND JACOBS
ASSOCIATE, AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Mathur. Chairman Coats, Ranking Member Maloney, and
Members of the Committee:
It is an honor to testify before the Committee on the
important topic of labor force participation, work incentives,
and opportunity.
The Great Recession has been severe on many measures, but
particularly in its impact on the labor market. The most recent
jobs report showed healthy job gains and an unemployment rate
of 5.3 percent.
However, there are many worrying indicators. Today there
are nearly 6.5 million persons employed part-time involuntarily
because they could not find a full-time job.
Another 1.9 million individuals want a job but have not
searched for work in the previous few months, perhaps because
they are too discouraged to look. Over 2 million workers have
been jobless for 27 weeks or more.
The labor force participation rate in the U.S. is at
historic lows. In June 2015, nearly 6 years after the official
end of the Great Recession, the labor force participation rate
is at 62.6 percent, a rate not seen since 1978.
This is troubling particularly because participation is
declining not just among retiring baby boomers but also among
people at prime working ages and youth.
Some studies suggest that falling labor force participation
rates among prime age males can be explained by a lack of
demand for middle-skill workers, perhaps because these jobs are
more susceptible to automation and to offshoring.
Data show that over the recession middle-skill jobs
experienced a sharper and more long-lasting employment decline
than high- or low-skill jobs. Moreover, middle-skill workers
with low levels of education typically leave unemployment to
exit the labor market rather than to find low-skill or high-
skill jobs.
Job mobility also declined significantly during the Great
Recession. Workers were unable to move from poor-quality jobs
to good-quality jobs as easily during the Recession as they
would have been able to do during normal times.
On average, job quality and job finding rates went down
significantly over the Recession. Due to the slack in the labor
market, average wage growth has been very weak, putting
additional strain on low- to middle-income households.
How do we address these challenges?
First out, it is important to remember that outcomes are
highly influenced by early investments in human capital and
skill development.
For instance, as per a recent study, moving to better
neighborhoods at young ages could improve college attendance
rates and lifetime earnings. Experimenting with solutions that
allow low-income families to move from high poverty to low
poverty areas could help improve long-term economic mobility.
Differences in family structure also influence early
investments in human capital. Families headed by single mothers
are more likely to live in poverty than married parent
households.
As a result, children in these families have access to far
fewer opportunities and are disadvantaged when it comes to
school readiness. To improve outcomes for these families, we
should consider expanding the earned income tax credit.
This helps to encourage labor force participation for
single mothers and boosts family incomes, which is helpful for
children as well.
For youth graduating into a bad labor market with little
prospects of finding a job and burdened with high levels of
student debt, I propose expanding the system of paid
apprenticeship programs that would be available to them before
they graduate so that they can build up a set of skills that
they would in fact need on the job.
Funds could be provided in incentives such as tax credits
to make them participate in these programs which are clearly
beneficial to both sides of the market. To improve labor force
participation for women, we need to consider ways to provide
paid maternity leave so that women retain the attachment to the
work force even after giving birth to a child.
I have proposed using the existing system of child-related
tax credits to fund maternity leave. This involves allowing for
advance payments on the EITC, the Child Tax Credit, and the
Dependent Care Credit, and making the Dependent Care Credit
refundable.
Differences in state occupational licensing requirements
can make it difficult for entrepreneurs and workers to find
opportunities and jobs. The fraction of workers required to
hold a government-issued license rose from less than 5 percent
in the 1950s to 38 percent in 2008.
This in turn has led to higher training costs which has
affected the mobility of workers across jobs. Mutual
recognition of other states' licenses would improve worker
mobility.
We can also reform the use of Unemployment Insurance funds,
particularly the self-employment assistance program, to help
startups by the unemployed.
A program in France that allowed unemployed individuals who
started their own businesses to keep access to unemployment
insurance for three years in case the business venture failed
was a success.
There are some policies that should be beneficial to
workers in principle but which research shows often have
unintended negative effects on workers.
For instance, work by Casey Mulligan finds that subsidies
provided to workers under the Affordable Care Act in households
with incomes near 100 to 400 percent of poverty create work
disincentives.
Recent increases in minimum wages and the proposal to
change overtime rules can also hurt employment and hours worked
for low-skilled workers.
According to a recent Pew Report, many American families
are feeling financial strain and are still pessimistic about
future earnings. In order to improve opportunity and mobility,
we need to address the labor market challenges facing the U.S.
economy today, perhaps through some combination of policies
discussed in my longer testimony. Thank you.
[The prepared statement of Dr. Mathur appears in the
Submissions for the Record on page 55.]
Chairman Coats. Dr. Mathur, thank you very much.
And now, Dr. Jacobs. Thank you, Dr. Jacobs.
STATEMENT OF DR. ELISABETH JACOBS, SENIOR DIRECTOR FOR POLICY
AND ACADEMIC PROGRAMS, WASHINGTON CENTER FOR EQUITABLE GROWTH,
WASHINGTON, DC
Dr. Jacobs. Thank you. Thank you, Chairman Coats, Ranking
Member Maloney, and the rest of the Committee for inviting me
to testify today.
My name is Elisabeth Jacobs. I am Senior Director for
Policy and Academic Programs at the Washington Center for
Equitable Growth. The Center is focused on understanding what
grows our economy, with an emphasis on whether and how high and
rising levels of economic inequality impact growth.
It is an honor to be here today to discuss the health of
the labor market. My testimony highlights the importance of
looking not only at the short-term but also at long-run trends.
Doing so is critical for diagnosing the problem and for
identifying the most appropriate policy solutions.
There are five main conclusions from my testimony that I
want to leave you with today.
First, the labor market is recovering.
Second, looking solely to the unemployment rate overstates
that recovery.
Third, the decline in the labor force participation rate
predates the Recession and is primarily the result of
demographic factors.
Fourth, the share of the recent decrease in labor force
participation that is not explained by demographics is mainly
due to continued slack demand.
Fifth, policy can play an important role, drawing workers
into the labor force and therefore boosting labor force
participation. But it is important to pull the right policy
levers.
The labor market is in the midst of the longest streak of
private-sector job creation on record and has added 12.8
million private-sector jobs over the last 64 months.
Unemployment stands at 5.3 percent, the lowest rate in 7
years. Despite this considerable progress, however, the labor
market remains troubled. Relying solely on the unemployment
rate as a sign of labor market health masks underlying
problems, many of which have persisted for decades. Five years
into the recovery from the most severe recession in recent
history, demand remains slack. The employment-to-population
ratio has fallen significantly during the recovery and stood at
59.3 percent in June, but it remains 3.4 points below its pre-
recession peak.
The difference between the trends in unemployment and
employment is explained by the falling labor force
participation rate. This decline predates the recession. The
overall labor force participation rate has been declining since
2000, and stood at 62.6 percent in June.
The long-term trend is mainly the result of several
structural changes, including the aging of the workforce. As
older members of the baby boom generation retired, the labor
force participation rate ticked down. We should expect this
downward pressure to continue.
At the same time, a growing number of young workers
temporarily left the labor force to pursue education.
Retirement and increased educational attainment are generally
positive reasons for a drop in labor force participation.
While participation was trending downward long before the
Great Recession, the economic crisis accelerated that decline.
Exactly how much of a decrease since December 2007 is due to
these long-term structural changes and how much is due to the
exceptionally deep Recession is still up for debate, but the
accelerated fall in labor force participation is certainly due
to some combination of these factors.
Policy can play an important role in boosting labor force
participation by focusing on the correct levers. Persistent
slack demand suggests that fiscal and monetary policies are
important first steps. On the supply side, the failure to adapt
policy to meet the demands of modern American families means
that women's labor force participation has stalled.
In 1990, the United States was a global leader in women's
labor force participation, ranking sixth out of 22 high-income
countries. By 2010, we had fallen to 17th. Research suggests
that nearly one-third of that decline is explained by the
absence of family-friendly policies. Paid leave, flexible
scheduling, affordable high-quality child care, and universal
pre-K are all policies that could play a major role in jump-
starting the engine of women's labor force participation.
A second policy option to improve participation is a
criminal justice reform agenda that includes a reduction in the
incarceration rate, and policies to curb discriminatory
employment practices against those with criminal records.
Research shows that criminal backgrounds can be significant
barriers to employment. Removing some of this stigma could have
beneficial impacts for many who are currently discouraged from
work. To conclude, long-run trends will continue to push the
labor force participation rate downward, but smart policy can
provide counter-pressure. As long as policy makers are aware of
the demographic headwinds and pursue policy options that fit
the problem, they can take steps to move our economy toward
full employment. Thank you.
[The prepared statement of Dr. Jacobs appears in the
Submissions for the Record on page 77.]
Chairman Coats. Well thank you, Doctor, and thank the
witnesses for your testimony.
To my colleagues who have just joined us here, I announced
early on the reason we started right at 2:30 is that both the
House and the Senate has kind of a drop-dead time here of
around 3:15 or 3:30. So we are trying to shoehorn in a very
substantive range of issues into a small amount of time. So we
are trying to abbreviate and move forward as quickly as
possible.
I do want to recognize the Ranking Member, Congresswoman
Maloney, and our Vice Chairman, Mr. Brady, for our hopefully
truncated opening statements. And then we will try to move
through the Members as quickly as we can.
I will shorten my question time down to one question, but
if we could get to essential question or issue for each member
hopefully we can give everybody an opportunity to raise a point
or to raise a question for our witnesses to respond to.
So we will do the best that we can. We have a series of
votes that is going to take up to two hours, and so there is no
way we can get back on the Senate side, and I think the House
has the same kind of dilemma.
So with that, let me recognize the Ranking Member for her
opening statement.
OPENING STATEMENT OF HON. CAROLYN B. MALONEY, RANKING MEMBER, A
U.S. REPRESENTATIVE FROM NEW YORK
Representative Maloney. Okay, thank you very much, Chairman
Coats, for calling the hearing. There seems to be a broad
consensus these days that the economy is stronger than it has
been in years. The evidence is undeniable that the labor market
is on a much stronger footing.
As you can see in this chart, we have had a record 64
straight months of private-sector job growth with businesses
creating 12.8 million jobs during this time, and under the
leadership of President Obama the unemployment rate is 5.3
percent, close to current estimates of what economists call its
``natural rate.''
There has also been substantial improvement in the broadest
measure of unemployment, the U-6 rate, which includes
discouraged workers not in the labor force, as well as those
working part time who would like full-time work.
And as you can see in this chart, the economy has come a
long way. Just remember how far we have come. When President
Obama took office, our economy was in a dire situation. We were
shedding roughly 800,000 jobs a month. But bold action by the
President helped put our Nation back on track.
And I would like to say that many Republicans are acting as
if the declining rate of labor force participation is some kind
of new phenomenon. I note that many of them opposed the
measures that have helped reverse the economic free fall. They
predicted dire consequences, but these predictions have been
proven wrong.
Now they are left with the weak claim that good job numbers
are not really good job numbers. And that brings us to today's
hearing. While it is true that economists are concerned about
the declining labor force participation rate, much of this
decline is structural and it long predates the Obama
Administration.
Some of my colleagues act like this is a new phenomenon.
They gloss over the fact that the labor force participation
rate fell over the course of George Bush's Administration, and
they ignore that the labor force participation rate for men has
been falling since the early 1950s, as you can see in this
particular chart.
Economists have long anticipated the recent decline in the
labor force participation rate, and they predict that it will
continue over at least the next 10 years. This chart shows the
rise and fall in the percentage of Americans in their prime
working years. And I have just a brilliant statement but I am
going to put the rest of it in the record in the interest of
time.
So thank you.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 33.]
Chairman Coats. Thank you, Congresswoman Maloney.
Congressman Brady.
OPENING STATEMENT OF HON. KEVIN BRADY, VICE CHAIRMAN, A U.S.
REPRESENTATIVE FROM TEXAS
Vice Chairman Brady. Well in the interest of time, I will
submit my record as well. Just to make one 30-second point. You
know, if 5.3 percent was a true indicator of the economy, we
would not be holding this hearing.
The fact of the matter is, the number of adults in the
workforce right now compared to the population has been stalled
out about the same as it was nearly six, seven years ago. The
labor participation rate, people coming back to the workforce,
is growing if you are over 60, shrinking if you are under 60.
Not a healthy sign.
This recovery is the most disappointing recovery in half a
century. We are missing 5 million jobs, more than that, in the
economy. We are missing GDP about the size of Canada that ought
to be back in the U.S. GDP today. And so, no, we are not
holding a parade for the economy because it has a long way to
go.
We have been stuck in second gear for way too long. We
think we can do better. And the purpose of this hearing, Mr.
Chairman, I appreciate you holding it, is we think we can do
much better for the people still looking for full-time work in
America. So, thank you.
Chairman Coats. Thank you. I am going to ask just one
question, too, and ask for hopefully a brief response from our
three witnesses here, and then move down the line here in terms
of participation of our members.
The question is this: Are we facing the remaining temporary
effects of this painfully slow recovery?
You know, a study was done that is very, very accurate of
the recoveries from recessions all the way back to World War
II. We are half the rate of the recovery of every other
recession that this country has had for the last 50 years.
And so that really raises the question that a lot of people
have said, well, this is the new normal. I mean, technology
changes, robotics, aging workforce and so forth, that's the
reason for this. Others are saying, no, it is policy-induced.
We have not put the policies in place to have dynamic growth
within the economy and the GDP. And if we do not get that, we
are going to continue to suffer through this.
And now we are into seven years of this. So regardless of
how many people have come back to work, the precipitous loss of
jobs following 2008-2009, the collapse here, and the continued
slow recovery has put a lot of people out of work.
So just your thoughts on that and response to that. Is this
something we are just going to have to accept going forward
because of all the changes that have been mentioned? Or is it
more policy driven and Congress, working together with the
Administration, adapting new policies can put us back on a fast
track?
Let's go down the line, Dr. Winship, starting with you, and
then the three of you respond briefly to that.
Dr. Winship. Thank you, Mr. Chairman. I think that is an
important question, and I do think the research is pretty clear
that the last three recoveries we have had have been, I think
jobless recovery is too strong a word, but certainly the pace
of recovery has been a lot slower than it used to be.
I think the latest research that I find the most persuasive
on this point actually points to decreased dynamism in the
United States economy--fewer startups, less entrepreneurship--
as being a real correlate of the worrisome trends in jobless
recoveries.
So in that sense, I think there are things that policy
could do and the policy has contributed in some sense to the
slowdown. I worry in particular about tax and regulatory policy
that has the effect of protecting incumbent firms and making it
more difficult for competitors to enter into markets.
I think if we could remove some of those barriers, we could
increase the number of startups and that that would actually
have an impact on recoveries moving forward.
Chairman Coats. Thank you.
Dr. Mathur.
Dr. Mathur. Yes. I do think that this recession has been
different from other recessions. We have seen a much more
significant increase in the share of workers who have taken
part-time jobs involuntarily because they have lost hope of
finding a full-time job and they are making do as well as
possible.
There has been a tremendous increase in the long-term
unemployed and the prospects for them getting back into the
labor market are, you know, dim, given the research that shows
that employers are more reluctant to hire people who have been
out of the workforce for that long.
I do think a lot of it can be--the fact that people are
taking these part-time jobs I think suggests that people are
waiting for the recovery to happen, and they haven't just given
up. And this is not a long-term structural thing in the sense
that they do wish that there were policies for growth that
would get them those full-time jobs. So I haven't given up on
those people. And I think if we had the right policies, as I
talk about in my testimony, you know, some of the regulations
that we're seeing now with the Affordable Care Act, the work
disincentives that exist in there, the minimum wage rules that
are being adopted across different states, the new overtime
rule provisions, I think all of them are pushing us more
towards an economy where maybe employers are more reluctant to
hire workers full-time.
And so I think if we saw changes on those policies, and
particularly with occupational licensing, if we saw changes in
policies, I think we can see the economic growth and the labor
market recovery that we would like to see.
Chairman Coats. Thank you.
And, Dr. Jacobs.
Dr. Jacobs. Thank you. I think this is a critically
important question, and I will give you two parts to my answer.
On the one hand, we know that this recession is not like
any other recession. The crisis was unlike any crisis that we
have seen in the last 50 years.
Ben Bernanke called the financial crisis worse than the
crisis that preceded the Great Depression. And so I think
comparing the speed of this recovery to recoveries over the
last half century is actually a little bit of an apples to
oranges comparison.
That being said, I think it is unsurprising that we still
do see evidence of slack demand. We do still see evidence that
there is work left to be done.
The vast majority of the growth in this recovery has been
in full-time jobs, just as a side point to Dr. Mathur's point,
but we know there has been slow employment growth across
industries, and we know that there are things that we could do
to actually speed up the recovery if we wanted to.
For example, there are fiscal policies, including
infrastructure spending, that we know would boost growth by
about 1.5 percent. In the short term it would stimulate demand,
and in turn over time you could really see that move the needle
on labor force participation.
So that is the short-term answer in terms of what we see in
this recovery.
At the same time, I think that it makes good sense to think
about the longer term trends. Over the period that you framed
in your question, over the last half century, we have seen
economic inequality rise substantially. And that rise in
inequality has been correlated to slower labor market
recoveries than we would like to have seen. So I think we need
to think about policy solutions that make sense in this
context, and we need to also think about where the gains from
growth are going in good times--largely to those at the very
top. We need to really think critically about the policies that
we could put in place that would do something about that.
Chairman Coats. Thank you.
Congresswoman Maloney.
Representative Maloney. Thank you so much. I would just
like to point out that by virtually every measure of labor
market health, the economy is better off now than when
President Obama took office. We were shedding 800,000 jobs a
month. We have had 64 months of job growth, with 12.8 million
new jobs, private-sector jobs. And the unemployment rate is at
5.3 percent, down from the peak of 10 percent.
So I would like to ask Dr. Winship, you mentioned in the
first paragraph of your written testimony, and I quote, ``Our
misinterpretation of the data more often than not, translates
into an exaggeration of the economic challenges we face.'' End
quote. And I agree with you.
And in order to make good economic policy decisions, we
need to be sure we have good and accurate data, and we need to
be sure we are interpreting this data correctly. And we are
here to talk about labor force participation rates.
So first let's talk about demographics and the impact that
it has on labor force participation. Approximately how much of
the decline in the overall labor force participation rate over
the past several years is due to demographics and the fact that
the baby boomers are retiring, that they are leaving the
workforce? What is the percentage that you believe is due to
retirement and movement out of the workforce by the baby
boomers?
Dr. Winship. Thank you, Chairwoman. I would hesitate to put
a percentage on it, but I think it is----
Representative Maloney. So would you say ``a lot'' or ``a
little''?
Dr. Winship. I would say ``a lot.''
Representative Maloney. A lot.
Dr. Winship. And I think over the course of the recovery,
and even before the recovery, I definitely have been on the
record trying to convince more people that month after month
when the new employment figures come out, and labor force
participation is down, that we need to relax a little bit. And
it is going to continue to decline just because the baby
boomers are retiring.
Representative Maloney. And let's talk about a positive
factor that is in our economy now, and that is education. So
many young people are pursuing higher education, and that is a
good thing. It is good for them. It is good for our economy.
And it builds their skills and they are doing it more than
previous generations.
And so how much of an effect do you think that that is
having on the labor participation rate, would you say?
Dr. Winship. I think it is significant, especially for the
18- to 24-year-olds that I am talking about. You know, there is
a concern that if the economy is bad then people decide to go
back to school, or to stay in school because the jobs are not
out there, I think there is some legitimacy to that. Except
that these trends of greater school enrollment really go back a
long way. They predate the recession by quite a lot.
Representative Maloney. And now I would like to read you a
statement, if you could please evaluate this for us, and I
quote, ``I think we are facing enormous economic challenges in
this country. The Obama economy has led to the lowest labor
force participation since 1978.'' End quote.
And given the significant impact of demographics and
choosing to continue education, as well as other longer-run
factors that predate the Great Recession and the Obama
Administration, do you think it is a misrepresentation of the
data to say that the Obama economy led to the lowest labor
force participation since 1978?
Dr. Winship. I think it was a contributor to the decline. I
do not think it is fair to say that it was the most important
factor, by any means. But a lot of the expansions of our safety
net programs that occurred during the first two years of the
President's first term I think now need to be wound back a
little bit. Because I do think the evidence from welfare reform
in the 1990s really does show that the work disincentive there
can be a real problem.
Representative Maloney. Well, Dr. Jacobs, could you
comment? Do you believe the previous statement I read in fact
is a misrepresentation of the data?
Dr. Jacobs. I think to say there is a causal relationship
between the Obama economy and the labor force participation
rate is a serious overstretch.
We know that at least half of the decline over time has
been due to demographic factors. We know another approximately
sixth of it is due to cyclical effects that we could have
expected from any economy. And then we have got a residual, the
leftover bit, that could be explained by a lot of different
things, including the fact that this recession was unlike any
recession we have seen ever before.
So I think it would be a serious overstretch to claim that
there was a causal relationship between the two. I would also
note that many of the expansions to the safety net put in place
in the first two years of the Administration in response to the
crisis did little to alter existing work requirements.
Representative Maloney. So would you agree, Dr. Winship,
that the ``92 million Americans who aren't working'' are either
retired or, as she says, half of it was due to these other
factors that we mentioned--retirement, and getting an
education, and other factors?
Dr. Winship. It is as good a guess as any. I mean, I think
they were important. I don't think that much of the expansion
of the safety net was--involved work requirements,
unfortunately. I disagree with that point.
Representative Maloney. Well my time has expired.
Chairman Coats. Congressman Brady.
Representative Brady. Thank you. And even in this
Administration, you can't claim jobs, you created it, and then
ignore those who can't find a job. They are related to the
fiscal policies of this Administration. This was a serious
recession, no question. Financial crises are difficult.
Absolutely. No question.
It is certainly not the greatest recession, or anywhere
close to the Great Depression. In fact, in modern times
President Reagan's recession he had to deal with had a higher
unemployment rate, 10.8 percent.
The question here today is how do we bounce back faster?
This has been a terrifically disappointing recovery. Every
month we add new jobs is a good month, by the way. But we know
we can do better. And in fact the Reagan recovery was almost
three times faster economic growth.
So the question is how do we get people back in the work
force? So I agree with Dr. Winship. I think there is--some of
the obstacles are the need to rebalance our regulatory process.
We need a much better tax code, to be competitive. We need a
sound dollar going forward. That's the foundation for growth.
And we need more freedom to trade around the world. No
question.
But, and to Dr. Mathur, to your testimony, you talk about
two things. Could you expand on them? One is, government tends
to stick with the stale old 20th Century responses in our
assistance programs, while states are looking at more 21st
Century smarter work incentives.
Can you talk a little about the difference between the poor
work incentives that were expanded to a big degree in response
in this recovery? I think Dr. Casey Mulligan who you cited in
your testimony, and then you also mentioned the Wisconsin
FastForward initiative as a way, as a modern way to actually
tackle the labor participation issue.
Can you expand on sort of that dichotomy between the stale
old ideas we have been implementing and the things states have
been doing?
Dr. Mathur. Absolutely. Thank you for the question.
As I mentioned in my testimony, there is a lot of research
out there by Dr. Casey Mulligan which cites the Affordable Care
Act and also the extension of Unemployment Benefits, and other
welfare programs which were definitely needed at the time, but
which also create work disincentives.
So if we talk about the Affordable Care Act, the subsidies
that were provided to people at 100 to 400 percent of poverty
had--could create the incentive to avoid, to stop work, or to
not take up full-time jobs. And the reason for that is that the
size of the subsidy, or the value of the subsidy, was a lot
higher if you took up a part-time job, if you worked fewer
hours in a year, or if you spent fewer weeks working.
And at the same time, if you had a full-time job with
health insurance you were not given the full value of the
subsidy, whereas if you had a part-time job where you were not
offered insurance, the value of the subsidy was a lot higher.
As economists, you know, we believe that these incentives
matter at the margin. You know, we will see how this plays out
in the future and whether this actually does result in a lot of
people sort of choosing not to work, but these incentives
absolutely do exist in the current system under the Affordable
Care Act.
I also mentioned the minimum wage increases and why I think
having sort of wage subsidy programs like the EITC is a better
alternative to minimum wage increases. We agree that there is a
large literature on whether minimum wages have disemployment
effects, or they don't have employment effects. I don't think
anybody is arguing that it would actually increase employment.
And to my mind, the risk-free strategy then is to expand
the EITC. We know that the EITC is a hugely successful program
at getting single mothers into the labor market. It is hugely
successful at helping families with children, helping low- and
middle-income families, without the negative employment effects
that we see--that are possible with minimum wage hikes.
So I have always talked about if we want to help low- and
middle-income people, even people on minimum wages, I think a
better idea is to expand the EITC.
Now to your point about what is happening in the Wisconsin
FastForward initiative program, there the funds through the--my
idea is to create the right incentives for employers to hire
people out of the pool of long-term unemployed, or hire people
out of the pool of unemployed; provide tax credits to
employers, which are used to provide job training, skills
training to workers who would ordinarily not be hired by
employers because they are looked upon as long-term unemployed.
We don't know what their experience level is.
But through these programs, you can provide them jobs
training. The employer shares some cost of that training, but
in the long run the worker is matched to a job. And I think
that is a far more effective strategy at getting these people
back into the labor market than just, you know, doing it either
through minimum wage increases or through welfare programs.
Representative Brady. Thank you, Doctor.
Mr. Chairman.
Chairman Coats. Senator Cassidy.
Senator Cassidy. Well let me start off by saying this.
Would you agree that it is not--the people who are having
the hardest time are the fellow or gal who has a high school
education, maybe a year or two more, but not a college
education? Semi-skilled, if you will, a crafts person, blue
collar? Everybody agrees with that?
(Nods in the affirmative.)
Now I have been struck, and we have a slide but I do not
think we have time to put it up, about how the part-time and
voluntary labor force has gone up.
And, Dr. Mathur, you quoted Dr. Mulligan's information that
this quite likely could be due to the Affordable Care Act. I
think there is good academic data from the Federal Reserve in
San Francisco and elsewhere that if you tax full-time
employment for the low-wage worker they tend to be made part-
time. Fair statement?
I also notice that there are some states doing really well
in creating those blue collar jobs, and those are typically the
oil patch from North Dakota, Oklahoma, Texas, and Louisiana. Is
that a fair statement?
And so that goes along with the idea that blue collar
workers have traditionally been employed in mining,
manufacturing, and construction. And an energy-based economy
creates mining, obviously, which in turn manufacturing in terms
of construction. Fair statement?
Now the structural changes that you speak of, are you
speaking, as you mention structurally, of the increased
regulation of our jobs market? Because you point out that
there's academic literature that shows with increased
regulation, you have fewer jobs.
Is it the fact that we are moving away from mining,
manufacturing, and construction, turning our back, for example,
on things like Keystone-XL, which would have created 40,000
construction jobs? Or otherwise doing our best to inhibit
natural gas and oil production and coal production? Is that
what you mean by a structural change? That we are just turning
our back on those mining jobs that would otherwise create
prosperity, as they are in North Dakota, Texas, and Louisiana,
et cetera?
Dr. Winship.
Dr. Winship. Thank you, Senator.
So when I think about structural issues, I do tend to think
about diminishing dynamism. And as I said, part of that is
business dynamism, but I think a second part of it I did
mention that does relate to your invoking the strong economies
of the oil states is, we may have less dynamism as Americans,
as well.
In the past, probably the most important way that people
found opportunity was to move to it. So you have the Westward
migration. You have the great migration of African Americans
from the South, the migration of poor whites from Appalachia,
to where the jobs are.
Senator Cassidy. May I interrupt, because we have limited
time. Dr. Mathur points out, though, and maybe your assessment,
I don't think yours Dr. Jacobs, that if you give long-term
unemployment people have less incentive to move. I think you
quoted that.
I have read similar articles like that from The New York
Times. If you are doing relatively well, why would you move to
North Dakota? Because you live in Ohio, and all your friends
are in Ohio. Are you with me?
Dr. Winship. I think that is right, yes. And I think that
we ought to make our unemployment insurance system--it is a
great example. To the extent we can incentivize people to where
the jobs are when that makes sense for them, that is the sort
of safety net reform I think that would be helpful for
expanding----
Senator Cassidy. And structural also includes, from what
you just said, how we structure unemployment insurance and
whether or not we are disincentivizing people from moving from
where there are no jobs to where there might be jobs. Fair
statement?
Dr. Winship. Absolutely.
Senator Cassidy. Now in terms of the mining, manufacturing,
and construction, I always considered mining as an important
part of that. And if we do not have the energy, inexpensive
energy for energy-intensive enterprises, are we really going to
return to the kind of manufacturing that created those strong
blue collar jobs with good benefits? That may be beyond your
expertise, but I ask that question for an opinion.
Dr. Winship. You know, I think we are probably never going
to return to the kind of robust manufacturing-based economy
that we had in the 1950s. That said, I think it is important
that we do as much as we can to expand manufacturing in the
United States.
I think that other jobs outside of manufacturing can and
are good jobs in many cases. And so----
Senator Cassidy. Yes, but I do not see those blue collar
workers' service-related jobs typically bring the same sort of
wages with better benefits. You put somebody on an oil rig--I
am from Louisiana--and with overtime he can make upwards of
$100,000 a year. I mean, that is great. A fellow who has two
years of training after high school sort of thing.
Now I will finish by saying I think there are examples--
Texas, Louisiana, North Dakota--where blue collar workers are
doing pretty well. Houma, Louisiana, had the lowest
unemployment rate in the Nation, or second lowest, for several
years running, creating those blue collar jobs.
On the other hand, if you regulate the economy or
disincentivize otherwise, or discourage the use of our natural
resources to create jobs, we are consigning them to a tougher
life.
I thank you. I yield back.
Chairman Coats. Congressman Delaney.
Representative Delaney. Thank you, Mr. Chairman, for
assembling a group of experts that really bring a tremendous
amount of intelligence on this topic. So it has been a great
conversation.
I was inspired by my friend from Texas who was quoting
Ronald Reagan, and it made me think. President Reagan had a
good quote, where he said there are no easy answers, but there
may be simple solutions.
And, Dr. Jacobs, you said something earlier that I think
really could be the simple solution to this very complex
question, which is infrastructure. Because when you think about
what we have and the facts that you have described, while it is
interesting to look at prior recessions, it is intellectually
interesting, it is informative to some extent, it is not really
dispositive. And in fact, if you want to look back to prior
events, we should look back at the industrial revolution and
what happened there, and the disruptive effect that had on the
workforce.
And there was a public policy response, which was to
educate people so that they could be better equipped in the new
world. And there is a little bit of that going on today. So we
have demographics which are changed, and clearly affect the
outcomes here. So to compare it to prior recessions, again, is
not all that relevant.
We have this tremendous kind of steep trajectory of
technological innovation, which I tend to think is a much
bigger contributor to this problem than people give it credit
for. It is also a contributor to a decline in the standard of
living because it leads us really to creating two types of
jobs: high-skilled, high-paid jobs which are growing quite
rapidly; and low-skilled, low-paid jobs which are generally
people who are serving the high-skilled, high-paid people,
right? And there is this huge lack of middle-skill jobs.
And I am very optimistic and confident that the U.S. free
market system will solve this problem over time. Because again
if you go back to other periods of disruption like the
industrial revolution, you had lots of disruption and you had
these similar kinds of pressures. But ultimately there was the
creative side of creative disruption that kicked in, and you
got a lot of new jobs, and I think that will happen here.
But it seems to me we need a bridged demand program that
will put demand in the labor market for middle-skill jobs, and
solve a lot of these problems. And so the simple answer, going
back to President Reagan's kind of framing, would be
infrastructure. Right? It's good for the country. It's good for
our citizens. It's good for businesses. It's been proven, if we
dynamically scored it, to be a good investment, and it creates
jobs.
So I am just interested, Dr. Jacobs, I think I know your
view on it because you mentioned it and it inspired my
question, so thank you for that because it gave me something to
say. But Dr. Winship and Dr. Mathur, what do you think of that?
How do you think a big national infrastructure program would
affect the outcomes on some of these disturbing statistics?
Dr. Mathur. I mean I do think there is a potential for a
big infrastructure program, or funding highways to----
Representative Delaney. Assuming we paid for it in a smart
way, right?
Dr. Mathur. Yes.
Representative Delaney. Obviously you want to premise it
with that.
Dr. Mathur. If it was efficiently done----
Representative Delaney. Like fixing the international tax
system and generating revenues and building infrastructure, for
example. But, I'm sorry.
Dr. Mathur. Yes, I think there is the potential. I also
think there are other ways--if you mentioned that it is the
lack of skills that, the middle-skill jobs that are being lost,
I think there are also other ways to do it, which is skills
training, or training our youth to get into the labor market
through paid apprenticeship programs.
But I do think that the multiplier on sort of highway
infrastructure spending is large, and there could be economic
benefits in the long run.
Representative Delaney. Dr. Winship.
Dr. Winship. I'm not opposed philosophically to more
infrastructure spending. I think in practice it probably would
not be paid for, and so I think that would be a mistake to do
that. I think the infrastructure problem has been a little
overstated. There is a nice paper by Evan Soltas at Columbia
University, I think, who makes a pretty strong case I think
that our concerns about infrastructure have been a little bit
overblown.
And I also think that framing--talking about infrastructure
in the context of labor force participation also frames the
problem as being primarily a demand side problem. And as my
testimony probably makes clear, I am a little bit skeptical of
the extent to which the problem is on the demand side versus
some supply side issues we have.
Representative Delaney. Dr. Jacobs, I will give you an
opportunity because I sense I know your answer but----
Dr. Jacobs. I think you are probably right. I mean, as I
said earlier, according to analysis by the International
Monetary Fund, increased infrastructure spending can boost
short-term economic growth by 1.5 percent in the short run.
This seems like something we could use. It would create jobs in
the construction industry, which was one of the hardest hit by
the Recession and, like many industries, has recovered more
slowly than we might like.
So it seems kind of like a win/win. I feel like every day
that there is a news story about a train derailing, or a
highway that is far bumpier than I would like to see and feel
safe on, so it is clearly a problem that is worth solving for
other reasons as well. We know investing in infrastructure
yields long-run rewards across a variety of outcomes.
Representative Delaney. Thank you.
Chairman Coats. Congressman Paulsen.
Representative Paulsen. Thank you, Mr. Chairman. I
appreciate the testimony we have had here today, as well. I
know some believe that it is okay to accept slower economic
growth and a lower workforce participation rate, and accept
this as sort of new normal, and it is okay for wages to be flat
for such a long period of time, or it is okay for record
numbers of people that are working part-time that would like to
work full-time, and it's okay for millions unfortunately to be
in this chronically unemployed category, but I want to ask this
question.
The focus of the hearing here is the participation rate,
what the work opportunities are, what the incentives are, and
how do we improve the situation. It seems we are looking at two
sides of the labor coin here.
On the employer side, you have got the fact that many
businesses are unable to fill the positions that they have
available, because they cannot find eligible candidates to fill
the jobs and the requirements.
Then you have got the employee side of the equation where
you have got involuntary part-time workers, six-and-a-half
million, as you mentioned, Dr. Mathur, that cannot seem to find
the additional hours that they want to work, either because
they cannot find the job with more hours, or possibly because
there are policies that have left their employer in a position
with the undesirable option of cutting hours to avoid
regulatory penalties.
So, Dr. Mathur, if I can ask you this: In your estimation,
what can be done on the employer side to help find qualified
applicants? And what kinds of programs, perhaps
apprenticeships, can employers embrace to hire workers that
might also then reduce the concern that workers may transfer to
a different employer after they've invested so much time in
getting the training/and getting the expertise?
Dr. Mathur. So I have talked a lot about for youth who are
graduating, I think we do need paid apprenticeship programs.
What we are seeing is that a lot of them are reaching the labor
market with high levels of student debt but unable to find
jobs, and therefore being sort of permanently scarred, or
scarred for long periods of time because they do not have the
incomes to pay off the debt and they are not getting the right
jobs.
So I think we are seeing experiments around the country
where I was reading yesterday about an apprenticeship school
where, you know, if you're in high school, or if you decide not
to go to college, you can go into these schools and basically
get training. Or even in school go and work at an employer and
be trained for exactly the job that you might be required to do
after you graduate.
So I think those kinds of programs are extremely important
currently, given that youth unemployment has doubled, the
official unemployment rate. Those kinds of programs would
really help our youth to get the jobs that they need.
On the other side of the pool of unemployed who are not
finding jobs and the employers who are willing--who are not
willing to hire them because they are afraid of what their
skills are, or how much experience they have lost, I think
experiments like we just mentioned, the Wisconsin FastForward
initiative where employers are actually being provided tax
credits to hire exactly out of this pool and provide these
workers the training that is needed on the jobs, that they can
perform these jobs more efficiently, be more productive, get
the skills that they need, I think those programs around the
country would be successful at solving the problem of
unemployment and getting the employees the skills that they are
looking for in these employees.
Representative Paulsen. You mentioned this apprenticeship
school you saw recently. Was that in a certain state? Or is
that something we could look at?
Dr. Mathur. I think it was in Virginia. I just read the
news yesterday, I think, in Newport News, Virginia.
Representative Paulsen. Dr. Winship, do you have an opinion
in terms of what can be done to remove regulatory barriers and
better enable workers to contract more freely with their
employers on the type of hours, pay, and benefits that they
would like to receive?
Dr. Winship. Sure. You know, I think the best proposal that
I have heard for regulatory reform would set up a commission
that would essentially enumerate the worst regulations out
there. And you could certainly enumerate the worst ones for job
growth, or for wage growth.
And then the commission would present the whole menu, and
there would be an up or down vote on whether to rescind them or
not.
I do think occupational licensing is another, is another
really important issue that Dr. Mathur mentioned. And this goes
back to the dynamism question. There are a lot of people who
are protected from competition which props up their wages. So
if I am a florist in a state that has undue regulations on who
can become a florist, that's great for me but it is not very
good for all of the people who might be unemployed, might be
long-term unemployed who would do a whole lot better if they
could become florists.
So I think occupational licensing is really important.
Figuring out what the federal hook is there I think is a tough
question.
Representative Paulsen. Thank you, Mr. Chairman.
Chairman Coats. Senator Lee.
And, excuse me, I might just note that the Senate votes
have already been called. There is enough time for Senator Lee
to do his. The House has not been called yet. I just talked to
Congresswoman Maloney. I am going to turn this over to her.
That is where we are. Congressman Schweikert, I think you are
next on the list, and Dr. Adams. Is that correct? Adams is
first on the list, and then Congressman Schweikert.
And so as long as the House can stay, I am happy to put the
gavel in the hands of our Ranking Member here but, Senator Lee,
you are on.
Senator Lee. Thank you. Thanks to our panelists for coming
here today. We appreciate your insights, as always.
Dr. Winship, let's start with you. As you are aware, policy
decisions and policy changes affect decisions at the margin.
The individuals who are on the edge of perhaps dropping out of
the labor force are in many instances facing a difficult set of
questions, questions involving whether or not to work one more
day, or to spend one more day looking for work, based on a
determination as to whether these kinds of efforts are worth it
relative to retirement, considering ways possibly to justify an
SSDI claim.
You have written before that, on the subject of SSDI, and
the sometimes perverse incentives that workers on the margins
may face when presented with an opportunity to make a claim on
SSDI. With the SSDI Trust Fund set to run out of money next
year, what if any policy reforms might you suggest that could
improve workforce participation, particularly at the margins?
Dr. Winship. Thank you, Senator. I think it is a really
important question. The reforms that I propose in the article
that I have written for National Affairs on this range from,
you know, you could create markets for private long-term
unemployment insurance. I think SSDI has become really a long-
term unemployment program for folks who, depending on economic
circumstances, would be employable. They are not actually
disabled in that sense.
I think we could do things like experiment with experience
rating of payroll taxes for employers. That is to say, if a lot
of your employers go on to receive SSDI, then your share of the
payroll tax would actually be higher. Now if you do that, you
have to allow employers to also be able to get involved in the
determination of eligibility for their former employees. So it
is sort of a big step.
You can toughen eligibility requirements for people who are
applying. You can make it easier for people who are actually
disabled and on SSDI to work while at the same time making it
more difficult for people who are not disabled in the sense of
not being able to work by having more reviews of eligibility.
So I think there is a range of things you could do. You
could update the listing of occupations, which the Social
Security Administration uses to determine whether there are
jobs out there that people could do.
So I lay out a dozen or so different proposals in this
piece I have written.
Senator Lee. Thank you.
Employers are facing a slew of new regulatory challenges
from the NLRB's Joint Employer Rules, the Department of Labor's
proposed rule, proposed overtime standards that came out at the
end of the month last month. How do you think these rules will
ultimately impact the job market in general for the burdens
they add to the employers, taking into account that employers
are half of the equation here?
Dr. Winship. Yes. I think just like the minimum wage debate
that is happening right now, I think any time that you increase
the costs that employers have to pay for their workers you face
a real risk of helping some people who benefit from it. But at
the same time, hurting a lot of people who do not get the
benefits of dynamic job growth in the future.
I think we have to be really careful. And this is a case
too where I think a lot of the statistics about stagnating
wages have been overstated, and we actually treat the problem
as in some ways different than what it actually is.
Senator Lee. Dr. Mathur, I saw you nodding. Do you have
anything to add to that?
Dr. Mathur. On the overtime rules, we actually have good
research looking at the impact of proposed overtime
regulations, or changes in overtime regulations and the effect
on worker hours and worker wages. And there are two good
studies out there that I found that basically said that when
you have overtime--when you are required to pay workers time-
and-a-half for every hour that they work over 40 hours a week,
the employer either cuts down the base wage, or if they are
already at minimum wage they cut down their hours.
So even though we know that these rules are out there to
help workers, I think that in the long run there could be
potential negative unintended consequences for the workers that
they are trying to help.
Senator Lee. For a minute there I thought you might be
making a plug for the Working Families Liability Act, to which
I would make a plug for but for the fact that I am out of time.
So since I am out of time I am not going to make a plug for the
Working Families Flexibility Act, which would help this all.
[Laughter.]
Thank you very much for your answers. Thank you, Mr.
Chairman.
Chairman Coats. Dr. Adams, and now I am turning the gavel
over to Congresswoman Maloney.
Dr. Adams. Thank you, Mr. Chair. Madam Ranking Member,
thank you, as well. I thank you all for your testimony.
Dr. Winship, let me return to your statement about
misinterpreting data more often than not could be an
exaggeration of economic challenges.
Some have stated that the labor force participation rate is
at its lowest level in nearly 40 years, and they use this
narrow fact to imply that the Obama Administration is the cause
of slipping labor force participation rates, but those same
people often make no mention whatsoever of demographic trends
like the retirement of baby boomers. I am a baby boomer. I
retired just a year-and-a-half ago. Or of large numbers of
young people who are going back to pursue a college education.
So do you think that this narrow presentation provided,
without mention of those factors, exaggerates the economic
challenges that we face?
Dr. Winship. I do. And I think, just to be clear, I think
we do have to distinguish between the demographic and
structural changes that in some ways are beyond what policy can
affect. But I think that's not to say that there are not better
or worse policies that can also affect labor force
participation rates.
So I do not want to leave the Administration completely off
the hook. I do think that some of the expansions in the safety
net, I think the things, the regulations in the ACA and this
overtime rule do affect labor force participation at the
margin.
Dr. Adams. So would you say that Senator Lindsey Graham was
exaggerating the economic challenges when he said the labor
force participation rate is at an all-time low?
Dr. Winship. I am not familiar with the quote so I cannot
really answer that.
Dr. Adams. Okay. Let me move on and ask you about the
unemployment rate as it relates to African Americans. It stands
at over 9 percent, about 9.5 percent, compared to 4.6 percent
for Caucasians.
So, Dr. Winship and Dr. Jacobs, if you would respond, could
you explain why the unemployment rate is so high for African
American workers relative to other workers? And what policies
might we consider to specifically help increase the African
American participation in the labor market and lower the
unemployment rate there?
Dr. Jacobs. You are exactly right that the unemployment
rate amongst African Americans is higher, particularly for
young African American men. And I will return to one of the
points that I touched on earlier in terms of criminal justice
reform.
The incarceration rate in the United States is the second
highest in the world, second only to the Seychelles. Research
suggests that incarceration rates and crime rates have been
pretty much entirely unrelated since the 1990s. So there's
plenty of room for reform without a spike in crime. And we know
that the African American population is much more impacted by
our criminal justice policies.
So there is good reason to believe that what is going on in
the criminal justice system and what is going on in the labor
market are interacting in a way that is really pretty harmful
for African Americans, particularly young African American men.
We know that 9 in 10 employers say they conduct criminal
background checks, which in turn impact the ability of those
with a criminal record to get a job. No matter how severe the
crime, no matter how old they are, no matter how old that crime
may be and how far in their past history it might be.
So there is a lot of potential I think for reforming the
way that we deal with incarceration in this country, and also
in terms of thinking about how employers may be discriminating
against those with a criminal record and how that might be
holding back labor force participation and pushing up the
unemployment rate amongst African Americans.
So that is just one area that I think could have a major
impact on a particularly troubling issue.
Dr. Adams. Dr. Winship.
Dr. Winship. I think criminal justice reform is important,
but I do think that it would be wrong to focus on that as the
ultimate source of these different employment outcomes.
You know, the gaps between African Americans and whites
open up very early by the time kids start kindergarten, for
instance. There are vast test score gaps. So I look at the
issue as chronic childhood poverty. And it is very clear from
research by Patrick Sharkey that African Americans are much
more likely to grow up in concentrated poverty. So I think we
need to experiment with a number of interventions at the state
and local level.
There's a program I will plug called ``Ready For K'' in San
Francisco where they are giving parents text messages about how
to read to their kid and help their kids develop
intellectually. And I think the research by Raj Chetty about
concentrated poverty and segregation really points towards
trying to help more people move to opportunity, as I said
before, and move out of poor neighborhoods to areas that are
going to support their intellectual development more.
Dr. Adams. Thank you very much. I think I am just about out
of time. You know, I look at North Carolina. We do not have
adequate jobs and certainly jobs that do not pay us enough, and
so I think we are going to have to think more about living
wages as we talk about people taking on work, and if that work
does not help them sustain their families. And there is an
issue with that, too. But thank you. I yield back, Madam Chair.
Representative Maloney [presiding]. Thank you.
Congressman Schweikert.
Representative Schweikert. I never thought I would be
saying this--thank you, Madam Chairwoman.
[Laughter.]
Representative Maloney. Wow.
Representative Schweikert. Dr. Mathur, give me the best
pronunciation, because I have heard two. Math-thur?
Dr. Mathur. Ma-tur, yes.
Representative Schweikert. Mathur, okay. So there are a
couple of variations here. You have written about barriers to
entry and the change in the last couple of decades of the
ability to have certain types of employment because of the
regulatory state. And I have seen some other data that actually
said that also for particularly minority populations it is an
even greater effect on their ability to become a barber, to
become some sort of licensed profession.
How much are you seeing that movement of barriers to entry?
And I accept that may be more of a state and local, but also
with the new economy? If I am going to become a Uber driver, or
somehow participate in the new hyper efficient economy we are
now seeing a movement of barriers to entry to stop that one
thing that really does seem to be producing entrepreneur job
growth.
Dr. Mathur. Right. I absolutely agree with you. So when you
look at the data on occupational licensing, as I said, there
has been a tremendous increase in the percentage of jobs that
are now required--which require people to hold the job, and the
costs have gone up, and the time investment has gone up in
these jobs and that is clearly a barrier to entry, and that is
affecting entrepreneurship and just regular job growth.
But you also look at--you see that we talked about how the
economy finds ways to sort of overcome some of these barriers,
and I think we are seeing that with the new sharing economy,
with the new gig economy, and how people are just using the
assets and skills that they have already to generate income for
themselves. And I think the more we try to regulate that, I
think these avenues are going to be closed to us.
Representative Schweikert. Doctor, if I wanted to actually
get better educated on that subject, if anyone is actually
doing some quality academic research on both the barriers to
entry and also the effects on sort of the new economic growth,
and also what I see happening at many of our state, local, and
even some of the federal, of trying to protect incumbency----
Dr. Mathur. Right.
Representative Schweikert [continuing]. In businesses and
tax systems, what would I go out and read?
Dr. Mathur. Alan Krueger actually has a study, Krueger and
Kleiner have a study on Occupational Licensing that shows the
changes over time and the regulations over time that are
causing the barrier to entry. But Alan Krueger has also
actually done a study with Uber driver partners showing the
economic impacts and saying so many people are benefitting from
being driver partners at Uber.
Representative Schweikert. And actually it's much, much
bigger than just Uber. That's just the easiest one that's
touched so many lives, and my understanding is there's a
disproportionate pushback on those who are poor and minority
and the regulatory state is actually starting to step into
these.
Dr. Winship, you touched on it but I would like to--because
I think actually you have written on this--in the last quarter
century, the greatest demographic movement from poverty into
middle class, that movement velocity that used to be the
hallmark of American society, wasn't it after the 1996 Welfare
Reform Act, and now that all those reforms are gone, we have
lost that velocity?
Do I state it correctly? And how do I understand this
better?
Dr. Winship. So I think that it is probably too early to be
able to say that the welfare reforms of the 1990s did improve
child opportunity, for instance, because the kids that
experienced it----
Representative Schweikert. But we do see the datasets of
those who were recipients and five years later that their IRS
income has dramatically changed.
Dr. Winship. That's right.
Representative Schweikert. So I was using IRS data.
Dr. Winship. So for single parents as a whole, for children
as a whole if you look at child poverty, if you look at the
poverty rate for female head of families, all improved a lot
after welfare reform was passed. Employment increased a lot
after welfare reform was passed.
Then you had a recession in the early 2000s. You had the
Great Recession obviously. But poverty stayed down. Most people
are not aware that if you include a measure of poverty that
counts as income, things like food stamps, and the Earned
Income Tax Credit, and things like that, poverty increased less
in the recession of the early 2000s, and even in the Great
Recession, than it did in the recessions of the early 1990s and
the early 1980s. And that was because the safety net did step
in. So I think it is a system of making it harder to not work
and remain poor, but easier to work and escape poverty through
things like the Earned Income Tax Credit.
Representative Schweikert. So sort of the cyclical balance
that we seem to have lost.
Dr. Winship. Right. So the fear is that as you reform
welfare, then you are going to help people in good times, but
in bad times it was going to be really bad. And it looks like
that did not actually happen.
Representative Schweikert. I yield back, Madam Chairwoman.
Representative Maloney. Congressman Hanna from the Great
State of New York.
Representative Hanna. Ms. Jacobs, you talked about levers
people can pull, the government can pull, to improve people's
circumstances. Ms. Mathur pretty much talked about levers that
the government has pulled that can cause people to be more or
less a part. You talk about inequality.
It is interesting to me that the dynamics of helping people
and wanting to do right by people can actually cause in some
ways a permanent situation of inequality by giving them certain
disincentives, and we all talked about them.
I want to shift. Universal pre-K. You have all mentioned
that to some degree or another. I think it is critical that we
support that as a government, writ large. But--I think it is
pretty clear that the labor participation rate is trending
downward, and we have talked about the causes. But would
anybody like to just venture into it? You, Ms. Mathur, have
done a pretty good job of telling us why certain things have
disincentivized people to participate. And I think that causes
inequality that is unintentional. But universal pre-K.
And you talked about prisons and incarceration rates. There
is a Strong Start for Children Act that Arnie Duncan's got out
there that I frankly like very much. Would anybody like to talk
about that subject matter? I know it's a little bit off, but I
think it directly relates to breaking the back of
intergenerational poverty, particularly with minorities.
Dr. Jacobs. I love talking about universal pre-K. As a
resident of the District of Columbia and someone who benefits
directly from the fact that D.C. has near-universal pre-K, I've
seen it for my own family. But more importantly, there is great
research suggesting that even directly on the topic of labor
force participation, which is not necessarily what we
automatically think about when we talk about----
Representative Hanna. But it does, doesn't it? It really
does.
Dr. Jacobs. It does. It does. It definitely does. I mean,
we know that for every 10 percent reduction in the cost of
child care, the employment rate of women increases by about a
half percent, according to a range of studies. Which a half a
percent does not sound like a huge number, but it actually is a
really big move of the needle on something like labor force
participation.
There are a host of studies on the long-term impacts of
universal pre-K and high-quality early education for kids. I
think there are reasons to think that it will improve long-term
labor force participation and the quality of our workforce for
kids, but there are also reasons to think that it would have a
real bang for our buck----
Representative Hanna. All of this happens on the margin.
That is the one thing we have all established, that so much of
all of this is, integral changes in how we, in the decision
process people go through and how they support themselves and
their family and their decisions.
And there is an old thing you may remember from the 1950s
of the negative income tax. One of the problems with welfare is
that it essentially taxes you, in some cases 100 percent of
your income, so your marginal willingness to shift is--it is
not an unthoughtful thing to do. It is in many ways reasonable
but unfortunate.
Mr. Winship, what would you like to say about that, if
anything?
Dr. Winship. Sure. Well I guess I would say a couple of
things. The first I think is that we ought to distinguish
between something like universal pre-K for its childcare
benefits versus for its benefits on kids. And I think on the
latter the evidence is not especially strong that we are able
to scale up programs in ways that actually will improve kids'
outcomes in the long run.
The second thing I will say is that the universal aspect of
it I think is an inefficient way to go about this. You end up
subsidizing a lot of----
Representative Hanna. Well actually the bill is 200 percent
and below. We could argue about the margin, but----
Dr. Winship. Sure. Well I think that makes a lot more----
Representative Hanna. That is what it is. Thank you very
much. Do you generally agree, though, Ms. Mathur, that we have
created a society out of our good nature and willingness to
help one another that unintentionally not just disincentivizes
work but actually incentivizes and causes inequality, the one
thing we are trying to avoid, or one of the things we are
trying to avoid?
Dr. Mathur. Yes. Some of the policies that we have good
data on of what the likely effects are likely to be, I think we
try to help but I think we----
Representative Hanna. Forty to thirty hours guarantee----
Dr. Mathur. Yes.
Representative Hanna. Would that be one of the things?
Dr. Mathur. It is absolutely one of those things where you
could see a greater shift towards part-time.
Representative Hanna. And you can see that, and there are
numbers to support that?
Dr. Mathur. Yes. There is some anecdotal evidence right now
to support that.
Representative Hanna. Thank you very much. My time has
expired.
Representative Maloney. Thank you so much. And we have been
called to vote, so I am going to call on Congressman Grothman
and have him assume the leadership of the committee so I can
run over there and make sure I don't lose a vote.
Representative Grothman. Good. And you tell them not to
close that rule.
Representative Maloney. I will try to keep it open for you.
Representative Grothman. Okay. I would like to thank you
for being here today. I can't help but notice in my District,
and my District has more manufacturing jobs than any other
district in the country, one of the major problems my employers
are having is they cannot find people to work. And beyond
manufacturing, but retail outlets, everybody, you know, is
looking for more jobs--more employees. Truck driver, a job that
I don't think I could do, it's a tough job, but a lot of people
could do it, but, man, they can't find anybody to drive a truck
today.
But I thought I would use my little time here to clean up
some misconceptions that some have put forth.
First of all, as a follow up from Congressman Hanna, at
least from what I have read, when you look at a program like
Head Start, you know, would you, just because you are the
doctors in the room, would either of you like to tee that one
up and give a shot as to whether everybody agrees that pre-K,
if we say Head Start as pre-K, is successful? Do you think it
is a successful thing?
Dr. Mathur.
Dr. Mathur. I think from my review of the literature there
is a mixed--you know, there's a mixed set of results. Some
people find that, you know, it is beneficial; some people find
that it is not.
Representative Grothman. I guess the American Enterprise
Institute is a little bit to the left of the Brookings
Institution.
[Laughter.]
Dr. Winship, do you want to tell us what the Brookings
Institution says about that, Head Start?
Dr. Winship. I think the Brookings Institution basically
has I think Dr. Mathur's line on it, I think, which is it's a
mixed bag but I think there's reason to be skeptical. I think
Rus Whitehurst I think has a lot of really important points
about the case that Head Start ought to be expanded, where he
has talked about the different randomized experiments that have
happened, and how disappointing some of those have been.
So I do think expanding Head Start is putting a little bit
of faith where the evidence really is not there to support it.
Representative Grothman. Right. Now I want to do a follow
up on you, Dr. Mathur. Earlier you said positive things about
the Earned Income Tax Credit. When I talk to my employers,
their employees are fairly sophisticated and they know that the
amount you get in the Earned Income Tax Credit maybe peaks out
between that $10- to $15,000 range, and they find some of their
employees don't want to work the extra hours because of the
Earned Income Tax Credit. In other words, it encourages you to
take a part-time job. It discourages you from working full-
time.
Given that, do you think one of the reasons for income
inequality here, one of the reasons for people working part-
time, is the Earned Income Tax Credit the way it is currently
structured that it discourages people from say getting, you
know, $20, $25, $30,000 a year?
Dr. Mathur. No. Absolutely not. I think all of the evidence
that we have suggests that the EITC is actually encouraging
labor force participation and has actually gotten people into
the labor market.
Now you can argue that the structure of the EITC is such
that at some point in the phase-out region of the EITC there
might be a disincentive effect, but there is actually no good
research that finds that disincentive effect to actually show
up in the data.
So we know that it is structured in a way where you start
losing, or the value of the benefit goes down after a certain
point, but we do not really see that on the----
Representative Grothman. You mean when I talk to my
employers and they tell me that their employees are very
sophisticated and know that they should not make more money
because they are losing the EITC, together with their food
stamps and everything else, you think those employers are an
aberration and that they are not typical?
Dr. Mathur. I am not sure of what your sample is.
Representative Grothman. Okay. I have one more question
here and then I have got to go and vote.
Dr. Winship, you talked about poverty and its effect. And I
always think there is--they are related, but poverty and
marital structure both have an impact on children. It seems to
me in the not-too-distant past in this country we had families
of, you know, seven, eight, nine kids in households of, you
know, two or three bedrooms, and they all did very well because
those parents provided a very good example. And right now we
sometimes have families in very, you know, sizeable low-income
apartments but the family structure is not there.
Could you distinguish between poverty and family structure
in the differences we see that were mentioned by Ms. Maloney a
second ago? I mean, what do you think is more important?
Poverty, or family structure? Because they are related, but
they are kind of different.
Dr. Winship. Sure. They are related, but I think they are
different. So it is very clearly the case that poverty rates of
single-parent families are much, much higher than for two-
parent families. And I think we do need to do a lot better at
encouraging more people to delay child bearing until they have
planned for it, until it is intentional. More often than not,
the ones that are not involved in single parenthood, I'm a
half-time single parent myself so this is not to badmouth
single parents, but when the rates of out-of-wedlock
childbearing have reached as high as they have in the United
States, I think it will be hard to do much at all about the
poverty rate without doing much about single parenthood.
Representative Grothman. Okay. Dr. Mathur, do you--I know
you have written on that topic. Would you care to distinguish
at all between poverty rates and family structure?
Dr. Mathur. I agree with you that they are highly
correlated and, as Dr. Winship said, we do see much higher
rates of poverty among single mothers. We see much higher child
poverty rates in families headed by single mothers as compared
to families headed by married parents.
So I think to address the problem of poverty we do need to
talk about family structure.
Representative Grothman. Okay, now I've got to take off.
The record will be open for five business days for any member
that would like to submit questions for the record. So be ready
for those questions.
This hearing is adjourned.
(Whereupon, at 3:53 p.m., Wednesday, July 15, 2015, the
hearing was adjourned.)
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Dan Coats, Chairman, Joint Economic
Committee
The committee will come to order.
I would like to welcome our witnesses and thank them for being here
today to discuss the decline in the labor force participation rate, the
underlying reasons for it, and what it means for Americans' well-being,
job opportunities and the reward of work.
We have witnessed the steady decline of the overall labor force
participation rate since the early 2000s, and June's employment numbers
revealed a 0.3 percentage point drop in labor force participation over
the month to 62.6 percent. That's certainly a record low for this post-
recession period, and it is the lowest we have seen since the late
1970s.
I'd like to take a moment and point out that we have known for
quite some time that Baby Boomers would lead to a reduction in the
labor force participation rate. It's something that the Bureau of Labor
Statistics, Congressional Budget Office and the Social Security
Administration have been predicting for years. That's not really the
concern here--in fact, Baby Boomers are retiring at a slower rate than
previous generations. Americans age 60 and older are the only age group
that has actually seen their labor force participation rate rise over
the course of this recovery.
And we've also known about the trend among younger Americans, age
16 to 24, bypassing the labor force to focus solely on their education
and stay in school longer. That's something that's happening in
developed countries across the globe.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
What I think has been really concerning us here is the effects that
the recession had on the labor force participation rate trends,
especially for people in their prime working years, and I think
Americans will continue to feel those effects for some time. CBO
estimated in its January 2015 Budget and Economic Outlook that if the
unemployment rate returned to its December 2007 level and the labor
force participation rate equaled its potential, there would have been
2.75 million more workers in the fourth quarter of 2014.
While many believe that America has entered a ``new normal''
characterized by lower economic growth and workforce participation, and
subsequently require policies that lessen the negative consequences, it
is perhaps too soon to claim that these trends are a permanent feature
of the American economy.
We're still facing an economy in which many people would like to
work more hours, spells of unemployment have lengthened over time, and
wage growth remains tepid. Job openings, which have been at record
highs for the past two months, are staying open longer as businesses
take more time to deliberate on potential employees, and many are
finding themselves unable to get the right candidates for the jobs on
hand.
From manufacturers to grocery stores, I've heard from many Hoosier
businesses that they have been unable to find workers to fill job
openings--good-paying jobs with health insurance.
I believe it is not just that Americans are having trouble finding
work, but that there is a non-working component here as well. The
number of people in their prime working years that say they do not want
a job has swelled over time. And I think that would be just fine if
they were financially secure enough to not need a regular paycheck, but
I'm not so sure that that's true of all cases.
We all know here that work is a sacrifice, and for many Americans
it takes a lot of hard work to make ends meet. Yet many of the programs
intended to help people get back on their feet have inadvertently, by
way of their design, reduced the reward to working--making work more
costly as Americans strive for betterment for themselves and their
families.
As economist Casey Mulligan testified in our previous hearing on
the employment effects of the Affordable Care Act, ``When social
programs pay more to people not working, the sacrifices that jobs
require do not disappear. The commuting hassle is still there, the
possibility for injury on the job is still there, and jobs still take
time away from family, schooling, hobbies, and sleep. But the reward to
working declines, because some of the money earned on the job is now
available even when not working.''
Raising taxes, increasing regulatory compliance, and other policy
barriers also prove unsurprisingly effective at reducing the reward of
work. CBO's Budget and Economic Outlook noted that increasing marginal
personal tax rates, particularly on labor income, would ``reduce
people's incentive to work.'' And as we know, CBO also noted that the
new taxes and other incentives in the Affordable Care Act would reduce
hours worked, equal to as many as two and a half million full-time-
equivalent workers.
In a similar way, providing increasingly more subsidies that don't
require workforce attachment to an increasingly broader share of
eligible individuals encourages non-work. In some cases, the penalty of
losing benefits upon employment are so great, that combined with the
taxes expected to be paid on earnings in addition to transportation,
child care, and other costs, they exceed more than 100 percent as an
implicit marginal tax rate on work.
In 1996, my colleagues and I worked with President Clinton to
reform welfare, which included the requirement that able-bodied adults
register for work and accept a job or go to a training program in order
to qualify for food stamps, as they were known at the time. The 2009
stimulus law has since modified the work requirement and eased
eligibility rules, thereby expanding the number of new recipients. I
believe that work requirement should be reinstated to this temporary
lifeline.
For Americans still in their prime-earning years, periods out of
the labor force, underemployed, and jobless can have far-reaching
implications for their well-being, including lower income, lower
lifetime earnings, and less time to accumulate assets and financial
security. It is important to ensure that government policies do not
continue to foster economic malaise and do not discourage Americans
from working and improving their earnings.
Economist and former Council of Economic Advisers Chairman Glenn
Hubbard cites a number of reasons as factoring into lower labor force
participation, including ``simple discouragement, poor work incentives
created by public policies, inadequate schooling and training, and a
greater propensity to seek disability insurance.'' All of these can be
improved with regulatory reform, welfare reform that encourages work
and advancement, education reform and job training that includes
emphasis on learning non-routine skills, and fundamental tax reform can
increase incentives for work as well as drive investment and
productivity. These are all important elements in reinvigorating the
reward of work and renewing the American Dream.
A dynamic labor force with the ability to adapt to the skills
demanded in the labor market will continue to be an imperative for a
strong economy. What remains to be seen, given these trends and lower
labor force participation, is whether Americans can remain as
economically mobile as they have in the past, or even improve their
upward mobility.
With that, I look forward to discussing these issues in more depth
with our witnesses today.
I now recognize Ranking Member Maloney for her opening statement.
S6621_____
Prepared Statement of Hon. Carolyn B. Maloney, Ranking Member, Joint
Economic Committee
Thank you Chairman Coats for calling today's hearing.
There seems to be a broad consensus these days that the economy is
stronger than it has been in years.
The evidence is undeniable that the labor market is on a much
stronger footing. As you can see in this chart, we've had a record 64
straight months of private-sector job growth--with businesses creating
12.8 million jobs during this time.
Under the leadership of President Barack Obama, the unemployment
rate is 5.3 percent, close to current estimates of what economists call
its ``natural rate.''
There has also been substantial improvement in the broadest measure
of unemployment--the U-6 rate--which includes discouraged workers not
in the labor force as well as those working part time who would like
full-time work.
Let's remember how far we've come. When President Obama took over
for George W. Bush, our economy was in a dire situation. By some
measures, the Bush-era Great Recession was worse than the Great
Depression.
We were losing around 800,000 jobs a month. In the final quarter of
2008, GDP had shrunk by a staggering 8.2 percent. During the toughest
days, there were nearly seven job seekers for every one job. U.S.
household wealth fell by about $13 trillion from its peak. Housing
prices were collapsing.
But bold action by President Obama and Democrats in Congress, as
well as by the Federal Reserve, helped put our nation back on track.
My Republican colleagues opposed many of the measures that helped
reverse the economic freefall. They predicted dire consequences. But
those predictions have been proven wrong. Now they are left with the
weak claim that good job numbers aren't really good news.
And that brings us to today's hearing. While it is true that
economists are concerned about the declining labor force participation
rate, much of this decline is structural and it long pre-dates the
Obama administration.
My Republican colleagues act like this is a new phenomenon. They
gloss over the fact that the labor force participation rate fell over
the course of the George W. Bush administration.
And they ignore that the labor force participation rate for men has
been falling since the early 1950s . . . as you can see in this chart .
. .
. . . including through the Reagan, Bush I, Clinton and Bush II
administrations.
Economists have long anticipated the recent decline in the labor
force participation rate--and they predict that it will continue over
at least the next 10 years.
In 2006, economists at the Federal Reserve predicted that
participation rate would fall to 63.3 percent in 2013--and that's
exactly what happened.
The decline in labor force participation is largely driven by
demographics--principally, the retirement of the baby boomer
generation.
The first baby boomers began to retire in 2008, when they turned 62
and became eligible for Social Security early retirement benefits. And
they continue to retire at a rate of about 4 million a year--or more
than 10,000 every day.
In fact, the working lives of the baby boomers roughly track the
rise and fall of the labor force participation rate.
This chart shows the rise and fall in the percentage of Americans
in their prime working years (25-54).
The Council of Economic Advisers estimated that HALF of the 3.1
percentage point decline in labor force participation from fourth
quarter of 2007 to second quarter of 2014 was due to the population
aging. Other economists have reached similar conclusions.
Let's be clear--the fact that older Americans are able to retire is
a good thing. But it also lowers the labor force participation rate.
This is not the fault of Barack Obama or any other president.
There is a second important factor that helps to explain the
decline in the overall labor force participation rate--the declining
number of young people in the work force.
But young people are working somewhat less for a perfectly good
reason--they are going to college!
In 1970, less than a quarter of 20 to 24 year olds went to college.
By 2013, that number had climbed to nearly half (46.4 percent) as you
can see in this chart.
When young people choose to get an education instead of going
directly to work, it reduces the labor force participation rate in the
short term. However, in the future they likely will make more money,
contribute more to the economy and have higher labor force
participation rates.
Let me say something that we should all agree on . . .
. . . we need to build an economy that creates enough good-paying
jobs to keep more men and women in the labor force.
There are five things we can do right now toward that end.
First, we should invest in infrastructure to rebuild our roads and
bridges, create good-paying jobs and improve U.S. competitiveness.
Second, we need family-friendly workplace policies that will boost
employee retention, lift worker morale and can increase participation
in the workforce. When policymakers make it easier to balance work and
family, more people will be able to enter and remain in the labor
force, especially women.
Third, we should expand the Earned Income Tax Credit (EITC), an
initiative that has proven to boost labor force participation among
low-income workers.
Fourth, we should pass a second-earner tax credit, like the one
President Obama has proposed. This would help 24 million families where
both spouses work to offset the costs of commuting and child care,
making it more financially attractive for the second earner to remain
in the labor force.
Fifth, we should pass immigration reform. According to CBO, the
bipartisan immigration bill passed by the Senate in 2013 would have
increased the labor force by about 6 million workers in 2023.
I hope that today we can have an even-handed discussion of labor
force participation and related issues. I look forward to our
witnesses' testimony.
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