[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 115-46

                  THE DECLINE OF ECONOMIC OPPORTUNITY
                      IN THE UNITED STATES: CAUSES
                            AND CONSEQUENCES

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

                                 HEARING

                               BEFORE THE

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 5, 2017

                               __________

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                        JOINT ECONOMIC COMMITTEE

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

HOUSE OF REPRESENTATIVES             SENATE
Patrick J. Tiberi, Ohio, Chairman    Mike Lee, Utah, Vice Chairman
Erik Paulsen, Minnesota              Tom Cotton, Arkansas
David Schweikert, Arizona            Ben Sasse, Nebraska
Barbara Comstock, Virginia           Rob Portman, Ohio
Darin LaHood, Illinois               Ted Cruz, Texas
Francis Rooney, Florida              Bill Cassidy, M.D., Louisiana
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico, 
John Delaney, Maryland                   Ranking
Alma S. Adams, Ph.D., North          Amy Klobuchar, Minnesota
    Carolina                         Gary C. Peters, Michigan
Donald S. Beyer, Jr., Virginia       Margaret Wood Hassan, New 
                                         Hampshire

                 Whitney K. Daffner, Executive Director
             Kimberly S. Corbin, Democratic Staff Director
                            
                            
                            
                            
                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Patrick J. Tiberi, Chairman, a U.S. Representative from Ohio     1
Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New 
  Mexico.........................................................     3

                               Witnesses

Statement of Timothy Kane, Ph.D., J.P. Conte Fellow in 
  Immigration Studies, The Hoover Institution, Washington, DC, on 
  Behalf of Hon. Edward Lazear, Professor of Economics, Graduate 
  School of Business, Stanford University, Morris Arnold and Nona 
  Jean Cox Senior Fellow, The Hoover Institution, Former Chairman 
  of the President's Council of Economic Advisers, Stanford, CA..     5
Statement of John Lettieri, Co-Founder and Senior Director for 
  Policy and Strategy, Economic Innovation Group, Washington, DC.     7
Statement of Jared Bernstein, Ph.D., Senior Fellow, Center on 
  Budget and Policy Priorities, Washington, DC...................    10

                       Submissions for the Record

Prepared statement of Hon. Patrick J. Tiberi, Chairman, a U.S. 
  Representative from Ohio.......................................    46
Prepared statement of Hon. Martin Heinrich, Ranking Member, a 
  U.S. Senator from New Mexico...................................    47
Prepared statement of Hon. Edward Lazear.........................    49
Prepared statement of John Lettieri..............................    68
Prepared statement of Jared Bernstein............................    81
Response from Dr. Kane to Questions for the Record Submitted by 
  Senator Amy Klobuchar..........................................    96
Response from Dr. Jared Bernstein to Questions for the Record 
  Submitted by Senator Amy Klobuchar.............................    97

 
                  THE DECLINE OF ECONOMIC OPPORTUNITY
                      IN THE UNITED STATES: CAUSES
                            AND CONSEQUENCES

                              ----------                              


                        WEDNESDAY, APRIL 5, 2017

                    United States Congress,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:02 a.m., in Room 
1100, Longworth House Office Building, Honorable Pat Tiberi, 
Chairman, presiding.
    Representatives present: Tiberi, Paulsen, Schweikert, 
Comstock, LaHood, Rooney, Maloney, Delaney, Adams, and Beyer.
    Senators present: Lee, Heinrich, Klobuchar, and Peters.
    Staff present: Breann Almos, Theodore Boll, Doug Branch, 
Kim Corbin, Whitney Daffner, Connie Foster, Martha Gimbel, 
Colleen Healy, Adam Hersh, Karin Hope, Matt Kaido, Brooks 
Keefer, Christina King, John Kohler, Paul Lapointe, AJ McKeown, 
Thomas Nicholas, Victoria Park, Alexander Podczerwinski, 
Russell Rhine, and Alex Schibuola.

 OPENING STATEMENT OF HON. PATRICK J. TIBERI, CHAIRMAN, A U.S. 
                    REPRESENTATIVE FROM OHIO

    Representative Tiberi. Good morning, everybody. Welcome to 
our first Joint Economic Committee hearing of the year.
    I want to especially welcome our ranking member, Senator 
Heinrich, and our vice chairman, Senator Lee, who is apparently 
on his way to a markup, as well as other members of this 
committee. And we are joined by a new member, Mr. Rooney from 
Florida, as well. I look forward to working with all of them to 
dive into some important issues facing our economy.
    The U.S. economy did not surge back from the last 
recession, as it had every other recession since World War II, 
and we are paying a price for it. The drawn-out recovery and 
the meager growth rate we have settled into are exacerbating 
the country's many challenges.
    The purpose of today's hearing is to gain insight into why 
the recovery, besides being slow, is also so uneven. Many parts 
of the country face problems more severe than national average 
economic growth and unemployment rates convey. Some areas 
effectively are still in a recession.
    In my home State of Ohio, we have made strides in 
encouraging businesses to come to our State, and our 
unemployment rate has dropped at a steady pace over the past 
few years. However, that hasn't been true for every part of our 
State. We can do better, especially for the communities where 
folks feel they have been left behind. In Ohio, that is in 
counties in Appalachia and in areas of urban centers of Ohio, 
where the dynamics of the rural and urban poor couldn't be more 
different.
    Allow me to submit to you four perspectives.
    First, accelerated national growth would lift many 
struggling regions. The familiar image of a tide lifting all 
boats is appropriate.
    Second, innovation is integral to economic development, 
especially in an advanced economy. Innovation arises from 
entrepreneurship, which has been the hallmark of U.S. economic 
success. When entrepreneurial activity wanes, as it has 
recently, economic growth also slows.
    Third, a large, complex economy, such as the U.S.'s 
economy, will always have parts that expand and parts that 
contract, largely related to different rates of technological 
change. However, government intervention, such as with respect 
to taxes, wage and employment benefit mandates, zoning, and 
licensing, can make this worse by restricting market entry, 
impairing new business formation, and limiting job creation.
    Fourth, education and skill development are the key to a 
productive, adaptable labor force. I was struck by observations 
that Federal Reserve Chair Janet Yellen made in a speech last 
week in which she stressed the importance of entrepreneurship, 
the importance of vocational education and apprenticeships, and 
engaging employers in the training process, among other things.
    Everyone is aware of the demographic change the country is 
undergoing right now. The baby boom generation is reaching 
retirement age, and that is affecting many aspects of our 
economy. One such effect is slowing entrepreneurial activity, 
as part of today's testimony will explain.
    The challenge of an aging population makes it all the more 
important that the economy work efficiently and that government 
actions at both the State, local, and Federal levels not be 
prohibitive.
    Unfortunately, this is not always the case. For example, 
laws and regulations for many years have been accumulating at a 
faster rate than the economy has grown. As a result, business 
expansion is discouraged and new projects are deferred or 
abandoned. U.S. worldwide ranking in the ease of starting a 
business has slipped from 45th out of 190 countries in 2016 to 
51st today, according to the World Bank.
    Members from both sides of the political aisle have 
frequently criticized the inefficiencies of the regulatory 
buildup, yet it continues. The effects are real, and they are 
holding the economy back.
    One of the key areas of weakness in this recovery has been 
private business investment, which is sensitive to tax and 
regulatory regimes. The economy requires faster rates of 
private investment than the existing regimes have permitted. 
Regulatory and tax reform will create more jobs and 
opportunity.
    A central aspect to the economy's functioning can be 
characterized as ``dynamism,'' the rate at which the population 
starts new businesses, moves to another region, changes jobs or 
occupations. It refers to people's innovativeness, 
entrepreneurship, and motivation. Less dynamism means less of 
this is happening.
    Many of our communities are hurting, and I believe that 
increased private investment, restoring economic dynamism, and 
the resulting accelerated economic growth can help them recover 
quicker.
    We have an excellent panel of witnesses today, and I look 
forward to the insightful testimony they are going to provide 
on these challenges facing local and regional economies in the 
country.
    In closing, let me observe that there are few periods in 
the country's history when America did not face serious 
challenges. We face many new challenges today, but I have full 
faith in the resourcefulness of the American people and the 
functioning of our market economy to overcome them, and, as in 
the past, I believe we will succeed.
    It is now a great pleasure to introduce for an opening 
statement our new Ranking Member, Senator Heinrich.
    [The prepared statement of Chairman Tiberi appears in the 
Submissions for the Record on page 46.]

 OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Heinrich. Thank you, Chairman Tiberi.
    And to all our witnesses, thank you for joining us today 
for our first hearing of this Congress.
    The United States has long been the global leader in 
opportunity and innovation. When I was growing up, both of my 
parents worked incredibly hard. Neither had a college degree. 
It wasn't easy, but I was able to get a college degree. And I 
am sitting here today with all of you because of the sacrifices 
that they made and because of the opportunities that this 
Nation afforded to them.
    What seemed like a very attainable dream 30 or 40 or 50 
years ago too often seems unattainable today. Across New Mexico 
and the Nation, working people feel that they can't get ahead, 
and, too often, parents don't believe that the future is as 
bright for their children as it was for them.
    When we ask ourselves, what are the barriers to 
opportunities for me and my neighbors, many of my colleagues 
focus on the role of regulation and the Tax Code. That 
conversation is important, but I would caution us all to not 
conflate what is good for CEOs or what is good for investors 
with what is necessarily good for a working family living in 
rural New Mexico. It is a mistake to think that deregulation or 
tax reform alone will revive rural communities or create good-
paying jobs in small towns or cities across America.
    What our business leaders lack is certainty. Expiring tax 
credits are not good for planning. The constant threat of 
taking health care away from families does not instill 
certainty. Repealing rules that keep our air and our water 
clean don't give businesses the certainty and the quality of 
life that they need to create the good jobs of the future. 
Policies that are good for business and promote pragmatic 
public health goals, like the methane rule that Congress is 
trying to do away with, should be protected, not targeted.
    We are about 80 days into this Administration, and what we 
have seen is a budget that would devastate rural America and 
make it harder for seniors and children to get the core 
services that keep them healthy and give them opportunities.
    Too many people here in Washington think that if the stock 
market is on the rise, the economy is doing just fine. That is 
not the reality for most of America's working families, and it 
is certainly not the reality for many of my constituents. The 
way we should measure the success of the economy is if wages 
are going up, if parents can afford to send their kids to 
college, if entrepreneurs can start new businesses and workers 
are able to retire with some measure of peace of mind.
    I believe that we have to get back to basics. Congress must 
take concrete action that focuses our limited resources on 
investing in hardworking families, the men and women in this 
Nation who are fighting to give their kids a better future, 
rather than on tax cuts for the wealthiest.
    Comprehensive education and workforce training must be a 
top priority in the face of the global nature of the economy we 
see today. We need tax and labor policies that reward hard 
work. We ought to prioritize tax programs for families that are 
proven to reduce poverty and incentivize work, things like the 
Earned Income Tax Credit and the Child Tax Credit.
    Public-private partnerships alone cannot create the modern 
infrastructure that works for all communities, especially those 
in rural areas. Congress must be making a substantial 
investment in roads, in water projects, and high-speed 
broadband that connect people and communities to financial and 
educational opportunity.
    The renewable energy sector is just one example of a place 
where jobs are growing rapidly and not just in metro areas but 
also in rural communities. Congress' work to encourage this 
market through tax credits has helped get that industry off the 
ground. The success of the future of our economy will be tied 
to whether Congress today takes the bold steps necessary to 
connect people with the opportunities that will exist tomorrow.
    A great deal of work remains to be done to ensure that all 
Americans get a shot at getting ahead. I look forward to 
starting this conversation with you all today, and I especially 
look forward to hearing from our witnesses.
    [The prepared statement of Senator Heinrich appears in the 
Submissions for the Record on page 47.]
    Representative Tiberi. Thank you, Senator.
    Let's go on to the witnesses.
    Our first witness, from right to left, I would like to 
introduce Dr. Tim Kane, an economist and research fellow at the 
Hoover Institution at Stanford University. In addition to his 
senior research roles at the Kauffman Foundation and the 
Heritage Foundation, Dr. Kane has served twice as a senior 
economist here at the Joint Economic Committee.
    He has published a number of books on a variety of topics 
and has provided commentary for many national news outlets. Dr. 
Kane cofounded multiple software firms, and his startup 
enonymous.com was awarded Software Startup of the Year in 1999. 
Dr. Kane earned a Ph.D. in economics from U.C.-San Diego. He is 
also a graduate of the United States Air Force Academy.
    Dr. Kane will be presenting the testimony of his colleague 
Dr. Ed Lazear, who is unable to be with us today.
    And what is not in your resume, which I should have started 
out with, Dr. Kane is a native of Columbus, Ohio, a graduate of 
Westland High School.
    Me, as a graduate of Northland High School and a native of 
Columbus, Ohio: Go Bucks.

    STATEMENT OF TIMOTHY KANE, Ph.D., J.P. CONTE FELLOW IN 
IMMIGRATION STUDIES, THE HOOVER INSTITUTION, WASHINGTON, DC, ON 
BEHALF OF HON. EDWARD LAZEAR, PROFESSOR OF ECONOMICS, GRADUATE 
SCHOOL OF BUSINESS, STANFORD UNIVERSITY, MORRIS ARNOLD AND NONA 
JEAN COX SENIOR FELLOW, THE HOOVER INSTITUTION, FORMER CHAIRMAN 
 OF THE PRESIDENT'S COUNCIL OF ECONOMIC ADVISERS, STANFORD, CA

    Dr. Kane. Yes, sir.
    Well, Chairman Tiberi, Ranking Member----
    Senator Heinrich. Hit your mike, if you would.
    Dr. Kane. Got it.
    So, Chairman Tiberi, Ranking Member Heinrich, Vice Chairman 
Lee, and members of the committee, thank you for giving me this 
opportunity to address you once again.
    And I come to you today as an Air Force veteran with some 
humility. This is my first time to wear glasses in public. That 
is hard for an Air Force man to admit.
    So I would like to make four points.
    First, there is regional variation in economic success. 
There always has been variation in economic experience among 
states. The last recession and recovery were not exceptions. 
Typically, those areas that were hit hardest during the 
recession have the most robust recoveries.
    Second, although states differ in their experiences and 
outcomes, some adverse factors are common. Most important is an 
aging population, which affects both employment and business 
formation.
    Third, states vary in their performance partly because they 
opt for different tax and labor market policies. State-based 
policy changes can be helpful to growth, but it is important to 
encourage genuine growth rather than mere transfers of 
prosperity from one region to another.
    Fourth, the most important remedy for local ills is a 
growing national economy. A rising tide may not lift all boats 
equally, but draining the ocean will not help those with the 
least forward momentum.
    So my focus is primarily on the period since 2000. Special 
attention is given to the 2007 and 2009 recession and recovery 
since it is the most relevant to the situation that exists 
today.
    So, first, State experiences differ before, during, and 
after recession, any recession, in part because education, 
average ages, and the proportion of new immigrants vary across 
states. Perhaps most importantly, the industrial composition 
varies. Corn, for example, is important in Nebraska, not so 
much in New Mexico.
    Because states have differing industrial makeups and 
because industries rise and fall somewhat idiosyncratically, it 
would not be surprising to see states' economic conditions be 
out of sync with one another. For example, Texas is more 
sensitive to oil price movements than is Tennessee. The dot-com 
crash, for example, in the early 2000s affected Silicon Valley 
pretty severely but other parts of the country to a lesser 
extent.
    And the housing bust in 2000 was felt strongly in a number 
of areas, including central California, Florida, Arizona, and 
Nevada, whereas states like North Dakota barely experienced 
increased unemployment, with the peak rate never climbing more 
than 1 percentage point higher than the rate that prevailed in 
2006. By contrast, Nevada's labor market was massacred during 
the recession, with the unemployment rate rising almost 10 
percentage points. California wasn't far behind.
    Although these specific cases are vivid and suggest 
important State differences, a more systematic approach is 
useful to put things in the proper perspective for policy 
analysis.
    So, considering unemployment--oh, pardon me. I am going to 
ramble beyond my time unless I am not careful, so forgive me 
for just a second. Here we go.
    Okay. So it is important to point out that the State 
rebounds are different. Let's look at Michigan. Michigan's 
unemployment peaked at 13.9 percent in 2009, but by 2016 it had 
fallen almost 9 percentage points, down to 5.1 percent. 
Michigan is a very interesting case study. The rebound 
phenomenon is pervasive and a positive aspect of our economy.
    So it is well known that the workforce is aging, primarily 
because the large cohort of baby boomers is entering its senior 
years. The employment-to-population ratio, which is defined as 
the ratio of those 16 and older with jobs relative to the 
overall population 16 and older, now at 60 percent, was at 63.4 
percent before the recession began, despite unemployment rates 
that are down at 4.7 percent.
    About half of the difference between the current rate and 
the prior peak is a result of an aging population, but the 
other half isn't explained by the fact that we have an older 
workforce. It is more problematic. It reflects lower employment 
rates, particularly among less educated young men.
    So another, subtler effect of aging is the slowing of 
entrepreneurial activities. This is a little tricky. But recent 
research on 82 countries from 2000 to 2010 shows that younger 
countries have higher rates of business formation. This has a 
profound implication for our country as it ages. One solution 
is an immigration policy that encourages young, entrepreneurial 
individuals to come to the United States.
    Now, studies on cross-State performances just within the 
U.S. demonstrate the importance of policy choices on growth and 
employment outcomes. Those states that adopt more flexible 
labor market and low tax policies are the ones experiencing the 
best growth in employment but also in their State GDP.
    Data from 2000 to 2015--and this is research that Dr. 
Lazear has worked on personally--revealed that states with most 
positive business climates grow fastest. On average, employment 
growth is twice as high in states that have, quote/unquote, 
market-oriented labor policy, defined as being right-to-work 
states and having minimum wages that are below the average 
across states. Similarly, GDP grows about one and a half times 
faster over this period in those states with more free labor 
policies, let's call them. That is what Abe Lincoln called 
them.
    Generally, positive economic policies are the best way to 
achieve growth throughout the country. It is difficult to 
predict which areas will grow and which will decline, and by 
the time the policies are implemented, the problem may have 
already passed.
    So one final point. Just as states differ in the benefits 
that they derive from growth, so, too, do individuals benefit 
differently, or differentially, from growth. It is well known, 
for example, that the disparity in incomes between the rich and 
the poor has grown over time as the value of education has 
grown. The remedy is to enhance the skills of those who are 
benefiting the least from our economic growth.
    A comparison between wages in the U.S. and Germany is 
striking. Most Germans without a college training are enrolled 
in strong vocational training programs and earn 92 percent of 
the average wage in Germany. In the U.S., high school graduates 
earn only 70 percent of the average wage in the U.S.
    The most effective way to enhance opportunity for all 
Americans is to ensure that we have a vibrant, growing economy 
built on flexibility, with minimal impediments, with 
opportunity that is available to all.
    Thank you.
    [The prepared statement of Dr. Lazear appears in the 
Submissions for the Record on page 49.]
    Representative Tiberi. Thank you, Dr. Kane.
    Our next witness is John Lettieri, Co-founder of the 
Economic Innovation Group. Mr. Lettieri serves as Senior 
Director for Policy and Strategy and leads their policy 
development, economic research, and legislative affairs 
efforts. He has worked in both the public and private sectors 
with policymakers, entrepreneurs and investors, and global 
business leaders.
    Prior to EIG, Mr. Lettieri was the Vice President of Public 
Policy and Government Affairs for the Organization for 
International Investment. Additionally, he served as the 
foreign policy aide to former U.S. Senator Chuck Hagel during 
his time as a senior member of the United States Senate Foreign 
Relations Committee.
    Mr. Lettieri is a graduate of Wake Forest University, where 
he studied political science and global commerce.
    Thank you. Your testimony may begin.

STATEMENT OF JOHN LETTIERI, CO-FOUNDER AND SENIOR DIRECTOR FOR 
 POLICY AND STRATEGY, ECONOMIC INNOVATION GROUP, WASHINGTON, DC

    Mr. Lettieri. Thank you.
    Chairman Tiberi, Ranking Member Heinrich, members of the 
committee, good morning, and I appreciate the opportunity to 
testify today.
    While there are many ways to approach this discussion, I 
want to start by posing a question; namely, are people today 
suffering from too much change in the economy or from too 
little?
    This question matters, because if we believe our problem is 
too much changed, it follows that our policy agenda should be 
oriented around mitigating disruptions and hedging against 
risk. On the other hand, if we believe the economy has grown 
too static, too inflexible, and too risk-averse, our policy 
agenda will look quite different.
    So what is the answer? Well, in this supposed age of the 
gig economy, automation, and artificial intelligence, 
conventional wisdom would certainly have us believe people are 
suffering from too much and too rapid change across the 
economic landscape. But I disagree. In fact, I believe our 
economy features far too little change and churn in critical 
areas. In short, economic dynamism is fading rapidly, and the 
cycle of creative destruction seems broken.
    Now, I realize these are provocative claims, so let's look 
at the facts.
    First, what exactly is dynamism? Dynamism can be 
understood, in essence, as the rate and scale of churn in the 
economy.
    Historically, the high-churn nature of the U.S. economy has 
spurred innovation and acted as a kind of shock absorber in 
times of economic trauma. But the post-Great Recession economy 
bears little resemblance to its dynamic past. So let's start by 
looking at the startup rate, the job turnover rate, and 
domestic migration.
    First, we see the startup rate has collapsed. At the core 
of the broader decline in economic dynamism is a steep drop in 
new firm formation. And this holds across all industries and 
all regions of the country.
    The startup rate fell rapidly during the Great Recession to 
its lowest point on record. But even as the broader economy 
rebounded, the startup rate has barely budged and remains mired 
at 8 percent, which is roughly half of what it was in the late 
1970s.
    This is a deeply troubling development because new firms 
are the creative part of creative destruction. They help keep 
the economy in a constant state of rebirth by replacing dying 
industries, fostering competition, and producing new and 
higher-wage jobs. When they disappear, the cycle of creative 
destruction is thrown out of balance.
    Next, we see that job turnover has plummeted. Job turnover 
is an important sign of labor market flexibility. High turnover 
was once a key feature of the U.S. economy but has declined 
substantially since the early 2000s. In 2015, only 1 out of 
every 14 positions in the economy turned over. And this hurts 
disadvantaged workers the most. They are the ones most acutely 
impacted by low turnover rates because without churn in the 
labor market it is simply more difficult to find an unoccupied 
rung on the career ladder. For the broader economy, there is 
evidence, thanks to Ed Lazear, that slower rates of churn 
reduce GDP growth in the early stages of the economic recovery.
    Third, we see that people are staying put in record 
numbers. Americans are far less geographically mobile than they 
once were. High rates of internal migration historically served 
as an important adjustment mechanism for the economy, 
mitigating downturns as workers moved to areas more rich in 
opportunity. But domestic migration has fallen by roughly half 
since the 1990s, settling into a historic low of only 1.5 
percent. And I will add, demographic trends are exacerbating 
this dynamism problem dramatically, as we are now at the 
slowest period of population growth since the Great Recession.
    The consequences of declining dynamism are profound. For 
workers, it means fewer labor market opportunities and fewer 
pathways to achieving the American Dream. For markets, it has 
corresponded with an era of declining competition and increased 
concentration among elite firms. And for regions, it means 
shrinking industrial bases and more profound geographic 
disparities.
    Nevertheless, this low-churn, startup-less recovery has 
been quite good for one constituency, and that is large 
incumbent businesses. Indeed, large older firms are enjoying 
something of a golden age. They have never been more dominant 
within their industries or responsible for a larger share of 
the U.S. workforce. And, unchecked by normal competitive 
pressures, they are also enjoying a sustained period of near-
record profitability. What should be temporary rewards in a 
competitive economy now resemble perpetual awards to 
incumbency.
    In light of these findings, I believe the decline of 
economic dynamism to be the central organizing challenge of our 
time. Our solution should not fundamentally be aimed at making 
the economy look more like the past but, rather, at ensuring 
the benefits of tomorrow's economy are more broadly shared.
    In closing, I will briefly highlight five guideposts for a 
future-oriented opportunity agenda.
    First, we need a radical new focus on business creation and 
increased competition. We simply can't reverse the decline of 
dynamism without reviving American entrepreneurship. We must 
lower barriers to entry and place greater emphasis on the 
unique needs of new companies, not just the incumbents.
    Second, we must work to enhance geographic mobility and 
labor market flexibility. Central to any opportunity agenda 
should be empowering people to move to places of opportunity 
and to more efficiently develop and deploy their skills in the 
marketplace.
    Third, we must do more to invest in the future through 
renewed commitment to funding infrastructure and basic 
research. Such investments are critical to private-sector 
innovation and dynamism.
    Fourth, a broad pro-growth agenda is needed, but we should 
also be bold in incorporating ideas aimed at helping struggling 
regions regain their footing.
    And, fifth, we need to be far more data-driven and 
experimental in our policymaking, because, indeed, these 
challenges are new, and they place our policymaking efforts in 
uncharted waters.
    While the decline of dynamism poses a threat to the 
American Dream for future generations, the good news is we 
retain enormous advantages and resources as a Nation, more than 
enough to meet this challenge if we choose.
    So thank you, and I look forward to taking your questions.
    [The prepared statement of Mr. Lettieri appears in the 
Submissions for the Record on page 68.]
    Representative Tiberi. Thank you.
    And our last witness, Dr. Jared Bernstein, joined the 
Center for Budget and Policy Priorities in May of 2011 as a 
senior fellow. From 2009 to 2011, Dr. Bernstein was the Chief 
Economist and Economic Adviser to Vice President Joe Biden, 
Executive Director of the White House Task Force on the Middle 
Class, and a member of President Obama's economic team.
    Prior to joining the Obama administration, Dr. Bernstein 
was a senior economist and the director of the Living Standards 
program at the Economic Policy Institute in Washington, D.C. 
Between 1995 and 1996, he held the post of Deputy Chief 
Economist at the U.S. Department of Labor.
    Dr. Bernstein holds a Ph.D. in social welfare from Columbia 
University.
    Welcome back, Dr. Bernstein.

 STATEMENT OF JARED BERNSTEIN, Ph.D., SENIOR FELLOW, CENTER ON 
          BUDGET AND POLICY PRIORITIES, WASHINGTON, DC

    Dr. Bernstein. Well, thank you for that nice introduction. 
Chairman Tiberi, Ranking Member Heinrich, members, thank you 
for holding this hearing and giving me the opportunity to be 
here.
    I make five points in my testimony.
    First, though the U.S. economy continues to grow steadily 
at moderate rates and the labor market closes in on full 
employment, many barriers to economic opportunity and mobility 
remain in place. Some Americans, of course, are doing great in 
today's economy, but many are not.
    Point two: The opportunity barriers faced by those left 
behind include high levels of income inequality and low 
mobility, unequal access to educational opportunities, 
residential segregation by income, inadequate investments in 
children in certain areas, and a markedly slower employment 
recovery in rural relative to metro areas.
    Over the current expansion, both employment and labor force 
have grown much more quickly in metro than they have in rural 
areas. The probability of attending a top-tier college is 50 
times higher for those in the top 1 percent than for those in 
the bottom 20 percent. College debt has grown much more quickly 
for low- relative to high-income students. Declining rates of 
mobility over time are closely associated with the rise of 
inequality.
    And taking down these barriers is the key to the 
opportunity policy agenda.
    Point three: Faster GDP growth, while obviously a 
critically important goal, should not be expected to solve 
opportunity deficits in America today. The reason is 
inequality. It is already the case that not enough GDP growth 
is reaching those who have been left behind. Why should we 
believe that more growth is the full answer, especially absent 
policies that more directly help connect left-behind people and 
places to that growth?
    One highly authoritative study I cite underscores this 
point. Quote, ``Increasing GDP growth rates alone cannot 
restore absolute mobility to the rates they have been. In 
contrast, changing the distribution of growth across income 
groups to the more equal distribution would reverse more than 
70 percent of the decline in mobility.''
    Point four: Specific policy solutions targeting opportunity 
barriers include running tight labor markets; investing in 
infrastructure; direct job creation; helping small 
manufacturers; supporting renewable energy investments; 
supporting work through healthcare, housing, and wage policies; 
and apprenticeships.
    While mobility specialists often talk, with good reason, 
about moving people to opportunity, Congress must also discover 
ways to move opportunity to places that have too little of it. 
Historically, indirect measures, like tax incentives to invest 
in disadvantaged areas, have proved ineffective. More direct 
measures are needed, like direct job creation in places where 
employment is too scarce.
    Helping small manufacturers compete is another way to bring 
good jobs to left-behind areas. The Commerce Department's 
Manufacturing Extension Partnership has a strong track record 
in helping such firms adopt new technology, integrate into 
global supply chains, strengthen regional partnerships, and 
connect with national labs researching advanced manufacturing. 
One recent study found that each dollar spent on the MEP pays 
for itself nine times over, quote, ``as a result of the jobs, 
investment, and production it supports.'' Yet the Trump 
administration's budget defunds this initiative.
    My final point suggests what not to do. Avoiding policies 
that keep opportunity barriers in place is just as important as 
the proactive agenda items I have just noted. Reducing the 
provision of public health care, regressive tax cuts, budget 
cuts to programs that help low- and moderate-income families 
reconnect to the growing economy would all reduce opportunity. 
I welcome the chance to explore those points in our further 
discussion.
    Thank you.
    [The prepared statement of Dr. Bernstein appears in the 
Submissions for the Record on page 81.]
    Representative Tiberi. Thank you, Dr. Bernstein.
    Mr. Lettieri, in my home State of Ohio, as I mentioned, we 
have seen areas not participate, I guess, in what you would 
call the recovery, particularly urban and rural.
    A couple questions for you. I know you have gathered 
economic data across the country. Could you share with us some 
of the economic data specifically to Ohio? And can you offer, 
based upon the data that you have collected, some observations 
and conditions of Ohio's regions and the causes and 
consequences of why they may have been left behind?
    Mr. Lettieri. Thanks for that question, Mr. Chairman.
    So the story in Ohio is a regional story as well. The 
unfortunate reality is that, aside from Columbus, in your 
district, in particular, Ohio's economy is marked by extremely 
low rates of dynamism. So, if you look at the startup and 
closure rate, both are far below the national averages.
    And that speaks to that broader regional challenge, which 
is that, where we see economies struggling to make the 
transition from legacy industry to the knowledge economy, it is 
not a high closure rate of businesses that is really plaguing 
these local economies; it is just low rates of churn across the 
board--too few births and not too many deaths. That is 
basically the right way to look at it.
    And in Ohio, in particular, the State is underwater in its 
startup and closure rate, meaning that, over the course of the 
first 5 years of the recovery, they actually shed more 
businesses than it opened.
    And that is obviously a very troubling sign for access to 
opportunity because of the things I mentioned in my testimony. 
New businesses, when they are born, set off a chain reaction in 
the economy that create labor market churn, bring innovation 
into industries, and a whole host of other things downstream 
that are beneficial to the local economy and help raise the 
national economy as well.
    We see all of those things really moving in the wrong 
direction in certain parts of the country. Ohio is struggling 
with that, just like the rest of the Midwest generally is.
    Representative Tiberi. So I was intrigued in your testimony 
because you allude to the apparent paradox of technological 
leaps in automation, artificial intelligence, and a gig economy 
on one hand and the decline of dynamism, as you define it, on 
the other.
    Could you kind of further explain that? How are the 
advancements that you mention, which open up new types of job 
opportunities, occurring at the same time as declines in job 
switching and relocation?
    Mr. Lettieri. Yes.
    So we have obviously always had technological 
transformation in the economy. We have always had these great 
leaps that really redefine the economy overnight and open up 
new types of industries and opportunities.
    The problem today is that, while we have those types of 
transformations occurring, they are not, A, spreading to the 
benefit of as wide an array of people as they once did, and B, 
we have policies and trends in place that actually mute those 
benefits in a really perverse way. So it is not that there 
isn't change occurring; it is that there is not enough coming 
in to replace that which is dying out.
    So this is what I mention in terms of creative disruption. 
When you don't have the creative part of that equation in 
place, it feels to people like too much destruction, but it is 
really just the rate of creation has dramatically changed.
    The rate of business closure has stayed remarkably steady 
over the last 30 or 40 years. It is actually right now near an 
all-time low. And that is really surprising, given how much we 
hear about disruption of industries and technological 
transformation.
    I will just point out something like e-commerce. Everyone 
knows Amazon and online e-commerce, it is a huge driver of the 
economy and a lot of change. But in retail sales, it is still 
only 8.3 percent of total retail sales in the U.S. Even big, 
transformative changes take a long time to work their way 
through the system.
    So I think sometimes we overstate the amount of challenge 
due to change, and not enough focus on what we are missing that 
we once had.
    Representative Tiberi. Thank you.
    One final question to Dr. Kane. I hear over and over 
complaints from entrepreneurs about uncertainty--uncertainty 
with the regulatory environment, uncertainty with respect to 
the Tax Code.
    I found it intriguing that, in the testimony, your data 
said, from 2000 to 2015, it revealed that the states with the 
most positive business climate grow the fastest, and the 
employment growth, on the average, is twice as high in states 
that have market-oriented labor policies.
    Can you expand on a couple points? What are the key 
components that make for an attractive business climate? What 
policies are detrimental to expansion?
    Dr. Kane. Yes, sir. Happy to.
    Yeah, I think in Dr. Lazear's research, it is interesting, 
we are not saying that there is 7 percent more growth in these 
states, or 14 percent, or 36; it is 100 percent more employment 
growth in states with better labor policies.
    So this is a policy issue. It is not that there are younger 
populations in these states or any of these other factors that 
are often explained. And those are--this is in the oral and the 
written testimony--minimum wage laws are one. So a State that 
raises its minimum wage or a city that raises its minimum wage 
to $15 an hour is saying that if someone is earning $14 an hour 
it is illegal for them to work. That is a really ridiculous, 
anti-work program. And I really appreciated the opening 
statements about hard work needs to be rewarded, not punished.
    So I think the other thing is this right-to-work 
phenomenon. These three states that adopted right-to-work laws 
in the upper Midwest, Michigan being one, have experienced 
phenomenal employment growth.
    So those are two that I would point to.
    But I need to piggyback on the importance of 
entrepreneurship, because this isn't just Silicon Valley 
companies--and shout-out to CompuServe in central Ohio. So 
there is innovation there. But most companies and most startups 
aren't in the high-tech space.
    And just the decline--to reinforce the testimony here, is 
that when Jimmy Carter was President, one out of six companies 
were startups, on average, in those years, meaning they were 
born that year. And those employed the bulk of new workers, 
almost all net workers. Today, the number of startups is 1 in 
12. That is a national data point. So, you know, if we continue 
on that, 30 years from now we just won't have startups. We will 
have highly regulated big companies. And that is an incredibly 
dangerous trend.
    And yet, in Ohio, if you want to start a company, you get 
charged, right? At least $100 in every State. Not one Governor 
has said, ``You know what? This is going to the Startup 
State.'' And some states are worse at it; some states are 
better. I can't tell you where Ohio is, but I can tell you they 
are not as good as they could be and should be.
    Representative Tiberi. Thank you.
    Senator Heinrich, you are recognized.
    Senator Heinrich. Thank you, Chairman.
    Dr. Bernstein, I want to ask you a little bit about the 
role of minimum wage laws. Would you characterize them as anti-
work?
    Dr. Bernstein. Oh, not at all. And, in fact, I am glad to 
have the opportunity, because I thought what we just heard from 
my friend Tim was really quite misleading, given the research 
that has been done, which is, in many ways, some of the 
highest-quality research we have, because, as Tim suggested, we 
have so many of these kinds of quasi-experiments across the 
country, where 30 states or something like that have raised 
their minimum wages in lots of cities, so we can actually do 
this kind of comparison.
    And what we have found is that moderate increases in the 
minimum wage consistently have their intended effect. The idea 
that they are disemploying has just been consistently proven 
wrong by the literature.
    Now, that doesn't mean you could set the minimum wage at 
$15 an hour tomorrow in the Nation, although, with a long 
phase-in, that could possibly work. But cities that have done 
so, particularly those with a high wage or price base, have 
found that they have been able to do that and raise the living 
standards of low-wage workers.
    That is one of the things that gets lost in this testimony 
that suggests, you know, right-to-work and get rid of minimum 
wage and undermine labor standards. You know, my research 
suggests that that doesn't correlate much at all with GDP and 
employment growth. I think there is some cherry-picking going 
on there. But, furthermore, as you said and I said in both of 
our opening statements, even if you do get GDP growth, you are 
not helping to lift the living standards to provide the 
opportunities for the workers who are missing out on it.
    And so I welcome the opportunity to correct the record on 
that point.
    Senator Heinrich. Thank you.
    And in looking at some of the quality research that is out 
there, one of the things that research has shown is that 
investments in things like job training, things like early 
childhood education--early childhood ed is a good example. It 
returns approximately $8.50 for every dollar spent on that. 
Meanwhile, if you look at high-income-earner tax cuts, there 
has been really little demonstrable effect on employment growth 
one way or another.
    As we look at how to use the limited resources that we have 
right now, do you think that it would be misguided to 
prioritize tax cuts over things like job training and early 
childhood education and other investments that show a 
demonstrable return on investment?
    Dr. Bernstein. Very much so.
    And I guess the way I would frame that, Senator, is to 
point out that what we really want to do in this space, in 
terms of boosting the opportunity of those who have been left 
behind, taking down the opportunity barriers that are holding 
them back, is precisely that: direct investment in meeting the 
needs of this population.
    Indirect approaches--you know, cutting taxes on high-end 
folks and crossing your fingers and hope that it trickles down 
through some investment channel--has proven time and again not 
to have the kind of bang for buck of some of the policies that 
you mentioned.
    You mentioned the 8-plus-dollar return on investments in 
quality preschool. That is something we don't do in this 
country, and we are historically unique in that regard. Every 
other country in the OEC invests about five times as much we do 
in young children, precisely to tap those returns.
    Yes, you know, I talked about the earned income tax credit, 
I talked about the child tax credit, direct investment in 
infrastructure, helping small firms--and I know, Chairman 
Tiberi, that you have written about this as well--helping small 
firms and supply chain in places like rural Ohio connect with 
the global economy, that comes from direct intervention to 
actually help those firms connect. I mentioned the 
Manufacturing Extension Partnership, but there are other ways 
to go about that. Certainly, infrastructure investment is a key 
point as well.
    Those direct investments make a difference. I think going 
this indirect route, essentially, you know, deregulating, 
cutting taxes for those at the top, and hoping that it trickles 
down, it just doesn't work.
    Senator Heinrich. I want to jump to Mr. Lettieri, and then 
I will come back to the deregulation and tax cut point that, 
Dr. Bernstein, you were just mentioning.
    But I wanted to ask you, Mr. Lettieri, you know, you are 
familiar with how this place works. You have worked here on the 
Hill, and you know that we play this tax extenders game every 
year.
    And one of the things that a number of you talked about was 
certainty. So I wanted to ask you about the false equivalency 
of one plus one plus one not really adding up to three, where, 
because we are playing a budget game here on Capitol Hill that 
we know how it is going to turn out, we pretend like we are 
going to extend some of these credits a year at a time, knowing 
we are going to probably extend them for the next year and the 
next year, but inserting enough uncertainty into the economy 
because people can't plan for the next 3-year window or 10-year 
window because we are playing that rolling game.
    For either you or Dr. Kane or both, does one plus one plus 
one equal three when it comes to tax certainty?
    Mr. Lettieri. Well, thank you. I will start with that.
    Tax certainty is certainly a huge issue for businesses in 
general. And I think something that gets lost in the mix is 
that tax and regulatory burdens for businesses don't always 
have to do with the fact of regulation or the top-line rate but 
to do with uncertainty. And this is particularly true on the 
new-business side.
    If you don't know what you are going to face, in terms of 
the gauntlet of regulations or tax policy, when you are trying 
to start a business, in addition to the things that Dr. Kane 
mentioned about the actual cost of starting a business, it is 
going to be basically a soft impediment and an entrepreneurial 
tax that we are levying into the market for companies that are 
already fragile and trying to get off the ground in a tough 
marketplace.
    And so the more that we can provide that certainty, 
obviously, the better. And I think that gets lost in the mix 
because we are so focused on this question of top-line rates or 
false binary choices between things that don't really need to 
be binary.
    Senator Heinrich. Thank you.
    Representative Tiberi. I would like to welcome our new Vice 
Chairman, Senator Lee.
    You are recognized. Welcome.
    Senator Lee. Thank you very much, Mr. Chairman. I look 
forward to working with you on this committee in my capacity as 
vice chair. And I am thankful to you for holding this important 
hearing.
    I am grateful to each of you for coming to testify. This is 
an important issue.
    I know that all three of you testified about many of the 
problems with economic opportunity in this country, including 
problems that we are seeing with labor force participation, 
with declining economic dynamism, and a whole host of other 
issues on the business side.
    But what I would like to get at here is one of the problems 
that I think underlies a lot of the challenges that we face 
today. And I would like to hear from each of you about your 
brief responses to some of these questions. What are you seeing 
at the family level? Are there strong families in these 
communities where these problems are most pronounced?
    Often, we see that success at a local level is built on 
strong families, is built on strong institutions of civil 
society, community institutions of one sort or another. But 
many of these areas have faced declines in recent years.
    For instance, Stanford economist Raj Chetty, and others 
along with him, have identified that in many communities you 
have higher percentages of single parents being associated with 
lower overall economic mobility. Meanwhile, children with 
married parents are experiencing a greater degree of upward 
economic mobility, especially in those communities with fewer 
single parents.
    I guess what I am getting at, are these communities simply 
economically distressed, or is there something deeper going on 
here? Is there something occurring at a more fundamental level 
that we need to have a look at? I would like each of you to 
respond to this one.
    Dr. Kane. Yes. Thanks, Senator Lee. I think that is a valid 
point.
    I think when we look back at U.S. history--and I am not an 
expert in this area, but I know we have had social policies 
that are often well-intentioned to support, for example, single 
mothers but not support them if they are married, right? So I 
don't know the state of that policy now, but I think, looking 
back on it--and this goes back to Senator Moynihan, and some of 
the research that he did shows that those could be destructive.
    So sometimes we have well-intentioned policies, and while I 
wouldn't want to belabor the debate that Jared and I have had 
many times, you know, a friendly debate, I think some of these 
well-intentioned policies can be harmful. And so you would want 
to tread very carefully in trying to fix things.
    For example, if you have welfare payments or disability 
payments or unemployment insurance payments in an area that is 
distressed, it says they can't get those payments if they 
actually are mobile and move to an area where there is work. So 
that does merit deeper scrutiny.
    Senator Lee. Thank you.
    Mr. Lettieri.
    Mr. Lettieri. Thank you, Senator.
    I think we make a mistake when we try to separate economy 
and culture and institutions. Those are all really deeply 
linked. And so, in a State like yours--you mentioned Raj 
Chetty's research, which I think is very compelling. Utah 
features really high social capital, and, as a result, it helps 
to offset things that maybe are not exportable to other states.
    For instance, Utah spends the least per capita on student 
education, yet has really tremendous outcomes in terms of upper 
mobility and prosperity at the community level. And so, 
clearly, something else is going on there besides just rates of 
spending and government intervention.
    But it is also notable for the fact that government tends 
to really work well in Utah. And I have looked at this quite a 
bit, and I have been out to Salt Lake City and Provo. It is an 
amazingly dynamic economy and one that, given its results, 
certainly holds lessons, I think, for the rest of the country 
and also policy examples that we should study more closely.
    Senator Lee. Thank you.
    Dr. Bernstein.
    Dr. Bernstein. Yeah, I think it is a great question, and 
thank you for raising it. I think Dr. Chetty's work is 
extremely rigorous in this area.
    One of the things they find, however, is that the 
communities with a large share of mother-only families, as you 
correctly point out, correlate with lower mobility, but you 
have to be careful not to conflate correlation with causation. 
They also find that two-parent families in those neighborhoods 
experience the same lower mobility rates, suggesting single-
parenthood is probably more of a correlate than a cause.
    So I think the thing that I try to articulate in my 
testimony that I commend to you is a set of investments in 
families like this that have a proved track record in improving 
employment, earnings, health status, nutrition. That has to do 
with things like the earned income credit, the child tax 
credit, nutritional support, housing support.
    We now have longitudinal research that tracks the--this is 
what Chetty uses as well--that tracks these kids from birth to 
adulthood. And we find that the kinds of investments that we 
often think of as the safety net, kind of helping you today and 
not having much to do with tomorrow, are actually investments 
in these kids' futures.
    Senator Lee. Thank you. A lot of issues there. There are 
things that I want to follow up with if we get a chance later. 
I want to stay on good terms with my Chairman here, so I see my 
time has expired. Thanks to each of you.
    Thank you, Mr. Chairman.
    Representative Tiberi. Thank you, Mr. Lee.
    Mr. Rooney, you are recognized for 5 minutes.
    Representative Rooney. Thank you, Mr. Chairman.
    I would like to continue the Senator's slant here on an 
area that wasn't mentioned, as far as our workplace capability, 
and ask you, Mr. Lettieri, a little bit about workplace 
capability in terms of our failed so-called entitlement 
programs and whether or not they have disabled a large part of 
our potential working force in America right now.
    Some Bureau of Labor Statistics surveys show that three 25- 
to 55-year-old males are not looking for work for every one 
unemployed, which gives us a 20-percent unemployment rate. And 
I know I don't have the statistics of all the big economists, 
but I am an employer, and I have seen the stability in all 
parts of our country.
    Fifty-three percent of these folks that aren't looking for 
work are on Medicaid, which is twice the number of all 25- to 
55-year-old males. Three-fifths are on disability payments, 
which is another whole subject. And this is really interesting; 
the average, watching 2,000 hours of television a day, and half 
of them are on daily pain meds.
    So, with all those things in there, what are we going to do 
about them as we try to figure out how to put Americans to 
work?
    Mr. Lettieri. Thanks for the question.
    We unambiguously have a crisis with prime age working men 
in this country and labor force participation, so I don't think 
there is any disagreement about that. It is also part of the 
population that is growing at an incredibly anemic rate. So, in 
terms of the top-line GDP growth targets that we would all like 
to see set, it is going to be really hard to meet those on the 
current trend line with labor force participation and 
population growth.
    So your question is fundamentally about safety net, and I 
will first acknowledge I am not an expert on safety net 
programs, except to say this: There is broad agreement about 
things we can better. Things like the earned income tax credit, 
which Jared mentioned, this is an area that both is shown to be 
really effective at delivering people from the effects of 
poverty and incentivizing work and not generous enough with 
parts of our population that are really in need, which are the 
ones you just mentioned. And so I think that is low-hanging 
fruit for us to do much better.
    And to Dr. Kane's point earlier, we can also reform the 
safety net programs that are well-intentioned and good if you 
stay in one place but really bad for encouraging mobility to 
higher-opportunity-rich areas.
    Those are two things that we can do now that I think there 
would be broad, almost unanimous bipartisan support for.
    Representative Rooney. Thank you.
    If I might have time for one more here, I will ask Dr. 
Kane, you mentioned about the workforce dynamism and things 
like that in the service economy. Can you comment on the role 
of career technical education versus the elitist higher ed in 
creating the kind of workforce that can survive and prosper in 
the service economy?
    Dr. Kane. Yes, sir.
    First, I am not a big fan of training programs that are run 
by the government. I think training is important, and I think 
it is important to maintain their high skills, but I think it 
is more important to let the market work and empower people, 
perhaps with what I would call scholarships, to choose the 
training that is best for them.
    So I think when you ask the government to figure out what 
the jobs of the future are going to be, they are almost always 
going to get it wrong. And I say that, again, with some limited 
level of expertise.
    I do worry that, as we analyze this problem, you know, 
looking at it more broadly, displaced workers, disability 
programs which create perverse incentives--Austan Goolsbee, 
right, Austan Goolsbee we all know, President Obama's chief 
economist, his first op-ed was about abuse of the disability 
program. So it is something that really screams out for 
attention.
    I think, looking broadly, this isn't just an issue of lack 
of opportunity; it is a set of perverse incentives that have 
pulled people out of the labor force, to their long-term 
detriment.
    Representative Rooney. Isn't it true that when Speaker 
Gingrich negotiated workfare with President Clinton that the 
number of people on welfare went down?
    Dr. Kane. I think that was a great compromise, a great 
story in our history of two sides coming together and working 
on a program to restore positive work incentives. Yes, sir.
    Representative Rooney. Thank you.
    I yield.
    Representative Tiberi. Thank you, Mr. Rooney.
    Dr. Adams, you are recognized for 5 minutes.
    Representative Adams. Thank you, Mr. Chairman, and thank 
you to vice ranking member, as well, for hosting such an 
important meeting.
    North Carolina's 12th District--I represent that District--
faces many barriers to economic opportunity and economic 
mobility. And, just recently, the Charlotte-Mecklenburg 
Opportunity Task Force released a report on intergenerational 
poverty, found that Charlotte-Mecklenburg faces many of the 
barriers that we have spoken about today.
    There was a recent study on economic mobility of America's 
50 largest cities, and it has been realized that children born 
into poverty, into the bottom 20 percent of the income, in 
Charlotte had a 4.4 percent chance of making it to the top. So, 
rather than making it into the middle class in Charlotte-
Mecklenburg, poor children, who are majority African American, 
Latino, are likely to stay poor. That is something that we 
really need to work on.
    Dr. Bernstein, can you elaborate on the importance of 
breaking the cycle of poverty and speak to specific ways to 
break this cycle?
    Dr. Bernstein. Yes. And thank you for that important 
question.
    You know, it takes me back to some of the comments I tried 
to underscore in my initial statement, which is that the best 
way to help poor people, poor families, and poor communities 
lift out of poverty is to directly invest in them.
    The idea that we can somehow expand our GDP or tweak our 
Tax Code--by the way, expanding GDP is great, it is important. 
Having an efficient Tax Code, obviously critically important. 
But what we can't count on--and we have seen this time and 
again, because the data you are citing is historical data; this 
isn't just something that happened last week--is that through 
various different types of Tax Codes and regulation regimes, 
this problem has persisted. And the reason it has persisted is 
because we have inadequately invested in these places, in these 
families, in these kids, cradle through primary school, through 
high school, through college, through the workplace.
    In my testimony, I try to lay out a really thorough agenda 
that starts with preschool, moves into educational years, helps 
people of the type who are facing the barriers we are talking 
about access higher education, and supports their job market 
when they are in places with insufficient labor demand. Those 
are the kind of direct investments that I think would attack 
the cycle you are talking about.
    Representative Adams. Thank you.
    As a followup, you noted in your testimony that a much 
lower percentage of children of parents with lower incomes and 
educational levels pursue a higher education, and only 14 
percent of them complete a bachelor of arts degree versus the 
60 percent of children of parents with higher incomes.
    So how can we reduce the burden that these students face in 
completing their education, ensure that they have the tools to 
break through the opportunity barriers?
    Dr. Bernstein. First of all, without getting into details, 
let me just underscore my first set of comments, which is the 
low level of investment in young children, in my view, directly 
connects to the imbalance in accessing completion to higher ed.
    This starts with early childhood education. There is 
probably no bigger policy mistake we make in this country than 
under-investing, or even hardly investing at all, in early 
childhood education. The return on this--this is not a 
conservative result or a liberal result. The return on that is, 
you know, eight, nine X to one.
    I talked about primary school, but what I didn't get a 
chance to talk about is accessing completion to higher 
education, which directly applies to your question. Tuition 
assistance is important, but so is the ability to handle debt. 
I have numbers in my testimony about the disproportionate debt 
burden of middle- and low-income families. Income-based 
repayment ideas are helpful in that space. We also have to be 
mindful about affordable tuitions in public universities. There 
is a role to play there as well.
    Now, particularly when some older persons are trying to 
complete college, they need work supports to be able to get 
through school often while working. And that takes us right 
back to the earned income credit, the child credit, help with 
housing, nutritional support.
    We are not talking about, you know, helping people stay on 
welfare. We are talking about helping people get through 
college. So, to me, that is breaking down an opportunity 
barrier.
    Representative Adams. All right.
    Thank you very much, Mr. Chairman. I am out of time.
    Representative Tiberi. Thank you.
    Mr. LaHood, welcome to the Joint Economic Committee. You 
are recognized for 5 minutes.
    Representative LaHood. Thank you, Mr. Chairman.
    And I want to thank the witnesses for your valuable 
testimony here today.
    Dr. Kane, I wanted to talk a little bit about the State of 
Illinois, my home State. And when I look at Illinois, I look at 
a State that 20 years ago led the Midwest in terms of 
innovation, in terms of jobs, in terms of opportunities. And as 
we sit here today, it is kind of the poster child for, I think, 
how things have been done in the wrong way when it comes to 
economics.
    And you look at the fact that the State of Illinois has 
$110 billion in unfunded pension liabilities for our public 
pensions. We have a $12 billion deficit. We have a business 
climate that is very stagnant. We continue to hemorrhage jobs, 
people, and opportunities out of our State.
    And Illinois is almost like an island in the Midwest when 
you look at other states around us, whether that is Wisconsin 
or Indiana or Iowa or Missouri, that have exercised fiscal 
restraint, improved their business climate, you know, made 
those tough decisions that needed to be done at the State 
level.
    And I look at Illinois, with our high workers' compensation 
costs compared to the other states around us, obviously our 
pension debt, the systemic problem with corruption, mostly from 
Chicago, and it is very frustrating to see that.
    And when we talk about the consequences of those things, 
when you look at our business climate, I guess, what 
suggestions would you have in terms of how we reverse that and 
the consequences if we don't?
    Dr. Kane. Mr. LaHood, I think the words are cautionary 
tale, right? It has been fascinating to watch, coming from the 
Midwest and seeing that. What I hope the attitude will be of 
the Congress is to focus on the people of Illinois, but not the 
State of Illinois.
    So a bailout, I think--there will be a debate sometime in 
our future about whether we should bail out these states that 
have gotten themselves in trouble. And that means they won't 
face the consequences of their actions, and we would 
collectivize the poor choices, whether it is pensions or budget 
deficits.
    I would emphasize, I think I need to emphasize Jared's 
point earlier about early childhood education. Continuing to 
invest in the children of Illinois is really critical, and 
making sure you look out for that. But that means making tough 
choices about some government workers, teachers who have been 
dealt very generous programs, and also labor contracts for 
government workers where you can't fire the worst performers. 
That is what is really, I think, punishing poor students. And I 
think that is what is really going to hurt Illinois in the long 
term, is if we don't continue to invest and try to improve the 
quality of teachers in the schools. So it is a bit of a 
diversion. But then, you know, focus on budget deficits.
    You all have challenges I can't imagine in dealing with 
trillions of dollars in deficits that are normalized even in 
the good times. Illinois has those in isolation. And so getting 
the books in order is priority number one. And not getting a 
bailout from Congress is a big part of that story.
    Representative LaHood. Thank you.
    Dr. Bernstein, I wanted to just talk a little bit about the 
migration to urban areas that we have seen. And when we look at 
particularly innovation technology and modernization and 
companies and businesses that have migrated to larger cities 
and what that means for rural areas, and really small and 
medium-sized cities. And are there examples of how to reverse 
that trend or where small- to medium-sized cities and rural 
areas have been successful in reversing that trend? And as we 
move forward, I think that we are going to continue to face 
this.
    Dr. Bernstein. It is a great question. And I think you have 
teed it up in exactly the right way. Unfortunately, part of the 
answer is we don't yet have a lot of examples of what you are 
talking about, the smaller places figuring out how to make 
those linkages, but we do have some. And one of the things we 
see--you are getting at a key kind of undercurrent of the 
discussion we are having today, because part of the solution to 
what we are talking about, move people to opportunity, move 
them to the--help them get to the cities. But part of it has to 
be, well, let's help them where they are as well, because the 
solution can't be everybody goes someplace else.
    And so one of the things that I have stressed, and it is in 
my testimony, is particularly helping smaller businesses, and 
particularly small manufacturers, link up to supply chains. 
Some of those supply chains are going to link them up to the 
larger manufacturers in the cities, some of them are actually 
going to link them up to global supply chains. They can't 
always do them by themselves. It is one of the disadvantages 
that smaller producers have over larger ones. And there are 
public programs, I mentioned the Manufacturing Extension 
Partnership is one of them, but that is one of a number that 
help smaller firms do that. I think that is the key linkage.
    Representative LaHood. Thank you.
    Thank you, Mr. Chairman.
    Representative Tiberi. Thank you, Mr. LaHood. Mr. Delaney, 
you are recognized for 5 minutes.
    Representative Delaney. Thank you, Mr. Chairman. I want to 
thank the guests.
    There is some chance here that we are having entirely the 
wrong conversation. And when I say we, I don't mean you, I mean 
elected officials and policymakers, because the argument 
historically has been we either need more government or less 
government to solve the problems of inequality, lack of 
opportunity, lack of mobility. Yet if you go to examples in 
both our country and around the world, where people have 
pursued very big government or very small government 
strategies, you see the same type of underlying performance. It 
may calibrate positively or negatively one way or another, but 
you can often find other reasons for that.
    And so the question is are the problems just inherently 
different now, and do we need actually a different approach for 
addressing them? In other words, is automation, technological 
innovation, global interconnection creating such a different 
fact set as it relates to work in this country that the 
prescriptions and approach need to be different? Because I 
think it is somewhat unassailable, the point that we need 
greater investment in people and in our country to make a 
difference again. Yet it is also somewhat unassailable to say 
that government has been very inefficient and has failed to 
successfully make investments to the highest return on 
investment it could possibly have made historically.
    So do we need kind of new thinking on this approach that 
actually does involve greater investment in kids, in 
communities, to try to make a difference against some of these 
problems and try to prepare them for a world that is changing 
rapidly? But do we need those investments to be made and 
applied and measured differently?
    And there are some examples of this in the country. I mean, 
there is this emerging kind of world of social impact bonds and 
pay for success. And Salt Lake City is actually a good example 
of that, where they have actually been able to deliver a 
material investment in prekindergarten education, but they have 
not done it with the government writing the checks. They have 
had philanthropists write the checks. And if those students 
show better performance over time, they will get a return on 
their investment.
    So what is the new thinking on this, to the extent you 
think it exists, that allows us to get out of this ideological 
box, right? We need either much more government or much less 
government, neither of which have proven to be that successful, 
quite frankly, particularly in light of the changing kind of 
future, which I think is coming at us very fast. I mean, we 
talk about what trade has done to us, that seems to me to be a 
bit of a speed bump when you compare it to what automation 
might do to us. So what is some of the new thinking? And I will 
leave it to the panel, whoever has an idea they want to make. 
Otherwise, if not, we will start with Dr.----
    Dr. Kane. Just with the short amount of time, sir, a great 
question. Let me--just for debate purposes I will say no, we 
don't need new thinking, yet we all should be innovative. But 
people have tremendous incentives to invest in themselves, 
right? And we have a free market economy. And it is very easy 
to get caught up in what we are doing wrong as a country and 
that this is a crisis. We are still an incredibly powerful, 
successful economy. People have the right incentives already 
aligned. I think where they don't have the power to make their 
choices, we are talking about kids who are 5 and 4 years old, 
then that is where I think you could do more, and states maybe 
could do more, not the Federal Government.
    Representative Delaney. Because a 5-year-old doesn't have 
the power to invest in themselves.
    Dr. Kane. Exactly.
    Representative Delaney. Right? And a lot of people don't 
have the power to invest in themselves.
    Dr. Kane. But I tell you what, 18-year-olds and 21-year-
olds do. I don't think they need bailouts on their college 
loans. I would focus more on kids, not adults.
    Mr. Lettieri. I will just add to that. I think it is a 
great question. One of the challenges is we are really bad at 
predicting the future, even when we have a lot of information. 
So I think the best thing we can do is to allow for a 
permissionless environment where people engage in productive 
ways, take healthy risks, deploy their skills in the 
marketplace in a way that carries a lot of downstream benefits 
for the broader economy and doesn't require government to try 
to keep pace with innovation and demographic changes.
    Representative Delaney. Do you think they need more 
security to take that risk?
    Mr. Lettieri. I think in some ways they certainly do. I 
also think they need fewer impediments.
    Representative Delaney. Right.
    Mr. Lettieri. And so we have to be doing both.
    Representative Delaney. Less barriers, but maybe a slightly 
different social contract that allows them to be slightly more 
secure to be mobile and take risks.
    Mr. Lettieri. Yes, and but the best security you can have, 
I think, in this economy is access to a healthy labor market 
and a thriving jobs sector. And right now, we are seeing the 
heart of that getting hollowed out with declining dynamism.
    Representative Delaney. Dr. Bernstein, very quickly.
    Dr. Bernstein. I think the new thinking we need is to 
really appreciate the importance of public goods and the cost 
of ignoring them. For decades now----
    Representative Delaney. The cost of doing nothing is not 
nothing, in other words.
    Dr. Bernstein. For decades now, there has been this 
mythology that, you know, government bad, private sector good. 
Well, sometimes government bad, sometimes private sector good. 
The private sector cannot function without a government sector 
that invests deeply in public goods. And I am talking about not 
just human capital, which is critical, and we have been talking 
about that, but physical capital as well.
    By the way, this is an answer to Mr. LaHood that I didn't 
quite finish, was infrastructure. The places that we are 
talking about are places that have been left behind, you know, 
water systems, transportation systems. A $19 trillion economy 
cannot produce with an infrastructure that we continuously 
ignore. And if anyone doesn't believe me, go ride on the 
Washington Metro and see what happens when you ignore your 
infrastructure for 20 years. It breaks.
    Representative Tiberi. Thank you.
    Mr. Schweikert, you are recognized for 25 minutes based 
upon that coffee you got me.
    Representative Schweikert. You see, if you can't make 
friends, buy them, Mr. Chairman.
    Representative Tiberi. You are recognized for 5 minutes.
    Representative Schweikert. Gentlemen, could we do a little 
bit of sort of speed dating here, at least conceptually. About 
a year ago, The Economist magazine had a lead article that sort 
of set off a series of interest in me, and basically was 
talking about have we hit a time of almost oligopoly in the 
country. And this sort of goes to your dynamism discussion of, 
because of the regulatory environment we have societally, that 
was one of the things, organizations, business organizations, 
concerns have gotten so big, so powerful to sort of amortize 
their rules, their costs, is that one of the things that is 
slowing down or shutting down much of the creative destruction 
that should be rolling through the economy? And they rattled 
off airlines, milk, I mean, a series of things industries-wise 
that if you actually look, they are this side of sort of a true 
oligopoly. Thoughts?
    Dr. Kane. We should call out the EIG report that was, I 
think, produced either right before this or beforehand. I 
thought it was a fantastic deep dive on some of the dynamism 
issues. Speed dating, to respect what your request was, I would 
say yes. And this might be, you know, throwing a very big 
political hot potato out there, but I thought----
    Representative Schweikert. Oh, it is uncomfortable to talk 
about, but that is why I am saying is it something----
    Dr. Kane. Things like some of the major regulatory 
environments put on the financial industry and health care, 
requiring companies to provide certain benefits, that is very 
easy for a large company to provide. It is hard for an 
entrepreneur to provide those things. But more importantly, the 
more generous benefits that are mandated by the government big 
firms can easily provide, that helps workers nest, that sort of 
locks them in and makes them less entrepreneurial.
    Representative Schweikert. Okay. So your argument would be 
that structurally, regulatorily we have actually incentivized 
growing bigger and----
    Dr. Kane. To put it in speed dating terms, I would say 
don't require employers to be paternalistic.
    Representative Schweikert. Anyone off the top of your head 
want to give me a guess why my county, Maricopa County, now the 
fastest growing county in the country, last year, I had 81,360 
people move to my county? Cook County lost over 21,000 people. 
What are we doing right? What are they doing wrong? Anyone 
willing to step up to that?
    Dr. Bernstein. I don't know the answer. It is a very 
granular question. I suspect you may have an answer to that.
    Representative Schweikert. No, actually, in some ways I 
don't, because I think it is like everything we all learn 
around here, it is complicated. It could be labor markets, it 
could be----
    Dr. Bernstein. I mean, here is what I was going to say, to 
answer your question. Maybe this applies to the question you 
just asked, but if it doesn't, we will move on. Yes, the 
regulatory and tax environment obviously matter a ton. But what 
we hear a lot from businesses is that what also matters--and I 
just was talking about public goods--what also matters is the 
skills of the workforce, the quality of the schools, the 
quality of the environment, the parks.
    Representative Schweikert. To your point, and then I want 
to bounce over to something else, if I actually look at my 
government spending per population, Cook County spends a hell 
of a lot more than my county does, yet my schools are better, 
my population growth is better.
    Dr. Bernstein. Well, Cook County is a much more 
disadvantaged population.
    Representative Schweikert. Okay. But I can go through some 
of the other counties also that are losing population around 
the country. So there is something out there in the ethos and 
the way things are delivered and the entrepreneurial spirit.
    Also, you were talking about something, and this is another 
fixation of mine, business startups, just new businesses 
starting. I accept there is never--in this particular occasion 
there is probably not a good government solution. There often 
isn't. How do I get my demographics, my older population to be 
the entrepreneurs? How do I get my 50-plus to be the ones 
willing to take risks and start a business? Because if one of 
my dynamism problems in the economy is I don't have enough 
creative destruction, enough new startups, how do I get my 
entire spread of my demographic curve to be willing to be that 
new entrepreneur?
    Mr. Lettieri. That is a great question. One, we can look at 
that a little more broadly and say--actually, first, older 
folks tend to be really entrepreneurial versus younger folks. 
This is one of the great myths of entrepreneurship. Peak age is 
40 for starting a business. And the peak range is I think 
something like 40 to 55. So that is really where you have both 
the knowledge, the skills, the network, all those things are 
starting to come together, and you have some startup capital. 
Because the number one sources of--top sources of startup 
capital are not external markets or venture capitalists or 
angel investors, it is home equity, it is personal savings, it 
is lines of credit, all things, by the way, that got wiped out 
by the Great Recession.
    Representative Schweikert. And I know I am up against time. 
So what is happening out there that I am not seeing the number 
of startups?
    Mr. Lettieri. We are voluntarily restricting the most 
entrepreneurial potential population that we have, which is 
high skill immigrants. We are voluntarily saying we don't want 
them in the building. So this is just what the data tell us. 
This is not a political point.
    If you were trying to run government like a business, you 
wouldn't shut out your most productive workers and not let them 
in the building. And I think this is an area where we have 
tremendous chance to make improvements that have nothing to do 
with legacy costs or right versus left dynamics; it is just a 
choice. And it has historically been one of our strongest 
assets as a country.
    Representative Schweikert. Thank you, Mr. Chairman, for 
your patience.
    Representative Tiberi. Good questions. Just before I 
recognize the gentlelady from Minnesota, on John's last point, 
do all three of you agree?
    Dr. Bernstein. I agree strongly.
    Dr. Kane. Couldn't agree more strongly, sir. I think that 
is a great opportunity, actually, for this Congress to show the 
world how bipartisanship works. Now that it looks like 
comprehensive immigration reform is dead, thank goodness, you 
can move on to incremental piece by piece. And the things thing 
that make the most sense, opinion polls show Democrats, 
Republicans, independents all want is students that are here 
studying in our engineering schools, give them a green card. 
That would be a great piece of legislation. I think all three 
of us would love that.
    Dr. Bernstein. Totally agree. I just can't resist saying 
that there are a lot of people here already in whom we 
seriously underinvest.
    Representative Tiberi. Thank you. Very good points by all 
three of you.
    On that note, Senator Klobuchar, you are recognized for 5 
minutes.
    Senator Klobuchar. Thank you very much.
    I am going to focus a bit on rural areas, taking you away 
from the Washington Metro, as big of an issue as it is. And I 
guess I will start with immigration.
    We have got a dairy in Minnesota that employs a couple 
hundred people. They are legal Mexican workers that have come 
over. They want to bring their spouses. They can, but then they 
can't work for 7 years. And while I am on the bill for green 
cards and H-1B visas, with Senator Hatch, and we're trying to 
fix that, I also believe we have other needs in this country, 
especially in rural areas and agriculture. And I am really 
concerned about not just the proposals out there, but also the 
rhetoric that I think is going to be a real hit to the rural 
economy, to the heartland, if we continue on the path we are 
on, which is to have no comprehensive immigration reform.
    Dr. Bernstein, could you talk about the need for immigrant 
workers in things like the dairy industry?
    Dr. Bernstein. Well, yes. I mean, you have seen it on the 
ground, and I think we probably all have if we have looked for 
it. This is a critical workforce, a critical part of the 
workforce, and in fact an essential growing part of the 
workforce if we would allow it to grow. One of the reasons our 
macro economy is constrained--and I am using some of the 
language of the chairman, who has written about constrained 
potential in GDP--is because our labor supply is growing too 
slowly. Well, a lot of that, as Tim said, is demographic. One 
of the ways we have often dealt with that is being welcoming 
towards immigrants.
    And so at the micro level, which you are describing, it is 
critical for employers to have that supply. But at the macro 
level it is also really important. So we are definitely 
shooting ourselves in the feet.
    Senator Klobuchar. They are not just people with science 
degrees.
    Dr. Bernstein. I am sorry?
    Senator Klobuchar. They are not just people with Ph.D.s 
that we need.
    Dr. Bernstein. Oh, no. I mean, I think that is a great 
point. And while I very much take and endorse John's point 
about entrepreneurs, that is not the only immigrants we are 
interested in.
    Senator Klobuchar. Now, another way we can get at that, of 
course, and I appreciate all of your support for doing 
something on this front, but another way we can get at it is 
apprenticeships. It won't take care of everything, but we have 
a lot of kids that graduate with degrees, and then they can't 
get jobs, and then we have this huge need for welders and 
filling some of our health and technology jobs. And what do you 
think--I know you, I think, talked about this, Dr. Kane, would 
be the best thing we could do to further apprenticeships? It is 
this funny patchwork of State and Federal laws. And other 
countries, as you pointed out, do it better.
    Dr. Kane. And I will second the point. When I was saying 
comprehensive reform, instead I mean trying to do everything 
with one giant bill. I absolutely agree, I think immigrants at 
all skill levels strengthen the U.S. economy.
    Senator Klobuchar. Thank you.
    Dr. Kane. I worry that we may be making it too hard for 
agricultural workers to come in, whether as guest workers or--
--
    Senator Klobuchar. And that was part of comprehensive 
reform was agreeing with the immigrants----
    Dr. Kane. Well, I like comprehensive meaning let's address 
all immigrants. Let's not try to do it with one bill and 15 
years later we have got nothing. So building a working 
coalition is a key priority.
    On your question of how to encourage more entrepreneurship, 
I am doing a study now, so I hope I can come back and tell you 
about it, about what the State differences in entrepreneurship 
are. We can identify truly what states are doing it well versus 
others. So not everything is known. But I can tell you that 
some states do make it easier. Where I think no State is 
perfect, I think here in Virginia it is $100 to start an LLC. 
So if my 14-year-old wants to start a company, just coming up 
with the name for the company, the State of Virginia is going 
to charge her a hundred bucks.
    Senator Klobuchar. Okay.
    Dr. Kane. That discourages it. But some states are worse. 
Virginia is one of the best. So I don't think anybody is doing 
it as well as they could.
    Senator Klobuchar. Good. Export-Import Bank, something also 
important in rural America and in the Midwest, especially for 
some of our smaller businesses that can't access export 
financing in other ways. We know while that is continuing in 
place, we are missing a quorum because the Congress hasn't 
confirmed a person for that Board. And I would like to know 
what you think the effect of that will be, Dr. Bernstein, when 
we are competing against every other developed nation that has 
a similar entity that helps finance exports.
    Dr. Bernstein. Well, that is where I was going to go. I 
mean, not every economist loves the idea of an Ex-Im Bank. And 
I remember when I worked in the White House, I kept running 
into people from Boeing around every corner. And so I do think 
it needs to be a diverse--much more diverse bank. But I will 
say where you land is exactly where I land. To unilaterally 
disarm on that would, again, be I think a very noncompetitive 
thing for our businesses to do.
    Senator Klobuchar. Okay. Thank you. Last, infrastructure 
investment. We had a bridge collapse in the middle of 
Minnesota, as you all know, on a summer day, big interstate 
highway. Since then, we have invested in our bridges and our 
roads for positive effect. I think we got rated one year the 
best State to do business in by CNBC, in part because of that. 
Could you talk about the importance of that to the economy to 
get goods to market? Any of you. Mr. Lettieri.
    Dr. Bernstein. I will just briefly say I have a section in 
my testimony where I try to go through both the productivity-
enhancing aspects of infrastructure, which are notable, and I 
think missing from our economy right now. One of our biggest 
problems, the other part of our constrained potential, I talked 
about labor supply, is our very slow productivity growth. One 
way I really think we could help would be investing more in 
productivity-enhancing infrastructure. It is also a job creator 
in places where labor demand is insufficient.
    Senator Klobuchar. Thank you.
    Representative Tiberi. Thank you.
    Staying in the State of Minnesota, Mr. Paulsen, you are 
recognized for 5 minutes.
    Representative Paulsen. Thank you, Mr. Chairman. Thanks, 
everyone, for being here today.
    Mr. Lettieri, I will follow up on some of the themes of 
what you started out with economic dynamism fading. It is 
interesting, because company startups, as you mentioned, have 
been on the decline. If you go back to 1977, they contributed 
16 percent of total U.S. employment. I think you mentioned the 
8 percent figure that we had in 2013 for that type of startup. 
Small businesses are the engine of the economy. We always like 
to talk about how most of our jobs, and our economic growth 
comes from that sector.
    The two time periods where those company startups rebounded 
or actually increased in this large 40-year period were during 
the mid-1980s, where it jumped up from 11.8 percent to 13 
percent, and also in the early 2000s, when it jumped up from 
9.7 percent to 10.8 percent. This chain reaction, I think, that 
was mentioned earlier, leads to other economic churn and 
opportunity and growth.
    What was it about those two time periods, either related to 
public policy or technology or some other changes, that we 
should be looking for right now in terms of replicating or 
reproducing in some manner? Anything in those two timeframes in 
particular that stand out?
    Mr. Lettieri. Well, we had major tax policy changes 
preceding both of those periods. I would just caution that I 
don't know that that is a perfect explanation for what 
followed, because I think one of the points that we can't 
underscore enough is that demographics play a huge, huge, huge 
role in rates of entrepreneurship, and that is both nationally 
and regionally. I haven't looked at those demographic changes 
during those time periods, but it may have also been providing 
tailwinds for those types of bumps.
    I will just point out now that there is--and, actually, I 
think your legislation on employee stock ownership is a great 
example of things that are not intentional barriers to 
entrepreneurship or to the health of new companies, but are 
just in the background providing an advantage to larger 
incumbents and a disadvantage in the competition for talent 
among smaller private firms, which is particularly true for new 
firms. So there are things like that that we can do that on 
their own may not seem like massive changes in policy, but in 
the aggregate will have a tremendous and, I think, eventually 
transformative effect on leveling the playing field back 
towards competition and new entry.
    Representative Paulsen. Sure. And you referenced the 
bipartisan legislation for helping those that may have stock 
options but don't have a market to sell those options in. That 
legislation is both in the Senate and in the House. We may be 
able to move that forward to promote new startups.
    Let me follow up too, because you had five recommendations, 
one of which was enhancing geographic mobility. Are there any 
policy initiatives that any of you might have that would 
enhance geographic mobility? Obviously, immigration is one 
component. Anything else?
    Mr. Lettieri. Yes. And this is about not doing something 
that we are doing now, which is this Kafkaesque patchwork of 
occupational licensing barriers around the country. This is 
mostly a State and local issue, but I think if I would urge you 
to do anything, it is to use the bully pulpit that you have in 
Congress to really point out and spotlight just how poisonous 
this is for the economy.
    It really checks all the wrong boxes. It hurts people who 
are least advantaged the most. It inhibits geographic mobility, 
meaning that you can't transfer your skills. Even if you are 
highly licensed and highly skilled and highly trained, you 
can't transfer those from one State to another, in most cases, 
without having to go through that whole process again. So it is 
a tax on folks just moving to locations with higher 
opportunity. And they create these bizarre and nonconforming 
standards that have proven over and over again in research to 
not bring any benefit to the consumer and to actually depress 
jobs.
    I mean, Alan Krueger, former adviser to President Obama, 
has done great research on this that shows, to the tune of 
millions of jobs and hundreds of billions of dollars of costs, 
that these regulations play. So this is the--in an era of low 
dynamism, this is exactly the kind of thing we have to carve 
out of the system. And it is in every State.
    And just with one more point, we have only had eight 
successful instances of delicensing an occupation in a State. 
Eight. And now 30 percent of U.S. jobs----
    Dr. Bernstein. Just to be bipartisan, I want to be clear 
that I very much endorse those comments about occupational 
licensing.
    Another piece of this that I think would be helpful, one of 
the real constraints, and we know this, is housing costs, 
especially going from rural areas, where housing can be 
extremely cheap relative to other areas. And so one of the 
problems we have with our housing vouchers program is they are 
not generous enough to help people move across areas where 
housing costs rise considerably. And a lot of those areas are 
areas with considerably more opportunity. And there are ways in 
which the program itself is constrained such that the voucher 
amount is set in too small a geographical space.
    So if we simply open up that space, that will improve the 
ability of people to move to opportunity through the voucher 
program.
    Representative Paulsen. Thank you, Mr. Chairman.
    Representative Tiberi. Thank you. Good comments.
    Senator Peters, welcome back. You are recognized for 5 
minutes.
    Senator Peters. Great. Great to be back here. Thank you to 
our panelists today.
    I want to pick up on some of the comments that were just 
made related to regulation, taxation, other issues. And I want 
to preface this question first saying I do believe we have to 
have a more efficient Tax Code than we have right now. There 
are a lot of issues that need to be worked out. And hopefully, 
we will be able to find some common ground on tax reform. Also, 
we can do a lot better when it comes to regulation as well, 
also making that more efficient, understanding that there are 
some good relations, some that aren't, and how do we find 
middle ground.
    But I just want to get your sense, obviously those are two 
factors that we have to be considering, but looking at the 
factual situation of some urban areas that are doing extremely 
well, and I think all three of you have cited places like San 
Francisco, Los Angeles, and New York. And I think most folks, 
with all due respect to my friends there, wouldn't say those 
are low regulation places, nor are they low tax places.
    So it seems to me that there is something else going on 
here that we have to grapple with if we are going to be moving 
these kinds of Centers of Excellence not just in those three 
places, you know, continue to do it, we think that is 
wonderful, but how do we move it to places like Detroit and 
other places around the country? There is something else 
happening here. What else is happening in these areas that we 
need to be thinking about beyond the regulatory space and the 
tax space?
    Dr. Bernstein. Well, first, I just want to underscore the 
point that you are making, because I think it has gotten a 
little bit lost in our discussion today. Yes, the minimum wage 
I think in all three of those places is either at $15 or headed 
to $15 an hour. That doesn't mean you can do that in 
Mississippi, but it certainly means it is not the constraints 
that we have heard today in places like that.
    Look, I will be brief, because I am just echoing things I 
said earlier. One of the things we see in each one of those 
places is significant investment in both human and physical 
capital through public policy, both in terms of education, in 
terms of infrastructure, in terms of transportation, in terms 
of housing, in terms of the safety net. I mean, we think of 
programs like the child tax credit or the earned income tax 
credit or nutritional support or even Medicaid, we think of 
these programs sort of helping people today.
    The research I underscore in my testimony shows these are 
investments that improve people's ability to get into the job 
market. And if you couple them with appropriate skills 
training, you are going to enhance the productivity of your 
area. And that is going to help not only create jobs, better 
quality jobs.
    Dr. Kane. Sir, I missed the third city. You said San 
Francisco, New York, and----
    Senator Peters. Los Angeles.
    Dr. Kane. Los Angeles. All right. So two of those cities 
are in California. California is experiencing a big population 
slowdown and even a pretty huge migration if you look 
underneath the dynamics. A lot of foreign immigrants come into 
California, but a lot of natives are moving. I think those 
places have been successful early and then boomed, and they are 
carrying on with momentum. Now, Hollywood and Silicon Valley 
may be different, but I don't think you want to look at the 
correlation of the high regulations they have now and their 
previous success as symptomatic of something to be replicated.
    And Detroit is another example. Was a booming city, was a 
dominant city in America, but became a part of a very high 
regulatory environment, and then we see the consequences, which 
are pretty horrific.
    There are places like New Mexico and Arizona surrounding 
California that are now booming and are changing their 
dynamics, becoming I think more oriented toward right to work, 
labor friendly policies that I think are successful.
    Mr. Lettieri. I will just add, I do think we sometimes 
discount the benefits of legacy investments. And this is to Dr. 
Kane's point that places can coast for a long time based on the 
strength of--in Silicon Valley's case you had actually, again 
to the point I made in my testimony, a lot of public sector 
investment that got spun off into commercialization of the 
technology industry, and that became a hub there.
    But I want to push back a little bit on the rosy outlook 
for those places, at least as it relates to business creation. 
We found in our recent research that five metro areas alone 
accounted for fully half of the national net increase in firms, 
five, over the course of the recovery, 2010 to 2014. On the 
surface, that may look like those five places are doing better 
than ever. It is actually that they are just more resilient as 
dynamism is retreating. So the pie is getting smaller and those 
places are getting bigger relative slices than the rest of the 
country.
    But New York, as an example, is relatively speaking doing 
worse on business formation than it has done in the last three 
recoveries. And so that speaks to even those places that are 
resilient are facing national headwinds that are going to start 
changing the equilibrium in the wrong direction.
    Senator Peters. All right. Thank you.
    Representative Tiberi. Go ahead.
    Senator Heinrich. I just want to speak very briefly to Dr. 
Kane's comment about New Mexico. We actually share more, I 
think, in common with Ohio and some of the more rural parts of 
the Midwest than with other Western and certainly Pacific 
states, and have struggled coming out of this recession, which 
is one of the reasons why I find this particular hearing so 
interesting.
    Representative Tiberi. Thank you.
    The gentlelady from Virginia. Welcome to the Joint Economic 
Committee.
    Representative Comstock. Thank you, Mr. Chairman. I wanted 
to associate myself with the comments of Dr. Kane on H-1B 
visas. Thank you for highlighting that and separating that out. 
Because while I have a high-tech, big industry in my district 
in Virginia, I also have agriculture in the western part of my 
District. So I am part of two of those coalitions. And I think 
what I say is they are different coalitions. And so if we can 
go at them separately, I think we could advance these kind of 
issues faster. So thank you for highlighting the need to maybe 
do that separately.
    But what I wanted to talk a little bit about is venture 
capital and private sector investment there. I was fortunate to 
participate with one of my constituents, Steve Case, in the 
Rise of the Rest Summit that he had here last week. And one of 
the things I was happy he highlighted, I highlighted also, was 
the chairman's Investing in Opportunity Act, which can I think 
helps a lot of what we are talking about here.
    One of the things that was highlighted, not just that 78 
percent of the venture capital goes to just three states, 
California, Massachusetts, and New York, but one of the things 
that is not often highlighted is that 90 percent of it goes to 
men. And so there are a whole lot of women out there who are 
missing out on this in all 50 states, not just the rest of us 
who are--and I highlighted that woman piece.
    So what can we do to create these startup ecosystems, not 
just on the Federal level, I think legislation like the 
chairman's, broadband, making sure, you know, doing better on 
that basis, but how can we help our State and local 
environments create that ecosystem that supports the startup 
culture all around the country? I mean, that is what Steve Case 
has been going traveling around, kind of bringing certainly the 
talent in all of these areas. So how can we help and what 
policy might we do here?
    Dr. Kane. Thank you, Representative Comstock. I actually 
started a couple of software businesses when I was in San 
Diego, and got venture capital, so I speak with a little bit of 
personal experience. What shocked me at the time was that I had 
to ask some friends and family to disinvest because they 
weren't what are called qualified investors. It was shocking to 
me. They had taken the biggest risks, and they got their money 
back with some small return.
    I would applaud the Congress, I think it was called the 
JOBS Act that you all passed a few years ago, to make it easier 
for families in--and what is called the crowdsourcing types of 
investments. I don't think that story is--or I would say I 
don't think that chapter is over yet. I am not sure of the 
consequences. Maybe there is more to be done there. Definitely 
worth looking into. But I think you are right, access to 
financing is critical.
    Even when interest rates on paper are zero, we know that 
people still have--are not able to walk into a bank and get a 
loan at a 0 percent interest rate. So there are real challenges 
for everyone, and especially outside of those big three areas.
    Representative Comstock. And, Mr. Lettieri, did you want--
--
    Mr. Lettieri. Yeah, I strongly agree. And I think the 
Investing in Opportunity Act is a great example of how we can 
do better. Jared mentioned that place-based incentive policies 
have been spotty at best in the past at delivering results. And 
I think there is a reason for that. They have really largely 
been poorly designed and poorly implemented, and don't match 
the needs that real entrepreneurs and businesses need.
    The need that you are pointing out of access to capital, it 
is not sufficient, but it is necessary in scaling any business. 
So it is one of the few universal things you can say applies no 
matter what industry you are in, no matter what region of the 
country. And the regionalization of access to capital is 
growing more profound, not less. So we need things that from 
the policy standpoint, both at the Federal and the State and 
local levels, that can really help balance that playing field, 
because it is obviously artificial when 90 percent of venture 
capital goes to men versus women and to three states versus the 
rest of the country. That is a solvable problem. And public 
policy designed the right way can nudge it back in a more 
balanced direction.
    Representative Comstock. One of the things that we also 
highlighted, I think Senator Warner, Mark Warner, who is from 
Virginia and highlighted too, and I think you all addressed 
this a little earlier, some of the workforce programs the 
government has, you know, and they are all over and they are 
disparate, really aren't serving the purposes. And the 
employers and those sort of in the states and localities might 
know better what they need for that.
    How can we maybe redirect that money when we have a huge 
pot of money that is not very effective here on labor 
retraining? We know retraining and upgrading skills and 
lifelong learning is something we need. How can we partner with 
maybe our local universities, our State and local--our private 
sector companies and what incentives can we give them on that 
front?
    Dr. Bernstein. So I think the answer to that is actually 
known and not deeply implemented, as you suggest, and it is 
called sectoral employment training, which sounds complicated, 
but really all we are talking about is instead of training that 
is based on just providing people with a set of basic skills, 
it actually works in close association with employers, 
universities, and the students themselves, the trainees 
themselves. The idea is that you are training people for jobs, 
and not just jobs today, but jobs tomorrow. You are looking 
around the corner.
    And to be very concrete and granular about this, an 
employer tells you guess what, we are going to set up an MRI 
lab in this neighborhood. We are going to need lab technicians 
who know how to keep an MRI running. And that becomes the 
sectoral employment emphasis of your training program. So I 
think that is key.
    Apprenticeships, earning while you learn. Other countries 
do much more than that. Somebody mentioned Germany earlier. 
They have a lot of success with that. So I would also say that.
    On your first question, just very quickly, because I didn't 
get to respond to that, a lot of what we focus on is sort of on 
the supply side, how can we provide enough credit for these 
folks. And I get that that is obviously critical. We also have 
to worry about the demand side. One place where you see more 
businesses flourishing is where lots of people have money to 
actually go into the door and buy the stuff they are selling. 
Because you can do all you want to free up credit for people, 
but if you don't have a customer base, you don't have demand, 
you are not going to get the economic activity. And I think 
some of the ideas I try to stress in my testimony about wage 
policies, about labor demand, about direct job creation are 
helpful in that regard.
    Representative Tiberi. Thank you.
    Representative Comstock. Thank you, Mr. Chairman.
    Representative Tiberi. Thank you. Good questions. Mrs. 
Maloney, you are recognized for 5 minutes.
    Representative Maloney. Thank you, Mr. Chairman. And thank 
you, ranking member and all of the panelists.
    Really this topic of this hearing is one of the things that 
Democrats and the Republicans agree on wholeheartedly, is that 
the focus of this Congress should be the creation of economic 
conditions that produce more good-paying jobs, higher household 
incomes, and greater economic growth.
    And I would like to ask Dr. Bernstein how investing in--or 
rather, empowering women might be one of the solutions for 
economic growth in our country. Yesterday was Equal Pay Day, 
the day that--this day marks the day when women's earnings from 
last year finally catch up to what their male peers were paid 
in 2016. And I guess in honor of that day, the Democratic staff 
of the Joint Economic Committee issued a report on the gender 
pay gap, not only that it was a gap of 79, 80 cents to the 
dollar, but they looked deeper into it on how it impacts over 
the lifetime of a woman, how it compounds, and the lower pay 
contributes to lower pensions, lower Social Security, lower 
savings, and contributes to women, older women being twice as 
likely as men to live in poverty.
    Heidi Hartmann, a MacArthur scholar, has her own not-for-
profit research foundation, did her own study that showed that 
if you just paid women equally, you would eradicate most of the 
poverty in this country. And I would like to ask Dr. Bernstein 
and others to comment on that. If we addressed the persistent 
opportunity deficit for low-income Americans, and I would say 
particularly women, women are the sole or primary earner in 40 
percent of households with children. That is an astonishing 
stat. And they are also at the bottom income level. Nearly 70 
percent of mothers are their households' sole and only 
breadwinner. So could you comment, if we just paid women 
equally for the same work, what impact would that have on the 
economy and lifting families and children out of poverty?
    Dr. Bernstein. Well, I am glad you mentioned Heidi 
Hartmann, because she is someone who I have worked with over 
the years and have written on this very topic with. A great 
scholar.
    Obviously, this would help both on the family well-being 
and antipoverty, as well as on the broader macro economy, 
particularly if we are talking about folks in the bottom half 
of the pay scale. You know, they spend their earnings. So when 
you pay women 70, 75 cents on the dollar, that means there is 
less economic activity, less consumption.
    I think the policy interventions here are all germane. 
Because much of what we have talked about we haven't really 
focused on through a gender lens enough this morning. So if you 
are thinking about the minimum wage, if you are thinking about 
unions in the retail sector, if you are thinking about the 
earned income credit, or the child tax credit, in many cases 
these disproportionately benefit women. I don't know if I have 
this number exactly right, but something like 60 percent of the 
beneficiaries of a higher minimum wage are women.
    And so I think both through wage policies and through 
enforcement of gender parity laws that is absolutely the right 
way to go.
    Representative Maloney. I also appreciate the comments of 
many of you on the focus of the need for infrastructure. And I 
almost think it is a national disgrace how far we have fallen 
behind the rest of the world. We don't have high-speed rail. 
But we did just open up a new subway in my District, the Second 
Avenue subway. It has been rated the best subway in the 
country. And already the economic activity that it has 
generated is astonishing. Our realtors are saying their income 
is up 30 percent. Property values are up. The next stage would 
attach this sort of business district with a very low income 
district, East Harlem in New York, and bring the same economic 
activity and support to it.
    And so my question really, and I would like to ask Dr. Kane 
and Mr. Lettieri, since I haven't heard from you on that last 
question, should our policies prioritize projects like this one 
which connect economically distressed communities with regions 
of a high economic hub to help really address the income gap 
and opportunity gap and really with the infrastructure 
projects?
    Mr. Lettieri. Thank you for the question. I think we should 
do more and be creative in ways that we connect high 
opportunity areas with areas that are struggling. And that 
helps to reinforce upward momentum and decrease the isolation 
that many of these communities are experiencing. Economic 
segregation is a big problem. And sometimes that is a physical 
segregation, sometimes that is a market segregation in terms of 
access to capital and other things, access to information, 
access to services. So connectivity is key in today's economy. 
This is true in a city, it is also true in rural areas.
    The difference today, I think, between a flourishing rural 
area and a struggling one has more than ever to do with how 
connected that place is. Is it connected to a population 
center? Does it have access to that through infrastructure? Is 
it connected to markets and population and things like that? So 
thinking about that as an underlying theme of all policy 
efforts I think is wise.
    Representative Maloney. Thank you. My time has expired.
    Representative Tiberi. Thank you.
    Representative Maloney. And I just want to congratulate the 
staff of the Democratic JEC on their excellent report. Thank 
you.
    Representative Tiberi. Thank you.
    The gentleman from Virginia is recognized for 5 minutes.
    Representative Beyer. Thank you, Mr. Chairman, very much. 
This is really fun and fascinating.
    I want to add my voice as a small business person to the 
pushback on access occupational licensing. You know, I have 
been training automobile mechanics for more than 40 years, with 
no licensing in Virginia. And they do a very good job fixing 
cars. In fact, one of the challenges is we are trying to get 
everybody through the ASE tests. But it is amazing how often 
excellent mechanics, because of language difficulties or 
reading difficulties, can't get through the tests, which we 
will pay for again and again and again.
    I have been impressed with how much, when we talk about 
robust competition policy, we come back again and again to the 
challenge of increased market concentration in a lot of 
industries. In the year I was born, 1950, there were 50,000 
automobile dealers in America. Today there are 18,000. And many 
of them are grouped in big public groups or family groups. And 
yet, you know, when you do that, you get stifled innovation, 
the barriers to entry are very high, oligopolistic, 
monopolistic, lots of rent-seeking behavior, all the things 
that especially, Mr. Lettieri, you write about it on page after 
page here.
    So I am really interested in knowing what you, and 
especially Dr. Bernstein, how would you go about reversing that 
market concentration? Much more aggressive antimerger activity, 
much stronger antitrust activity? How do you get the barriers 
to entry down?
    Mr. Lettieri. It is a really important and very tough 
question, because you have to come at it from I think a lot of 
different angles. Certainly, I think given the trends, we 
should at least ask whether our antitrust policy is effective 
and right-sized for the market that we are seeing. But I would 
rather focus, if I was putting emphasis just one place, on the 
new business side, because that problem becomes worse if we 
don't reverse the decline in entrepreneurship and get the birth 
rate of firms higher than it is above the death rate of firms.
    We are experiencing right now the first period of a 
contracting business sector in recorded history in this 
country. We have fewer firms in the economy as of 2014 than we 
did in 2007. The difference is something close to a million 
missing firms over that period. So if you think about the 
remarkable downstream effect that that has on competition and 
market concentration, on innovation, on wages, it is hard to 
overstate how profound that effect would be.
    So coming at it from that angle is going to, I think, be 
the longer term solution as we are looking at market and 
competition issues and antitrust, occupational licensing as 
well. I mean, that is part of what is diminishing competition 
is fewer independent businesses can start and compete with the 
incumbents in any given region due to regulatory capture and 
things like that. So I think you have got to come at it from 
both of those angles.
    Representative Beyer. Let me shift just for time purposes 
to Dr. Bernstein. We spend a lot of time talking corporate tax 
reform. Chairman Brady from this committee is going around 
talking about everything that is coming. And yet, you know, it 
is worth pairing any rate reduction efforts to ensure that the 
increased capital that results actually increases economic 
opportunity in wages, investment, innovation. I know, Dr. 
Bernstein, you have read and written a lot about Bill Galston 
and Elaine Kamarck and the increase of financialization, you 
know, the growing financial shares, GDP, and short-termism. Ms. 
Comstock referred to Senator Warner's great work on how much 
corporate profits now are being used for buybacks and for 
dividends and relatively little, a huge falloff in R&D. How do 
we move away from short-termism and financialization?
    Dr. Bernstein. It is a great question, because I view the 
problem you are talking about as one that is fundamental to 
something we have discussed at different times today, which is 
the slowdown in productivity growth. The slowdown in 
productivity growth is intimately related to weak investment. 
And in my own work, I believe that there is some misallocation 
going on, that we are misallocating too many of our resources 
to this kind of frothy financial activity at the top of the 
scale that really doesn't create much in terms of concrete 
investment or opportunity that actually filters down through 
the rest of the economy. It just allows folks in financial 
markets to trade with each other and generate lots of rents.
    So I think, you know, one idea to help improve that 
allocation is to discourage a lot of the kind of noisy, high 
frequency trading through a very small financial transaction 
tax. I am talking about a basis point or two or three, nothing 
off the charts. And my research on this suggests that not only 
would that dampen noise trading, and helpfully allocate, I 
think, capital to more productive uses, but it would also raise 
revenue that we could use in other areas that, to get back to 
your first question, in trying to help smaller businesses find 
their way into concentrated markets.
    Representative Beyer. Thank you.
    Mr. Chairman, I yield back.
    Representative Tiberi. Thank you. This has been great. You 
guys, can you stay a few more minutes to do a follow-up from 
each of us? Do you mind? This has been really, really great.
    I am intrigued on the opposite ends of the panel here on 
your divergence on minimum wage in particular. And I want to 
give you an example, Dr. Bernstein, and just get your comments 
on it. This is a lesson learned as a 16-year-old in Columbus, 
Ohio. I was working at a McDonald's. And during the first year 
that I worked there in high school, the minimum wage was set to 
go up. And it did go up. And at that point in time, most of the 
part-time workers were high school students at this McDonald's. 
And the owner, it was a franchisee, husband and wife owned one 
restaurant, that McDonald's. And so we were all excited, us 
high school kids, that we were going to get I think it was 25 
cents more an hour at the beginning of the year.
    What happened, which was phenomenal, was the manager came 
in and said, because of the minimum wage increase, some of you 
are going to have to work more hours because we are going to 
have to let a couple people at the bottom rung, who were hired 
the latest, let go. Thankfully, I made the cut and I stayed on 
at the restaurant. But that was a real life example of, oh, 
wow, it doesn't help everybody because two people, part-timers, 
lost their job. Can you comment on that? Because that is rarely 
talked about.
    Dr. Bernstein. No, it is a fair question and a good 
question. And I don't want to create the misimpression that 
nobody ever experiences what you experienced when minimum wages 
go up. They do. The disemployment effect or the dampening kinds 
of employment effects that you have discussed aren't zero, but 
in lots of very careful studies they are pretty close to zero. 
So that even in cases where some workers have the experience 
you just cited, many, many more end up ahead.
    And what is I think important, and maybe perhaps not quite 
germane to your story of numerous years ago, is the fact that 
today the minimum wage workforce is different than it used to 
be. It is much older. It is much more parents. It is people who 
are disproportionately working now full-time. And talk about 
anecdotes, my kid worked in a frozen yogurt store in Alexandria 
this summer. Working right next to her was a single mom, and, 
you know, earning something alarmingly close to the minimum 
wage. Now, with some of the wage subsidies I mentioned, that 
person maybe can get a bit of a leg up. But I think we have to 
be mindful about who earns the minimum wage these days, along 
with the fact that the disemployment effects, while not zero, 
are often found to be close to it.
    Representative Tiberi. Thank you.
    Any other comments before I yield?
    Dr. Kane. I just absolutely disagree. I think the research, 
especially the newer, better research is showing that some of 
the older studies were wrong. Jonathan Meer, Dr. Jonathan Meer 
at Texas A&M has done some great work.
    Let me point out in particular what happens to the 
individuals who get disemployed. So maybe nine people get a 
raise and one loses their job. They lose more than a job. If 
you are an 18-year-old or a 17-year-old or, God forbid, a 
single mother who is the one that loses their job, that has 
lifetime implications. Studies show that people that are 
displaced because of higher minimum wage laws have lifetime 
lower earnings. That is a huge disinvestment in people that 
desperately need it.
    So when we talk about a lack of mobility and how to invest 
in the poor and what training programs we do to compensate for 
telling a person who wanted to work, this is a moral issue as 
well, you are not allowed to, the government won't allow you to 
work, and then 5, 10 years later, gee, we are going to come up 
with a training program, they were involved in a training 
program. They were learning basic work skills, and they were 
then robbed of that opportunity by I think a terrible policy.
    Representative Tiberi. Thank you both.
    I am go to go yield to the gentleman, Ranking Member from 
New Mexico.
    Senator Heinrich. I am going to shift gears here real 
quick, Chairman. And I want to go back to something, Dr. 
Bernstein, that you talked about that I thought was really on 
point, was just connecting small communities, rural 
communities, small towns to supply chains. And I think a lot of 
what we see, these disruptive trends have to do with the 
unequal connection to the marketplace, to many different 
resources that you see in geographically different parts of the 
country.
    So I wanted to turn that towards infrastructure and talk 
about, you know, what--ask what is the role of infrastructure 
and how should we be prioritizing that to greater increase 
access, whether it is to a supply chain, whether it is to the 
marketplace, for the geographic parts of the country that have 
limited access to it? And maybe talk a little bit about the, 
you know, the places where public-private partnerships work in 
infrastructure, airports are a great example, and the places 
where we are just going to have to do direct investment, 
because for a water project in rural Wyoming, rural New Mexico, 
we are not going to be able to attract private capital at the 
return rates to make those kinds of things happen.
    Dr. Bernstein. Well, I just wanted to start where you 
ended, which is that there is, I think, a growing kind of 
attention to an idea, and I know the Trump administration is 
pushing this, an infrastructure program that looks to me like 
it is wholly based on public-private partnerships, wherein you 
provide a pretty hefty, I would argue, wasteful tax credit in 
many cases to infrastructure that would have been built anyway. 
And the only investors that are going to come to that well are 
those who are investing in projects that spin off some kind of 
a return, ergo a user fee. And a lot of the places we are 
trying to focus on today, that is not going to be the case.
    I thought Mrs. Maloney's example was a really interesting 
one. She talked about how a subway line generated more economic 
activity. Well, that is in New York City. The same thing 
happens when you build a cloverleaf off of an expressway in a 
rural area. You don't have to be in New York City. This 
generates connections and economic activity, but you are not 
going--that is going to have to be--that has got to be a public 
good, and that has got to be thought about, in my view, as a 
traditional infrastructure program. You are not going to be 
able to tap that through a tax credit public-private 
partnership.
    Dr. Kane. Jared makes good points. I have been not able to 
comment on the infrastructure question. I would just approach 
it cautiously. I am probably less a fan, because I think it can 
be abused. And, you know, based at the Stanford University and 
being out in California for the last few years, I think the 
massive rail project out there that looks like a horrible 
boondoggle that probably will never come to fruition and will 
cost the people of Ohio money because Federal money, you know, 
has gone into that program as well, I think often small 
communities, rural communities get left out of the 
infrastructure programs. Looks great, tends to go to bigger 
areas, better connected.
    And so I would just be cautious about it. But I think Jared 
makes a really important point, in that some of the most 
important infrastructure we have are our national parks, for 
example. And we don't quantify those. And you know, we are 
guilty as economists, we don't quantify some of the intangible 
values in life. So it is not always that you need to build, you 
know, lay down some more asphalt as a way to invest in what is 
important to Americans.
    Senator Heinrich. Thanks for that perspective, Dr. Kane.
    Representative Tiberi. Great question. Good comments.
    Mr. Rooney, speaking of buildings things, you are 
recognized.
    Representative Rooney. If we have time, you know, Mr. 
Lettieri, you talked about business formation, especially for 
young people, and the impact of industries becoming less 
competitive. What about the financial service sector? I mean, 
we have got Dodd-Frank, this giant elephant in the room 
squashing everything that we try to accomplish in getting 
lending going. And we have had a lot of smaller banks go out of 
the market. And we have had some senior bank CEOs joke that 
Dodd-Frank is the best thing that ever happened to them.
    So I just wonder if you all, as trained economists, have 
any advice for the record about the impact of things like Dodd-
Frank and what some other people around here might be thinking 
about to get lending going.
    Mr. Lettieri. I will just make a brief point, then turn it 
over to my colleagues here, that if you are judging--so Dodd-
Frank had a number of different goals. If one of the goals was 
to reduce industry consolidation, I think that is one where it 
certainly has failed to produce the intended result. And I am 
going to, in my answer, stay agnostic as to other results it 
may have produced that were more successful.
    But this obviously is germane to entrepreneurship because 
access to capital is so critical. And we are seeing small 
business lending on a downward decline. We are seeing actually 
a really severe problem and a pervasive problem with a lack of 
new entrants into the financial services industry. And so 
whatever the merits of a regulatory event like Dodd-Frank, I 
think we have enough evidence now to say there are some 
corrective measures that need to be taken.
    Representative Rooney. Thank you.
    Dr. Kane. I would just answer briefly, sir. Yeah, I think 
Dodd-Frank has sort of failed in achieving its goals. It has 
been hard on local and community banks. We have seen maybe too 
much consolidation. I don't think consolidation, sir, is always 
a bad thing if it happens naturally. But when it happens 
because government is sort of rewarding larger firms and making 
it harder on smaller firms, that sort of consolidation is a 
great concern, and I think Dodd-Frank falls into that.
    Dr. Bernstein. I differ in the following sense. It is very 
easy to get amnesia around what happens in financial markets. 
The purpose of Dodd-Frank, which isn't perfect--and I stipulate 
to some of the issues my colleagues raised. The purpose of 
Dodd-Frank was to ensure that risk was not systemically 
underpriced so that we have another credit bubble and a massive 
implosion and recession. And thus far, it has helped in that 
regard. That doesn't mean that it can't be fixed. But it also 
doesn't mean that you should forget why Dodd-Frank is in place 
in the first place. Similarly, the Consumer Financial 
Protection Bureau has also returned, I think, some very 
important results for its beneficiaries.
    Representative Rooney. I can't count how many times the 
Bush administration, of which I was a member, testified before 
Barney Frank begging to raise downpayments for mortgages and 
were turned down. Okay? The Bush administration tried to 
prevent that, and the people that were in charge did it.
    Dr. Bernstein. I definitely stipulate to your point, but I 
continue to stress let's not forget why Dodd-Frank is there in 
the first place.
    Representative Tiberi. Thank you. Thank you, sir.
    Mr. Lee, you are recognized.
    Senator Lee. Thank you very much, Mr. Chairman.
    I want to pick up where we left off earlier when we were 
speaking. Dr. Bernstein, I will start with you. I want to talk 
a little bit more about the role of civil society. Would you 
say that more dynamic areas are also known for stronger social 
ties, active communities, and more civic engagement? Do you see 
that as something that stands out in the data you review?
    Dr. Bernstein. You know, I am not familiar with that 
connection in the data, but it certainly sounds intuitive to 
me.
    Senator Lee. And the fact that it sounds intuitive, I 
think, speaks to the relative isolation that seems to pervade a 
lot of distressed communities. At least, anecdotally, that is 
what we see, and from what I know of the data, there are data 
sets to support that.
    To your knowledge, has the decline in dynamism in much of 
America gone hand-in-hand with the decline in social 
connections at the local level?
    Dr. Bernstein. I mean, I think that is true. I don't know 
so much about the dynamism connection, but I am thinking of the 
work of Robert Putnam, the guy who--sociologist, ``Bowling 
Alone'' and all that. And I think that he is documenting 
precisely the kinds of dynamics you are talking about.
    Senator Lee. Thank you.
    Mr. Lettieri, I wanted to get back to you. You mentioned 
some good stats about my State, which I appreciated, and some 
nice features. We are seeing a different story than people are 
seeing in other parts of the country. Labor force participation 
and the employment-to-population ratio are several points above 
the national average, far more favorable than what you see in 
many parts of the country. And the unemployment rate in Utah is 
consistently noticeably below the national average.
    Given your work in understanding the regional variation and 
economic success, can you describe for us what you think states 
and regions with similar numbers are doing differently and what 
is contributing to their success? And then also tell us, could 
this have anything to do with what we have been discussing, 
with strong institutions of civil society, especially with 
strong families, and high levels of civic engagement?
    Mr. Lettieri. It is great question. And you are exactly 
right. So places like Utah and then other areas where we see 
the highest rates of labor force participation are also highly 
dynamic economies. So there is something about a dynamic 
economy where they get really high engagement from their human 
capital. And that is an important and really rich scheme that 
runs throughout those different State and regional examples. 
They all come with different advantages, they all come with 
different industry bases, they all come with different 
demographics, but they all find a way to engage their human 
capital at really highly rates. So I think that is a lesson, 
kind of broadly, that we can apply.
    I think your point about social capital and institutions 
runs stronger in the other direction than it does as a 
predicate for dynamism. And by that, I mean--and I think this 
gets to Jared's point--in areas where you see really highly 
concentrated distress and poverty, you also tend to see low 
social capital, low connectivity among institutions and 
families and civic organizations and things like that. It is 
not always sufficient to produce economic dynamism, but it is a 
headwind for economic growth when you don't have it.
    And so I think on the poverty and distress end of the 
spectrum, those two are much more tightly correlated than on 
the dynamism side of the spectrum.
    Senator Lee. It might be sort of a condition precedent for 
having it, not always a guarantee, but a condition precedent or 
at least a benefit if you do have it.
    Mr. Lettieri. I think that is right.
    Senator Lee. So those who in the past concluded that what 
you needed more than anything was access to a port or access to 
a river, a highway, or government program, it is not always the 
case. Sometimes what people need more than anything is access 
to other people, access to networks, access to institutions of 
civil society to which they are connected.
    Thank you.
    Dr. Bernstein. Could I add just one tiny little point?
    Representative Tiberi. Go right ahead.
    Dr. Bernstein. I think everything you just said makes a ton 
of sense to me, but I also think kind of at the root of some of 
the places we are talking about is the lack of access to a job. 
There is just not enough employment activity.
    And I think if you start bottom-up with some direct job 
creation, actually bring jobs to people, my guess--and, again, 
this is nascent, sort of embryonic stuff--my guess is that that 
would help a lot in terms of the dynamics you are concerned 
about.
    Representative Tiberi. Great exchange.
    Our last questioner, Mr. Beyer, thank you for staying.
    Representative Beyer. Thank you, Mr. Chairman. I wouldn't 
miss this.
    Representative Tiberi. It has been very good.
    Representative Beyer. Dr. Bernstein, my 24-year-old 
daughter has worked now for two startups since graduating from 
college. I have been visiting lots of the startups in northern 
Virginia, like 1776, and what I am struck by is the startups 
are all brand-new ideas. They are not doing things that were 
around 10 years ago or 30 years ago. They are really dependent 
on having some cool new app. Her latest business that she is in 
is--they do weddings from top to bottom. After Kellyanne 
Conway's gaff--I can't tell you the name of the firm, but it is 
pretty cool.
    [Laughter]
    But then I look and say, how much of--but I also see that 
relatively few young people are doing this. We talk about 
college debt. We talk about the difficulty of bank loans--
which, by the way, the only way you can get a bank loan right 
now is if you don't need it.
    And then the notion that all the old businesses, whether it 
is funeral homes or car dealers or gas stations or breweries, 
anything like that, they tend to be multigenerational. Now, 
there is the graying effect that you talked about; the average 
age is 10 years older.
    How do you overcome this to get the economic dynamism, the 
birthrate higher than the death rate, when the barriers to 
entry are so high?
    Dr. Bernstein. Well, first of all----
    Representative Beyer. And, by the way, I do believe in 
concentration as long as it is my family business.
    [Laughter]
    Dr. Bernstein. First of all, just an anecdote, since we 
live a few miles from each other, there is a new startup in the 
Bradlee Shopping Center that is not an app. It is a Duck Donuts 
shop, and it is just--the line is out the door because the 
donuts are amazing. Don't eat too many of them, but just--there 
is entrepreneurialism happening, and it is not related to apps.
    I think the one--I will just bite off a tiny piece of that. 
Others may have other things to say. Because it is a really--it 
is a deep problem.
    But I do think that the indebtedness problem that you 
suggested for kids who are coming out of college is something 
we need to address in this space. Because there are people--and 
they tend to be in the bottom half of the income scale--who 
aren't getting the training they need and the encouragement 
they need perhaps to start a business, perhaps to be an 
entrepreneur, because they are either so burdened by debt or 
they can't afford to leap over the barriers between them and 
that kind of education.
    And I have a number of ideas in my testimony that tries to 
bring that down, including income-based repayments but also 
assistance with college tuition of the type that is being 
zeroed out in budgets that are currently under discussion. I 
think that is deeply contraindicated in this space.
    Dr. Kane. Sir, if I can----
    Representative Beyer. Yes, please, Dr. Kane.
    Dr. Kane. Two perspectives.
    One is, if you think about this as sort of a supply/demand 
problem--and I am trying to think of how to frame it. What are 
the constraints on the supply of entrepreneurs? And I think 
there are a lot more incentives for entrepreneurs to sort of 
stay in their safe, nested, paternalistic companies.
    What is really shocking--and your testimony points out to 
this--is that we live in an era where it is so much easier to 
create a company, right, than it was in 1950 or 1960 or 1970, 
where if you wanted to create a startup company and, say, you 
were going to make, I don't know, glass backboards, I mean, you 
had to build a factory. But now you can make an app. So the 
capital needs are actually so much lower, we should see an 
explosion of entrepreneurship, and instead we are seeing the 
reverse.
    So what is it that is holding people back from doing what 
is out there? And I think maybe the safety net is a little bit 
too safe, the paternalism is too comfortable. I don't know, but 
I think that, to me, it is not just a downward trend, it is the 
lack of potential.
    So I think I maybe have one hint on what it is, because if 
I go to central Ohio and talk to my friends and say, ``Why 
aren't you guys making apps?'', they will say, wait a minute, 
they didn't work in the app--they are 40-year-olds, they are in 
the prime, but they don't have experience making apps. They 
have experience in all these other things. So what constraint 
do they face? And it is this occupational licensing issue that 
makes it really, really hard to start in traditional 
industries. I mean, starting a restaurant, rife with risk. The 
lawsuit risk is higher than it was in the 1960s and 1970s.
    So I would look at the legal culture and the occupational 
licensing are what is holding back what should be a golden era 
for entrepreneurship.
    Representative Beyer. Okay. Thank you all very much.
    Thank you, Mr. Chairman.
    Representative Tiberi. What a way to end it. Thank you. 
Great question.
    Thank you all for staying extra. This has been outstanding. 
I really appreciate all of your time, the different 
perspectives done in a very ``happy warrior'' way. We 
absolutely appreciate that.
    The record will be open for 5 business days for any member 
that would like to submit questions for the record.
    And, with that, the hearing is adjourned. Thank you.
    [Whereupon, at 12:10 p.m., the committee was adjourned.]

                       SUBMISSIONS FOR THE RECORD

Prepared Statement of Hon. Patrick J. Tiberi, Chairman, Joint Economic 
                               Committee
    Good morning everyone. Welcome to the first Joint Economic 
Committee hearing of the year. I want to especially welcome our Ranking 
Member Senator Heinrich and our Vice Chairman Senator Lee, as well as 
the other Members of this Committee, and I look forward to working with 
them this Congress and diving into some important issues facing our 
economy.
    The U.S. economy did not surge back from the last recession as it 
had after every other recession since World War II, and we are paying a 
price for that. The drawn-out recovery and the meager growth rate we 
have settled into are exacerbating the country's many challenges.
    The purpose of today's hearing is to gain insight into why the 
recovery, besides being so slow, is also uneven. Many parts of the 
country face problems more severe than national average economic growth 
and unemployment rates convey. Some areas effectively are still in a 
recession.
    In my home State of Ohio, we've made strides in encouraging 
businesses to come to our State and our unemployment rate has dropped 
at a steady pace over the past few years. However, that hasn't been 
true for every part of the State. We can do better, especially for the 
communities where folks feel they are being left behind. In Ohio that 
is in counties in Appalachia and in areas surrounding urban centers of 
Ohio where the dynamics of the rural and urban poor couldn't be more 
different.
    Allow me to submit to you four perspectives. First, accelerated 
national growth would lift many struggling regions. The familiar image 
of the tide lifting all boats is appropriate.
    Second, innovation is integral to economic development, especially 
in an advanced economy. Innovation arises from entrepreneurship, which 
has been the hallmark of U.S. economic success. When entrepreneurial 
activity wanes, as it has recently, economic growth slows.
    Third, a large, complex economy such as the U.S. economy will 
always have parts that expand and parts that contract, largely related 
to different rates of technological change. However, government 
intervention such as with respect to taxes, wage and employment benefit 
mandates, zoning, and licensing can exacerbate this by restricting 
market entry, impairing new business formation, and limiting job 
creation.
    Fourth, education and skill development are the key to a 
productive, adaptable labor force. I was struck by observations Federal 
Reserve Chair Janet Yellen made in a speech last week in which she 
stressed the importance of entrepreneurship, the importance of 
vocational education and apprenticeships, and engaging employers in the 
training process, among other things.
    Everyone is aware of the demographic change the country is 
undergoing. The baby boom generation is reaching retirement age and 
that is affecting many aspects of the economy. One such effect is 
slowing entrepreneurial activity, as a part of today's testimony will 
explain.
    The challenge of an aging population makes it all the more 
important that the economy work efficiently and that government 
actions, at both the State and local levels and the Federal level, not 
be prohibitive.
    Unfortunately, this is not always the case. For example, laws and 
regulations for many years have been accumulating at a faster rate than 
the economy has grown. As a result, business expansion is discouraged 
and new projects deferred or abandoned. U.S. worldwide ranking in the 
ease of starting a business has slipped from 45th out of 190 countries 
in 2016 to 51st today, according to the World Bank.
    Members from both sides of the political aisle have frequently 
criticized the inefficiencies of the regulatory build-up, yet it has 
continued. The effects are real and they are holding the economy back.
    One of the key areas of weakness in this recovery has been private 
business investment, which is sensitive to tax and regulatory regimes. 
The economy requires faster rates of private investment than the 
existing regimes have permitted. Regulatory and tax reform will create 
more jobs and opportunity.
    A central aspect of the economy's functioning can be characterized 
as ``dynamism''--the rate at which the population starts new 
businesses, moves to another region, and changes jobs or occupations. 
It refers to the people's innovativeness, entrepreneurship, and 
motivation. Less dynamism means less of this is happening.
    Many of our communities are hurting, and I believe that increased 
private investment, restoring economic dynamism and the resulting 
accelerated economic growth can help them recover.
    We have an excellent panel of witnesses today, and I look forward 
to insightful testimony on economic dynamism and the challenges facing 
local and regional economies in this country.
    In closing let me observe that there are few periods in the 
country's history when America did not face serious challenges. We may 
face new challenges today, but I have full faith in the resourcefulness 
of the American people and the functioning of our market economy to 
overcome them, as in the past.
                               __________
                               
  Opening Statement of Hon. Martin Heinrich, Ranking Democrat, Joint 
                           Economic Committee
    Thank you, Chairman Tiberi, Vice Chair Lee, and our witnesses for 
joining us today for our first hearing of the Congress.
    The United States is the global leader in opportunity and 
innovation.
    When I was growing up, both of my parents worked exceedingly hard. 
Neither had a college degree.
    It wasn't easy, but I was able to get a college degree and am 
sitting here with all of you today because of the sacrifices they made 
and because of the opportunities this country afforded them.
    What seemed like an attainable dream 30, 40, 50 years ago too often 
seems unattainable today.
    Across New Mexico and the Nation, working people feel like they 
can't get ahead. And parents don't believe the future is bright for 
their children.
    When we ask ourselves--what are the barriers to opportunities for 
me and my neighbors--my Republican colleagues focus on the role of 
regulation and the tax code.
    This conversation is important, but I caution us all to not 
conflate what is good for CEOs or investors with what is good for a 
working family living in rural New Mexico.
    It is a mistake to think that deregulation or tax reform alone will 
revive rural communities or create good paying jobs in cities and small 
towns across America.
    What our business leaders lack is certainty.
    Expiring tax credits aren't good for planning.
    The constant threat of taking health care away from families 
doesn't instill certainty.
    Repealing rules that keep our air and water clean don't give 
businesses the certainty they need to create the jobs of the future.
    Policies that are good for business and promote pragmatic public 
health goals--like the methane rule, that Congress is trying to do away 
with--should be protected not targeted.
    We are about 80 days into this Administration and what we've seen 
is a budget that would devastate rural America, and make it harder for 
seniors and children to get core services that keep them healthy.
    Too many people here in Washington D.C. think that if the stock 
market is on the rise, the economy is doing just fine. But that's not 
the reality for most of America's working families.
    The way we should measure the success of the economy is if wages go 
up, parents can afford to send their kids to college, entrepreneurs can 
start new businesses, and workers are able to retire with peace of 
mind.
    We have to get back to the basics.
    Congress must take concrete action that focuses our limited 
resources on investing in working families -the women and men in this 
Nation who are fighting to give their kids a better future--rather than 
on tax cuts for the wealthy.
    Comprehensive education and workforce training must be a top 
priority in the face of the global nature of the new economy.
    We need tax and labor policies that reward hard work. We ought to 
prioritize tax programs for families that are proven to reduce poverty 
and incentivize work, like the Earned Income Tax Credit and the Child 
Tax Credit.
    Public-private partnerships alone cannot create the modern 
infrastructure that works for all communities, especially those that 
rural communities need.
    It will take Congress making a substantial investment in roads, 
water projects, and high-speed broadband that connect people and 
communities to financial and educational opportunity.
    The renewable energy sector is a place where jobs are growing 
rapidly and not just in metro areas, but also in rural communities. 
Congress' work to encourage this market through tax credits has helped 
get the renewable energy industry off the ground.
    The success of the future of our economy will be tied to whether 
Congress today takes the bold steps necessary to connect people with 
the opportunities that will exist tomorrow.
    A lot of work remains to be done to ensure that all of us get a 
shot at getting ahead.
    I look forward to starting this conversation with you all today and 
hearing from our witnesses.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Questions for the Record for Dr. Kane Submitted by Senator Amy 
                               Klobuchar
Earned Income Tax Credit
    There is extensive research on the benefits of the EITC, including 
from Dr. Bernstein, and I am a strong supporter of the EITC and the 
Child Tax Credit. There is bipartisan support for increasing the Earned 
Income Tax Credit (EITC) for childless individuals. This is a very 
interesting idea--supported by former President Obama and Speaker Ryan.

      Can you discuss how increasing the EITC would help foster 
greater opportunity and lessen income equality?
      Are there other policies that we should also consider as 
we look at the EITC?
                               __________
                               
Response from Dr. Kane to Questions for the Record Submitted by Senator 
                             Amy Klobuchar
    The Earned Income Tax Credit (EITC) is one of the most effective 
approaches to alleviating poverty in the United States because it gets 
the work incentives right. Government anti-poverty programs typically 
offer cash or some benefit to individuals who qualify by falling below 
some income threshold, which by their very nature act as rewards for 
non-work and thereby establish perverse anti-work incentives. In 
contrast, the EITC was created in 1975 as a supplement to work income 
that phases in and out over a range of low incomes. In 2017, the 
maximum credit for families with one child is $3,400, while the maximum 
credit for families with three or more children is $6,318. Individuals 
without children can earn a maximum credit less than one-tenth that 
amount. I agree with Senator Klobuchar that expansion of the EITC would 
help foster greater opportunity, which is a worthy goal, though I would 
caution that the EITC could be made much more effective if reformed to 
operate through payrolls rather than through the complicated returns of 
the annual Federal income tax.
    I have many friends who currently and previously qualified for the 
EITC, who tell me it is a great program that works as promised. I am 
indebted to the legacy of the late Milton Friedman who was an economist 
at the Hoover Institution where I now work who championed the idea of 
the negative income tax which served as the genesis of the EITC. With 
28 million Americans benefiting from the EITC, nearly 7 million 
experience an income boost that lifts them above the poverty line, 
including 3.3 million children. The problem is that the program is both 
underutilized and overutilized, meaning that roughly one-fifth of 
eligible families do not participate in the program (presumably because 
the tax code is overly complex, causing millions to neglect to claim 
the credit when filing income tax returns) while at the same time 
nearly one-third of the current claims are estimated to be in error 
(many fraudulent) according to the IRS itself.
    The program works by offering matching funds for each dollar 
earned, so that, for example, a mother of three young children who 
earns $10,000 a year from working will receive $4,500 from the Federal 
government in the form of an income tax refund. The matching amount 
varies with the number of children, from a maximum of 45 percent in the 
example above to 40 percent for two children, 34 percent for one child, 
and 7.65 percent for no children.
    I would recommend the following changes to the EITC:

      Lower the qualifying age for childless workers from 25 to 
21, double the phase-in and phase-out rates from 7.65 percent to 15.3 
percent, and increase the maximum credit from $503 to $1,005. This idea 
has been modeled by Dr. Doug Holtz-Eakin, Ben Gitis, and Curtis 
Arndt.\1\
---------------------------------------------------------------------------
    \1\ See https://www.americanactionforum.org/research/the-work-and-
safety-net-effects-of-expanding-the-childless-eitc/
---------------------------------------------------------------------------
      To eliminate erroneous payments, make the credit more 
efficient by having it operate directly through employer payrolls. This 
idea was recently recommended in an April 8, 2017, essay by Dr. Jason 
Fichtner and Indivar Dutta-Gupta in The Hill.\2\ Entitlement programs 
such as Social Security are inextricably linked to anti-poverty 
programs such as the EITC, so Congress would wisely reconcile their 
operations and economic effects.
---------------------------------------------------------------------------
    \2\ See http://thehill.com/blogs/pundits-blog/economy-budget/
327666-reforming-earned-income-tax-credit-could-be-a-bipartisan
---------------------------------------------------------------------------
      Expand peak credit amounts to $20,000 of earned income 
with the caveat that any expansions are to be matched 50:50 with 
states, giving each State the flexibility to expand as they see fit.
      Give each State the right to lower its minimum wage below 
the Federal level, just as they currently have the freedom to raise it 
above the Federal level. There is little evidence that wage controls 
are effective, but certainly no logical basis for Federal sovereignty 
over what should be set at the State level. And in order to fight 
poverty, a fair compromise is to increase funding for the EITC in 
exchange for greater State and local control over minimum wages.

    Finally, we should recognize that there is some madness in 
government making the EITC and payroll taxes for Social Security 
operate in opposite directions. Americans with the lowest wage incomes 
pay 15.3 percent in payroll taxes (half directly, half indirectly by 
their employer) on work income. But they are also paid by the 
government a matching sum up to 45 percent. The payroll taxes are 
deducted immediately from each paycheck, but the EITC payments occur 
only once as a refundable credit on tax returns. Simplifying these 
contrary incentives would offer tremendous efficiencies.
    Thank you, again, for the opportunity to share my thoughts on how 
we can together fight poverty in America and enhance opportunity for 
all of our fellow citizens.
                               __________
                               
 Question for the Record for Dr. Jared Bernstein Submitted by Senator 
                             Amy Klobuchar
Rural Economic Recovery
    While the rural economy is doing well in many parts of Minnesota, I 
am still seeing challenges. Last year, we had large layoffs on the Iron 
Range due to steel dumping. People are just now getting back to work. 
We have a shortage of affordable workforce housing. In some areas, we 
have manufacturers who have jobs open, but can't find enough trained 
workers.

      In your research you looked at some of the trends that 
will affect the rural economy. What did you learn from your research? 
What policies or programs could we implement that could benefit the 
rural economy?

 Response from Dr. Bernstein to Questions for the Record Submitted by 
                         Senator Amy Klobuchar
    While both metropolitan and rural areas were hit with equally steep 
employment losses during the Great Recession, the recovery from the 
last downturn has been geographically unequal. As the Economic Research 
Service of the United States Department of Agriculture recently 
documented, rural-area employment was still about two percent below 
where it had been before the recession as of the second quarter of 
2016, while metro-area employment was five percent above its pre-
recession level. And while rural population growth is well behind that 
of metro areas, the labor force in rural areas has declined faster than 
rural population in recent years.
    One clear policy that would help people in rural areas is for 
states that haven't already done so to adopt the Medicaid expansion, as 
Medicaid plays an even more important role in connecting residents to 
care in rural areas than it does elsewhere in the country. Having 
access to health care is an important work support.
    Recent economic research has made a strong case for ``moving to 
opportunity,'' or helping people move from areas of weak employment 
growth and high poverty to areas with more positive profiles along 
those dimensions. While this may be a solution for some families, it is 
certainly not one for all, and, in fact, there's some evidence of 
reduced geographical mobility in recent years. Thus, my strong 
conclusion is that sound public policy must consider both helping 
people move to opportunity and moving opportunity to them.
    In this regard, direct public investments in infrastructure and 
renewable energy could potentially create jobs in rural areas while 
simultaneously helping to meet important public needs. Federally funded 
direct job creation programs in these areas also hold promise, as their 
guarantee of job availability would provide opportunities and incomes 
to disadvantaged workers likely to quickly spend their money in local 
economies, generating ``knock-on,'' or multiplier, effects. While such 
an intervention may sound far afield from contemporary economic policy, 
that's not the case at all. During the last recession, as part of the 
Recovery Act, there was a robust subsidized jobs program with a strong 
record and impressive bang-for-the-buck in terms of job creation. A 
recent, rigorous study of the history of subsidized employment programs 
shows that many of these programs have been successful.
Earned Income Tax Credit
    There is extensive research on the benefits of the EITC, including 
from Dr. Bernstein, and I am a strong supporter of the EITC and the 
Child Tax Credit. There is bipartisan support for increasing the Earned 
Income Tax Credit (EITC) for childless individuals. This is a very 
interesting idea--supported by former President Obama and Speaker Ryan.

      Can you discuss how increasing the EITC would help foster 
greater opportunity and lessen income equality?
      Are there other policies that we should also consider as 
we look at the EITC?

    The EITC is a wage subsidy that pulls people into the labor force 
and provides much-needed income support to low-wage workers in low-
income families; it lifted 6.5 million people, including 3.3 million 
children, out of poverty in 2015, and brought another 21.2 million 
people (7.7 million children) closer to the poverty line. Research also 
shows that its benefits redound to its recipients at every stage of 
their lives, improving infant health, school performance, the chances 
of enrolling in college, and later adult earnings for those who receive 
the credit as children.
    Workers under the age of 25 without children do not receive the 
EITC, however, and workers without children over the age of 25 are 
eligible for only a very small subsidy. Making the EITC available to 
younger workers in this category and more generous for those who are 
eligible, as the bipartisan proposal you mentioned would do, would both 
improve these workers' short-term prospects and potentially reduce 
their likelihood of becoming incarcerated. As shown in the figure 
below, the proposal from Senator Sherrod Brown and Representative 
Richard Neal would ensure that the updated credit kept a childless 
worker making poverty-level wages out of poverty (whereas under current 
law and the Obama/Ryan proposals, Federal taxes would keep such a 
worker below the poverty line).


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    You also mentioned the CTC, a policy that should be strengthened 
for very poor families with young children. The best way to do so would 
be for eligibility for the credit to begin with the first dollar of 
earnings (it is today entirely unavailable to families with earnings 
under $3,000 and only partially available to families with a little 
more than that). One way to accomplish that would be to make the CTC 
``fully refundable,'' which would mean allowing all such families to 
access the entire credit.
    The minimum wage should be raised along with the EITC, as these 
policies are complementary.
    Also, my own research has shown that one of the most surefire ways 
to raise the pay of low- and middle-wage workers is to maintain very 
tight labor markets. As you have stressed, and the data on rural 
economies supports, even as the national macroeconomy is closing in on 
full employment, pockets of weak labor demand persist. Much of my 
empirical work, including this recent analysis of the employment rates 
of ``prime-age'' (25-54) men, shows that full employment significantly 
lifts the earnings and employment opportunities of workers who 
otherwise have too little bargaining power. This insight further 
underscores the importance of the jobs programs--infrastructure and 
direct job creation--touted above.
    There is much else for policymakers to tackle in this space. 
Criminal justice reforms that expand ``fair chance'' hiring practices 
for people with criminal records and allow Federal judges to impose 
less punitive sentences on people convicted of crimes are needed. So is 
an expansion of housing choice vouchers, which are an effective way to 
reduce homelessness. In general, policymakers who want to boost 
opportunity should focus on strengthening the safety net, not cutting 
taxes for the wealthy.
  

                                  [all]