[Senate Hearing 116-123]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 116-123

 
          ECONOMIC MOBILITY: IS THE AMERICAN DREAM IN CRISIS?

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXPLORING BARRIERS TO ECONOMIC MOBILITY AND MAKING THE AMERICAN DREAM 
                      ATTAINABLE FOR ALL AMERICANS

                               __________

                             JULY 17, 2019

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                               Affairs
                               

  
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
                                

                 Available at: http: //www.fdsys.gov /
                 
                 
                 
                           ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
39-541PDF           WASHINGTON : 2022 
                 
                 


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA McSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     TOM COTTON, Arkansas, Chairman

       CATHERINE CORTEZ MASTO, Nevada, Ranking Democratic Member

KEVIN CRAMER, North Dakota           ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  DOUG JONES, Alabama
DAVID PERDUE, Georgia                TINA SMITH, Minnesota
THOM TILLIS, North Carolina          KYRSTEN SINEMA, Arizona
JOHN KENNEDY, Louisiana

               Kyle Hauptman, Subcommittee Staff Director

          Carol Wayman, Democratic Subcommittee Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, JULY 17, 2019

                                                                   Page

Opening statement of Chairman Cotton.............................     1
    Prepared statement...........................................    30

Opening statements, comments, or prepared statements of:
    Senator Cortez Masto.........................................     2
        Prepared statement.......................................    31
    Senator Kramer...............................................     4

                               WITNESSES

Oren M. Cass, Senior Fellow, Manhattan Institute for Policy 
  Research.......................................................     5
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Cortez Masto.....................................    77
        Senator Sinema...........................................    77
Yuval Levin, Ph.D., Director of Social, Cultural, and 
  Constitutional Studies, American Enterprise Institute and 
  National Affairs...............................................     7
    Prepared statement...........................................    43
Ramesh Ponnuru, Visiting Fellow, American Enterprise Institute...     9
    Prepared statement...........................................    48
        Senator Cortez Masto.....................................    78
        Senator Sinema...........................................    78
Thea M. Lee, President, Economic Policy Institute................    11
    Prepared statement...........................................    51
        Senator Sinema...........................................    79
Keith R. Miller, Principal, Franchisee Advocacy Consulting.......    12
    Prepared statement...........................................    63
        Senator Sinema...........................................    82

              Additional Material Supplied for the Record

Bloomberg article submitted by Senator Cortez Masto..............    92
Letter from the Pit Owners' Association..........................    96
Letter from the Maine Franchise Owners Association...............    97
Letter from the Meineke Dealers Association......................    98
Letter from the 2019 NAASF Board of Directors....................    99
Letter from the National Coalition of Associations of 7-Eleven 
  Franchisees....................................................   100
Letter from the American Association of Franchisees & Dealers....   101
Letter to Federal Trade Commission Chairman, Joseph Simons, from 
  Congressmen Cardenas, Bilirakis, et al.........................   102
Letter from the International Franchise Association..............   105
Letter from Federal Trade Commission Acting Secretary, April J. 
  Tabor, from the International Franchise Association............   108
Prepared statement of the International Franchise Association....   116
Letter from the National TUPSSO Franchise Owners Association.....   118
Letter from the International Association of Kumon Franchisees...   119
Letter from the Max Independent Franchise Owners Association.....   120

                                 (iii)


          ECONOMIC MOBILITY: IS THE AMERICAN DREAM IN CRISIS?

                              ----------                              


                        WEDNESDAY, JULY 17, 2019

                                       U.S. Senate,
         Committee on Banking, Housing, and Urban Affairs, 
                           Subcommittee on Economic Policy,
                                                    Washington, DC.
    The Subcommittee met at 9:38 a.m. in room SD-538, Dirksen 
Senate Office Building, Hon. Tom Cotton, Chairman of the 
Subcommittee, presiding.

            OPENING STATEMENT OF SENATOR TOM COTTON

    Senator Cotton. This hearing will come to order.
    Welcome to the Economic Policy Subcommittee hearing on this 
important topic of ``Economic Mobility: Is the American Dream 
in Crisis?'' I would like to thank Senator Cortez Masto and the 
witnesses for being here and also our Banking Committee staff 
for their help pulling this all this together. Now I want to 
introduce our witnesses.
    Mr. Oren Cass is a Senior Fellow at the Manhattan Institute 
and the author of the 2018 book, ``The Once and Future Worker: 
A Vision for the Renewal of Work in America.'' Mr. Cass was 
formerly the Domestic Policy Director of Senator Romney's 
Presidential campaign in 2012.
    Dr. Yuval Levin is a Resident Scholar at the American 
Enterprise Institute and the founding Editor of National 
Affairs. Dr. Levin served as a Member of the White House 
Domestic Policy staff under President George W. Bush.
    Mr. Ramesh Ponnuru is a Visiting Fellow at the American 
Enterprise Institute, a Senior Editor for National Review, and 
a columnist for Bloomberg Opinion.
    Ms. Thea Mei Lee is President of the Economic Policy 
Institute and formerly the Chief International Economist for 
the AFL-CIO. She has served on advisory boards for the State 
Department and the National Bureau of Economic Research.
    And Mr. Keith Miller is the founder of Franchisee Advocacy 
Consulting. A Subway franchisee himself since 1988, he served 
as Director on the North American Association of Subway 
Franchisees.
    Thank you all for coming and for your testimony. Your 
written testimony will be entered into the record.
    We are here to discuss economic mobility and the American 
Dream. When economists discuss these things, they often think 
in terms of GDP growth and consumer prices. To exaggerate just 
a little, they often seem to believe that so long as the 
economy grows at 3 percent and Americans can afford more cheap 
plastic stuff from China, America must doing great. But is that 
really true?
    When I talk to Arkansans, I hear a different story. Most of 
them do not dream of extravagant wealth, much less abstract 
ideas like ``economic growth'' and ``consumer surplus.'' They 
know a life of getting and spending cannot hope to fulfill 
one's dreams.
    Instead they dream of a career that pays an honest wage so 
they can live in a decent neighborhood. They dream of getting 
married and starting a family. And, ultimately, they dream of 
passing on this standard of living to their children--plus a 
little bit more. That is the American Dream I hear, according 
to the Arkansans that I know.
    The question for today is: Is our Nation helping Americans 
achieve this American Dream, or are we failing them?
    I have to say, I think in some important ways our Nation is 
failing our fellow citizens. The labyrinth of subsidies, 
regulations, and misguided priorities constructed here in 
Washington often does little to help a large majority of 
Americans who do not graduate from college, the ``Silent 
Majority'' who work with their hands and on their feet.
    Our Government does not offer these Americans much beyond 
occasionally moralizing about their supposed shortcomings: ``go 
to college,'' ``abandon your hometown,'' ``learn to code.''
    What they really need are more viable career paths that do 
not require expensive educations. There are many good-paying, 
honorable jobs for people without college degrees in this 
country. But how do we create even more of them? How do we 
prepare workers so they are ready for those jobs?
    There is another urgent context for today's hearing as 
well: our economic competition with China. For decades, 
Washington has pursued a policy of integration with China. The 
architects of this policy hoped naively that enriching the 
Chinese Communist Party would make it more pliable and less 
communist. Instead, it gave China the means to challenge 
America around the world--all while decimating the American 
heartland.
    If we want to remain the world's strongest economy, we need 
to marshal every citizen, every skill, every talent at our 
disposal. We will need to recover the vitality, productive 
abilities, and indeed the patriotism that contributed to 
America's resounding triumphs in the past century.
    If we build a more productive economy, it will serve not 
only our strategic interests as a Nation, but the interests of 
the American people, by helping them achieve the American 
Dream.
    I look forward to your thoughts and to my colleagues' 
questions.
    Senator Cortez Masto.

             OPENING STATEMENT OF SENATOR CATHERINE
                          CORTEZ MASTO

    Senator Cortez Masto. Thank you, Chairman Cotton, and 
welcome to all our witnesses today.
    I appreciate the Chairman suggesting a hearing to explore 
barriers to economic mobility in the United States. The Senate 
Banking Committee has jurisdiction over many of the most 
pressing issues facing Americans today--from housing, to 
lending, to transportation, and today we discuss how Congress 
can improve economic outcomes for children and families and 
entrepreneurs.
    We want our children to grow up and become financially 
self-reliant. We want the children of renters to be able to own 
their own homes if they wish. And we want children whose 
parents struggled to put food on the table to be able to afford 
a full pantry and even a few meals out every month.
    We want children who survived homelessness to grow up with 
an income adequate to not just pay the rent but save for their 
children's college education and their own retirement. We want 
workers retiring from one career to be able to open a small 
store and have it thrive.
    Yet those dreams--the American Dream--are unattainable for 
too many. Parents who lack affordable bank accounts end up with 
financial products that can lead to a debt trap. As they 
struggle with bank fees, they may see their car repossessed, 
resulting in getting fired from their job and getting evicted 
from their home.
    The average college senior graduates with more than $30,000 
in debt, and total student debt nationwide has topped $1.5 
trillion. And some college graduates cannot find jobs that pay 
enough to manage their crushing student loan debt. They delay 
starting a family, buying a home, and saving for retirement for 
a decade or more because of this.
    An entrepreneur buys a franchise business but finds the 
business never earns as much as she was promised. As she 
struggles to keep her store in the black, she does it all on 
her own. She cannot afford to hire employees and pay them a 
living wage. That is wrong.
    It is wrong that the ZIP Code where a child is born and 
grows up affects their future income and financial success more 
than the child's education, aptitude, or work ethic.
    It is wrong that a lack of affordable financial products 
prevents families from building up savings to respond to a 
broken arm or a broken car without a major financial crisis.
    It is wrong that corporations use noncompete clauses, union 
busting, and arbitration clauses to keep wages low and 
corporate profits high.
    And it is wrong that high housing costs, lack of affordable 
child care, and inadequate transit restrain economic mobility 
for struggling families and young adults.
    It is wrong that entrepreneurs who purchased a franchise--
many of them immigrants, retirees, and veterans--were misled by 
unfair contracts, deceptive financial information, and 
nondisparagement clauses.
    We need solutions. And we know many of them are already out 
there.
    In their written testimonies today, the witnesses have 
suggested significant investment in education, health, and 
other public services. They want to empower workers and 
franchise owners. They recommend tackling monopolies and 
corporate concentrations that drive out competition and result 
in lower wages for workers.
    We have seen how Government can protect homeowners, small 
business owners, and entrepreneurs from predatory and abusive 
practices and financial products.
    I thank all of the witnesses for being here today. I look 
forward to hearing the testimonies, working with all of you as 
we move forward. In fact, I hope that, as Mr. Cotton said, what 
we are focusing here on Congress is how we ensure that 
everybody has the opportunity to achieve that American Dream.
    So thank you.
    Senator Cotton. Thank you, Senator Cortez Masto.
    I would move to your opening statements at this point, but 
we are going to have a brief break in that order because 
Senator Cramer has to preside over the Senate in about 15 
minutes, and I want to give him a chance to speak. Then we will 
come back to you for your opening testimony. Presiding officer 
duty is called a ``duty'' because the junior Senators have to 
do it all the time, not the senior Senators. But some Senators 
like it because it is the one time that you get called 
``President'' around here.
    So, Senator Cramer.

           OPENING STATEMENT OF SENATOR KEVIN CRAMER

    Senator Cramer. I appreciate that, Mr. Chairman. It is also 
the one time that your chief of staff cannot get hold of you, 
so there are other benefits.
    Anyway, thank you for accommodating that, and thanks to all 
of the witnesses for being here. And thanks for this important 
topic. I just want to say a couple things up front, put 
something in the record, and then hope I can get back before it 
is over, but I have my doubts.
    Just so you know, I grew up in a home with a rural electric 
lineman daddy who actually quit high school after the 11th 
grade because he could make so much money being a rural 
electric lineman. Fortunately, today, through the IBEW and the 
rural electric cooperatives and others, they now get a little 
better training in advance of that.
    So those are my roots, and I come from a place in North 
Dakota where, frankly, an MBA is not nearly as valuable as a 
CDL. And we have an economy that really, I think, highlights 
some of what we hope to be able to talk about and maybe learn 
something about today.
    I am always drawn back to that great line of Steve Martin's 
in a movie where he said, ``It is easy to be a millionaire. 
First, get yourself a million bucks.'' Well, you know, that is 
not so easy. But the American Dream is alive and well, but we 
have two statistics in this country, two data points that are 
in conflict on a regular basis, and no more so than right now, 
and that is, we have a very low unemployment rate and we have a 
very low workforce participation rate. To me, that screams 
opportunity--if we just match all of our resources and assets 
and policies with an economy. And so I am looking forward to 
the testimony.
    I wanted to put one thing into the record, Mr. Chairman, 
that I will be highlighting. This is the slide right here. This 
is a slide--and I have four slides that correspond, but I want 
to highlight this one. This is a slide that I asked one of the 
companies in North Dakota who has 400 employees to give me, 
because when they told me this, I had a hard time believing it. 
As you can see, it demonstrates the five different degree 
levels, education levels, and the annualized earnings base, 
bonus, and overtime, of course, and it shows you how they 
correspond. And it is a bit upside down compared to what we 
might think.
    But you will notice, of course, that the post-high school 
certification student or graduate has the highest earning power 
in North Dakota at $143,000, more than the master's degree, 
more than the associate degree, more than the bachelor's 
degree. And I highlight that just to demonstrate that--I do 
believe the American Dream is alive and well, but we need to 
maybe emphasize a few things a little bit differently, whether 
it is in student loans, whether it is in education 
opportunities, perhaps as much as anything in our culture and 
how we talk around the kitchen table with our families. And I 
just hope--I am grateful for the opportunity to at least 
highlight one picture of the American Dream that is alive and 
well if, in fact, we can align our policies properly.
    And with that, I would just ask for unanimous consent to 
place the slides in the record, and then I look forward to 
everybody's testimony.

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    Senator Cotton. All those slides will be placed in the 
record, and they really do tell a remarkable story, that the 
highest earning potential for this company in North Dakota is 
not college degree, it is not even an advanced degree, but a 
high school degree with a certification for some of the high-
skilled labor that the North Dakota economy needs.
    Senator Cotton. Thank you, Senator Cramer, and enjoy 
presiding over the Senate and the fascinating speeches you will 
hear there.
    All right. Now we will go to the witness testimony.
    Mr. Cass.

 STATEMENT OF OREN M. CASS, SENIOR FELLOW, MANHATTAN INSTITUTE 
                      FOR POLICY RESEARCH

    Mr. Cass. Thank you, Chairman Cotton, Ranking Member Cortez 
Masto, and Members of the Committee, for having me here today.
    I want to start with where Senator Cotton started, which I 
think is exactly the right question when discussing the 
American Dream: What is it that Americans actually dream of? We 
tend to think
especially here in Washington, that it is escaping their
circumstances, attending a prestigious university, and perhaps 
doing a job like many of the ones here. But that is not, in 
fact, the case.
    In 2017, the Pew Research Center studied the question of 
how Americans define the American Dream and found that economic 
concerns rank low. By far, the components of life most often 
deemed essential were ``freedom of choice in how to live'' and 
``having a good family life.'' Next came ``retire comfortably'' 
and ``make valuable contributions to community.'' Last, and 
ranked essential by only one in nine Americans, was ``become 
wealthy.''
    Another poll conducted by Pew in 2014 adds further 
perspective: 92 percent of Americans said that ``financial 
stability'' was more important to them than ``moving up the 
income ladder.''
    Now, good economic outcomes obviously are a critical 
prerequisite to these priorities. Exercising freedom of choice 
in how to live is difficult without the capability to achieve 
self-sufficiency. Financial stability itself suggests a certain 
degree of labor market success. But, in general, the American 
people appear to have a much richer and more nuanced view of 
the determinants of their quality of life than do many of their 
leaders, who have tended to equate prosperity with growth, 
material living standards, and equality of opportunity on the 
economic ladder.
    American politics often starts from the presumption that 
our goal is ``equal opportunity'' defined as ``equality of life 
chances''--that is, where a child starts should have no bearing 
on where he ends up and that everyone should have an equal 
chance of arriving at any destination.
    The problem is that that is plainly impossible in a world 
in which individuals possess different innate characteristics 
and grow up in different environments.
    A more pragmatic vision of equal opportunity, more 
consistent with how Americans actually think about the American 
Dream, entails removing any public impediments that obstruct 
individuals from pursuing their goals. Unfortunately, we may 
have to accept that that will not get us as far as we would 
like.
    Consider the findings of the Brookings Institution's 
Richard Reeves, who used data from more than 5,000 Americans 
born mostly in the 1980s and 1990s to compare the income 
quintile in which they were born to that which they ended up in 
as adults. So, for instance, what share of those born in the 
bottom 20 percent of the distribution ultimately reached the 
top 20 percent?
    Family structure almost entirely dictated opportunity. For 
someone born in the bottom quintile to a married mother and 
raised by both parents, the odds of reaching the top quintile 
were higher than remaining in the bottom quintile. In fact, 
those children faced almost perfectly equal chances of ending 
in any of the five segments. Public impediments appeared to 
exert little influence.
    But for someone born in the bottom quintile to a never-
married mother, the odds of rising to the top quintile--5 
percent--were one-tenth that of remaining in the bottom 
quintile--50 percent. The private impediment was almost 
insurmountable.
    So in the face of dynamics like these, guaranteeing ``equal 
opportunity'' the way we so often speak about it would require 
implementation of public programs capable of counteracting all 
of life's disadvantages. And American policymakers have come to 
see
education as the panacea capable of accomplishing that and so 
have embarked upon the quixotic quest of ``college for all.'' 
This approach has been a mistake whose primary victims are 
precisely those it is intended to help--people who remain 
unlikely to emerge successfully from a high-school-to-college-
to-career pipeline yet are offered no meaningful alternative.
    The sad irony is that, in our attempt to deliver ``equal 
opportunity,'' we have, in fact, constructed a public 
impediment to it. I thought the definition that Senator Cortez 
Masto provided as she was describing the American Dream was 
very telling, and it was absolutely not one that would require 
a college degree to achieve in this country.
    If the aspirations of the American people--the real 
American Dream--required an equalization of life chances, then 
maybe we should continue tilting at that windmill. But, 
fortunately, they do not. Policymakers should focus instead on 
ensuring that every American has access to some minimum, 
absolute level of opportunity to achieve self-sufficiency, 
support a family, contribute to a community, and then provide 
to his children even greater opportunity. And they should be 
able to do that in safe, clean, connected communities free from 
crime and addiction.
    Historically, someone who earned the basic level of 
education widely attainable within society, worked full-time, 
and formed a stable family could reasonably expect to achieve 
those things. And he could achieve them either by setting off 
for a new city or staying right near home. And I would predict 
that if we made that our focus, building that kind of 
foundation under our economy, we would in the long run achieve 
much higher levels of economic mobility than we are achieving 
today.
    Now, as I alluded to, I think the way to start down this 
path is with dramatic reforms in education, shifting most of 
the money we spend subsidizing higher education for the people 
we expect to be our economy's winners toward other pathways 
that would more effectively bridge from high school to life as 
an adult and to careers that can achieve productive earnings 
perfectly sufficient to support a family and allow Americans to 
achieve the dream as they define it.
    Thank you very much.
    Senator Cotton. Dr. Levin.

STATEMENT OF YUVAL LEVIN, Ph.D., DIRECTOR OF SOCIAL, CULTURAL, 
 AND CONSTITUTIONAL STUDIES, AMERICAN ENTERPRISE INSTITUTE AND 
                        NATIONAL AFFAIRS

    Mr. Levin. Chairman Cotton, Ranking Member Cortez Masto, 
Members of the Committee, thank you very much for the 
opportunity to testify today.
    It is very encouraging to see this Committee take up the 
crucial question of economic mobility and seek to understand it 
from a variety of angles and perspectives.
    I am sure I do not have much to add to what my esteemed 
fellow witnesses have to offer this morning, so maybe I can use 
these brief opening remarks to stress a couple of general 
points that I think ought to inform a discussion like this.
    In my written testimony, I review some of the evidence 
regarding trends in economic mobility in the last few decades 
and find it discouraging in some key respects. The past few 
years have witnessed relatively strong economic growth and, 
with it, a modest and welcome uptick in various measures of 
mobility as well. But these have to be understood against a 
broader trend of fairly stagnant mobility.
    I then take up some of the causes of diminished economic 
mobility and the question of whether and how public policy 
could make a difference.
    Some barriers to mobility are likely to be very difficult 
for public policy to influence constructively, especially the 
decay of some key social institutions that are essential to 
flourishing and, therefore, also to rising living standards. 
But there are some obstacles that could be more open to product 
interventions, and given our time constraints, I want to 
quickly mention just one set of such obstacles here.
    Simply put, it involves the rising cost of living for 
working families. That may seem a strange subject on which to 
raise alarms since inflation has been remarkably low for more 
than three decades in America. But while that is true of 
general inflation, household costs have actually risen 
dramatically in three areas of particular importance to 
economic mobility. We might call these the ``three H's'': 
health care, housing, and higher education.
    These three areas are of enormous importance to American 
families who are striving to improve their living standards. 
Health care and housing are often essentially unavoidable 
expenses, while higher education is among the most effective 
means of securing a middle-class lifestyle for the rising 
generation. And yet in all three areas, we have seen prices run 
far ahead of value for decades.
    In all three areas, too, public policy has played a major 
role in that increase in costs by simultaneously restricting 
supply and subsidizing demand. That combination has predictable 
consequences: It increases prices and, therefore, costs.
    In health care, the supply restrictions have especially had 
to do with the regulation of health insurance in ways that have 
restricted options and competition and so have closed off 
potential avenues for lowering costs. The subsidization of 
demand, meanwhile, has consisted of the exceedingly generous 
tax subsidy for employer-provided insurance, the enormous 
growth of Medicaid, and new forms of subsidy in the individual 
market.
    In housing, we have seen local, State, and Federal policies 
interact in ways that in many places have restricted supply 
through tighter zoning while subsidizing demand through tax 
benefits, home loan subsidies, and various kinds of first-time-
buyer benefits. Obviously, there was a huge crash in this 
market a decade ago, but the basic pattern of Government 
intervention did not change all that much in the wake of that 
disaster.
    In higher education, the restriction of supply happens 
especially through the overly narrow accreditation process that 
limits our definition of higher education and so limits options 
for people seeking a better life. And the subsidization of 
demand has happened especially through student loans and 
assorted other tax benefits.
    Each of these policies is plausibly defensible in itself, 
of course. Some of them are much more than defensible. But the 
sum of all of this has been a lot of inflation in three areas 
that are crucial to the lives of vast swaths of our society who 
are trying to rise.
    A cost-of-living agenda that tried to counteract this 
tendency should have a lot of appeal across party lines. There 
are steps that could be taken on both the supply and the demand 
sides of each of these sectors of the economy, as I suggest in 
my written testimony.
    There are many other obstacles to think about here, of 
course, and my testimony gets at some of those. But I want to 
just close by commending the Committee for taking up this very 
important subject in the way that it is doing so. Mobility and 
opportunity matters enormously. It has to be a priority for our 
economic policy, and Americans have often understood our 
National Government in particular to be rightly devoted to that 
important cause.
    In a message to Congress on the Fourth of July of 1861, 
amid the painful early setbacks of the Civil War, Abraham 
Lincoln tried to articulate what made that struggle worthwhile. 
And when it came to describing what we valued in our 
Government, Lincoln said this:

        On the side of the Union it is a struggle for maintaining in 
        the world that form and substance of Government whose leading 
        object is to elevate the condition of men--to lift artificial 
        weights from all shoulders, to clear the paths of laudable 
        pursuit for all, to afford all an unfettered start and a fair 
        chance, in the race of life.

    America has often been gloriously successful in advancing 
that cause, but it has been noticeably less so in recent 
decades. We have ignored that fact for too long. And I commend 
this Subcommittee for turning its attention to this challenge, 
and thank you for the opportunity of letting me testify.
    Senator Cotton. Thank you.
    Mr. Ponnuru.

    STATEMENT OF RAMESH PONNURU, VISITING FELLOW, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Ponnuru. Chairman Cotton, Ranking Member Cortez Masto, 
and distinguished Members of the Committee, thank you for this 
opportunity to testify on this important topic so central to 
America's historic self-conception.
    I wish to address absolute economic mobility, and I have 
four main points to make about it.
    The first is that our record for most of the period since 
the turn of the millennium has been poor. Median family income 
adjusted for inflation rose through the 1970s, 1980s, and 
1990s, but then the numbers turned much less reassuring. Median 
family income of 2014 was actually lower in inflation-adjusted 
terms than it was in 2000. Over the last few years, the trends 
have been positive and could become better still if the 
expansion continues, but we have no reason for complacency.
    Second, effective countercyclical policy is crucial for 
upward mobility. Our poor performance over the last two decades 
had a lot to do with the sharp recession that began in December 
2007 and the agonizingly slow recovery from it. Median family 
income dropped by more than 7 percent from 2007 to 2011, the 
sharpest decline since we started tracking that data. And it 
did not recover completely for 8 years. Stronger anti-recession 
policies are, therefore, key to increasing upward mobility.
    The Federal Reserve has primary responsibility for 
countercyclical policy and deserves credit for several steps 
that it took in response to the Great Recession. But there are 
some reasons for worry. Whether its current regime is capable 
of handling the next recession, particularly when it relies on 
lowering interest rates that are already extremely low, is a 
serious question. Its record of consistently undershooting its 
own inflation target over the last decade also gives some 
reasons for concern. The Federal Reserve needs to seriously 
consider whether its current approach biases it toward 
excessively tight monetary policy that makes recessions more 
severe and recoveries weaker.
    Third, mobility requires higher economic growth. Even 
before the Great Recession, economic growth was slower than it 
had been during past expansions, and it was the combination of 
the sharp recession and this slow growth that made the overall 
economic record of 2000 to 2014 so frustrating for most 
Americans. Reforms that would raise the rate of economic growth 
over the long run should be a high priority. In my written 
testimony, I mention some areas that hold promise, including 
changes to our tax laws with respect to investment and changes 
to our immigration policies.
    Fourth, and finally, geographic mobility enables economic 
mobility. A common way that Americans have historically 
bettered their lot is by picking up and moving to places with 
more opportunities for them. But they have been doing a lot 
less of that in recent years. Interstate migration rates have 
been falling since 1980, and that trend has reduced wage 
growth, productivity, and employment rates. At the same time it 
has increased the length of spells of unemployment, and it has 
increased the variation in income among regions of the country.
    Public policy has likely played a role in these changes. 
The restrictive zoning laws that Dr. Levin mentioned in many 
jurisdictions, especially ones with rapid economic growth, have 
made housing expensive and thus reduced the ability of 
Americans in slower-growing regions to move there.
    The expansion of occupational licensure by State 
governments also works against mobility. Relocating in a new 
State may require the acquisition of a new license in order to 
work, and that can take time and money.
    The Federal Government may be able to exert a positive or 
at least a counteracting influence in some of these areas. But 
even national attention to the mobility problem may spur 
beneficial steps.
    As this brief review suggests, increasing mobility is a 
multifaceted challenge. But if the work is difficult, the 
potential rewards are substantial and worth the seeking.
    My thanks again to the Committee for the invitation to 
speak.
    Senator Cotton. Thank you.
    Ms. Lee.

         STATEMENT OF THEA M. LEE, PRESIDENT, ECONOMIC
                        POLICY INSTITUTE

    Ms. Lee. Thank you, Chairman Cotton, Ranking Member Cortez 
Masto, Members of the Subcommittee, for the opportunity to 
speak to you today and for organizing this hearing on this 
important topic of economic mobility and the American Dream.
    What we are talking about here today is how policy choices 
over recent decades have eroded access to the American Dream 
for too many Americans and also how we can use policy to 
restore opportunity and mobility for working people.
    I think we all treasure the concept of the American Dream, 
the idea of continuous upward progress generation after 
generation. And the key message that I want to bring today is 
that the lack of economic opportunity for low-wage and middle-
class American families is not an accident of history, not a 
nameless economic force against which we find ourselves 
powerless. Rather, the highly unequal distribution of resources 
and opportunities within our society is a direct result of 
policy choices that, together, have had the effect of weakening 
the power of workers to defend their rights in the workplace 
and in the political arena, thereby tilting the playing field 
in favor of moneyed and corporate interests.
    Moreover--and this is a key point--historic and ongoing 
discrimination in many forms and in many areas--including 
education, housing, and the workplace--has created obstacles to 
economic advancement for working women, workers of color, LGBTQ 
workers, and their families.
    So while the subject of this hearing is economic policy, we 
are really here to discuss something much more fundamental: the 
idea of America as a Nation, who we are, who we want to be, and 
whether we continue to strive to build a vibrant dynamic 
society filled with opportunity for all or throw in the towel.
    Inequality and the structural impediments to upward 
mobility are not just unfair--they are also economically 
inefficient. They represent wasted talent, potential output, 
and intellectual contributions, and that should create the 
urgency that we face today and that I sense from my fellow 
witnesses. I appreciate the opportunity to be here with others.
    So we made a distinction between mobility versus 
opportunity, but we see it in the context of growing inequality 
and wage stagnation, as some of my fellow witnesses have 
mentioned. And a huge amount of mobility would be required to 
counteract the unprecedented high and growing levels of 
outright income and wealth inequality we are now experiencing 
in the United States and we have been experiencing for about 
four decades. That mobility just is not there.
    So the challenge is, in the context of the growth of 
inequality and stagnation of wages for the bottom and middle-
class workers, we need to create even stronger pathways, and we 
have not seen them in past decades. And those challenges that 
workers face are exacerbated by some of the bad policy choices 
we have made and also by some of the employer trends toward 
disempowering workers from their very first day on the job. 
These contracts that require as a condition of employment that 
workers sign away their right to class action or submit to 
forced arbitration or noncompete agreements; also employee 
misclassification, where workers are denied their right to be 
treated as employees and instead are treated as independent 
contractors; and also the attacks on unions.
    But given all these economic trends, we see lobbying 
efforts by profitable companies to renege on their obligations 
as employers to their employees and to use the excuse of the 
gig economy and the internet platforms trying to take power 
away from workers.
    And as Mr. Miller's testimony will show, even for small 
businesses and franchise owners, the concentration of wealth 
and political power creates inefficient and often unfair 
outcomes.
    We know that the most important pathway to the middle class 
is a healthy labor market that provides sufficient employment 
opportunities with good pay and benefits that are equally 
accessible to all people. Government, individuals, and 
institutions each play a role in creating pathways to the 
middle class through the labor market.
    We see the American people are working harder than ever, 
sometimes at two or three jobs, with more education than 
previous generations, and in an economy that is wealthier and 
more productive than in the past. And yet they face these 
challenges and the policies that have eroded their barganing 
power.
    So the key policy recommendations that we would put forward 
as addressing some of these concerns include raising the 
minimum wage, reforming labor law to ensure that workers have 
the right to form unions and bargain collectively, making 
sure--and I agree with Mr. Ponnuru on this--that Federal 
Reserve policy is fairly balancing the risks to inflation and 
trying to achieve full employment, and then making sure that 
Government is using fiscal policy not just to address economic 
downturns but also to target Government spending toward 
addressing structural needs, like infrastructure investment and 
employment programs targeted at poorer communities; renewing 
our attention to the public education system; and last, but not 
least, address longstanding and ongoing racial inequities in 
housing, employment, and wealth.
    So, with that, I look forward to your questions, and I 
thank you again for the opportunity to be here today.
    Senator Cotton. Thank you, Ms. Lee.
    Mr. Miller.

 STATEMENT OF KEITH R. MILLER, PRINCIPAL, FRANCHISEE ADVOCACY 
                           CONSULTING

    Mr. Miller. Chairman Cotton, Ranking Member Cortez Masto, 
and Members of the Committee, thank you for your time today.
    Today I will speak specifically about the franchise 
industry. The franchise business model itself is a brilliant 
model and one I support. However, because of little 
transparency and oversight, it is also an industry with far too 
many examples of predatory franchise companies that take 
advantage of prospective entrepreneurs.
    Most believe this large sector is heavily regulated. The 
FTC does regulate pre-sale disclosure through the Franchise 
Rule and requires prospective franchisees receive a Franchise 
Disclosure Document (FDD). But I ask, how many of you actually 
knew that the FTC does not even collect this disclosure, much 
less review it.
    Franchise Grade looked at 1,900 franchise systems, using 
disclosure information from a 5-year period, and noted that 
while 169,000 units had opened, almost 139,000 units had 
closed, for a net gain of less than 30,000. If this high level 
of failure were happening in the private market, it would be 
bad enough. But the SBA loan guarantee programs are enabling 
this failure and fraud. In 2013, the GAO reported that during 
the previous 10 years, the SBA made guaranteed payments on 
approximately 28 percent of 7(a) franchise loans.
    Amin Abdelkarim immigrated from Egypt to Dallas and worked 
two jobs at DFW to save in search of his American Dream. He 
purchased a Dickey's Barbecue franchise. He was given a 
disclosure document and a spreadsheet showing estimated startup 
costs. The estimates were grossly incorrect, and his startup 
capital was spent getting open. He opened his business in 
August of 2018, and he contacted me 1 month later. He was 
already broke and could not make the payment to a 7(a) loan. 
His message to me was: ``In a few weeks, I will find myself, my 
disabled wife, and my 89-year-old mother-in-law in the street, 
with no house, no car, and no money.''
    Here is the problem in the industry: Far too many profit 
from the sale of a franchise, yet far too few, if any, are held 
accountable for the success of the franchise purchaser.
    Mark Shor retired from his IT job and bought an Experimac 
franchise in Henderson, Nevada. The franchisor directed him to 
a specific loan broker that provided him with the projection 
spreadsheet that showed revenue of nearly $700,000 in year one 
and $995,400 in year two. Both, if you look at today's 
disclosure document, are well above the numbers in that. He is 
now surviving by dipping monthly into his retirement to pay his 
SBA loan.
    Michael Hataway is a Complete Nutrition franchisee in Reno. 
Since the franchisor has pulled all their support, wrongly sent 
out an email to his customers that his location has been sold, 
and aggressively marketed online sales, his sales have crashed. 
His finances are in shambles, and he is heading toward default.
    Jamie Stephens is another Complete Nutrition franchisee 
with stores in North Dakota and Minnesota. He has SBA loans 
totaling $1.5 million and has the same issues with his 
franchisor. But do not worry about the franchisor. They still 
kept their $49,500 franchise fee.
    Finally, Huntington Learning Centers. The Inspector General 
at SBA found that 7(a) loans were made with inflated revenue 
projections. Bob Spada from Connecticut was one such 
franchisee. He was again directed to a specific loan consultant 
to work with and applied for a loan. He received a $300,000 
loan on a $500,000 first-year projection. Later he found out 
that actual for an average center in the first year was 
$249,000. As he dug for the reasons for this high projection, 
he discovered the devious means. To qualify for that $300,000 
loan, he would need about a $75,000 profit in that first year 
to meet the required debt service coverage ratio. To reach that 
profit level, and reverse engineering the numbers, you come up 
with $500,000 in revenue. Bob was forced into bankruptcy, total 
losses of his mortgage, equity loan, and credit cards more than 
doubled the SBA loan. So who accounts for those losses to the 
economy?
    I appreciate the Banking Committee's consideration of ways 
to curb some of these abuses and have provided some corrective 
steps to clean up the industry. I appreciate Ranking Member 
Cortez Masto specifically on her commitment for SBA 
transparency lending.
    In summary, the franchise business model can be, and should 
be, a model for economic mobility and realizing the American 
Dream. However, leaving the industry to police itself is not 
working, and destroying lives while some profit. There is no 
reason for this, and access to SBA money should be the model of 
transparency for the industry, one that ensures the best 
underwriting procedures to those in search of the American 
Dream.
    Thank you.
    Senator Cotton. Thank you, Mr. Miller.
    I want to begin the questions by exploring the relationship 
between wages and employment on the one hand and immigration on 
the other hand. The full Committee had Federal Reserve Chairman 
Jay Powell testify last week. One thing he noted is what he 
called ``the widening gap in the economic status and prospects 
between those with a college degree and those without one.'' 
One example he used in particular is the percent of American 
men who had a job in 1967 versus 2017 by education level.
    In 1967, men with a college degree were 95 percent 
employed; in 2017, 90 percent employed. So only a 5-percent 
decline.
    High school education, however, went from 95 percent 
employed--the same as those with college degrees--down to 80 
percent. And for those without high school, in 1967 90 percent 
employed, all the way down to only 70 percent employed.
    Now, I have a chart behind me that indicates immigration 
population and the share of immigrants over time. I would note, 
of course, the vast majority of immigrants throughout our 
history have been unskilled or low-skilled workers; today only 
1 in 14 persons are admitted to this country and given a green 
card because of their job skills, education, and so forth. That 
is to say nothing of the millions of temporary non-immigrant 
workers we have in our economy and to say nothing of the 
million of illegal immigrant workers we have either.
    Mr. Ponnuru, when you look at this chart and you see the 
decline in immigration levels starting roughly around the late 
1930s, and due in part to the Depression, obviously, due in 
part to the 1924 immigration law, continuing into the 1970s, a 
period after World War II of great prosperity, and then you see 
the increases, rapid increases, in fact, starting in the 1970s, 
a result in part of the 1965 law, what relationship do you see 
on the one hand between wage declines for working-class 
Americans, job prospects for working-class Americans, and on 
the other hand large increases in unskilled and low-skilled 
immigration?
    Could you turn your----
    Mr. Ponnuru. Thank you. Well, I think that the level of 
immigration that we have had and the basis on which we have 
admitted the immigrants have not been well geared toward 
increasing American prosperity, and particularly at the low end 
of the labor market. There is some evidence to suggest that a 
large influx of low-wage labor is going to have a depressing 
effect at that end of the market; with a shift in the basis of 
immigration toward the recruitment of people who we need for 
higher-skilled tasks would not have that kind of effect.
    And so there are, I think, two pathways by which a 
different immigration policy would help the American economy. 
One is by increasing our overall productivity levels and 
changing our average skill level and the other is by relieving 
some of that pressure at the low end of the labor market.
    Senator Cotton. So I have introduced legislation that would 
revamp our legal immigration system, the way we grant green 
cards to foreign nationals in this country, that would shift it 
substantially away from extended family reunification or the 
diversity lottery and toward high-skilled workers who already 
have job offers that pay more than the local economy average, 
that speak English well, that have advanced degrees and so on 
and so forth. What kind of economic impact do you think we 
would see both overall and kind of the abstract terms? What 
would that mean for Americans with high school degrees or with 
less than high school degrees?
    Mr. Ponnuru. I think it would have a positive effect. It 
would be good for the GDP numbers, and it would also make it 
possible for people at the lower rungs of the economic ladder 
to make upward progress.
    Senator Cotton. OK. Thank you.
    I will now recognize Senator Cortez Masto. I think this is 
a theme to which I will return later, though.
    Senator Cortez Masto. Thank you.
    Mr. Miller, I would like to explore with you the 
franchisor/franchisee arrangement. Can you talk a little bit 
about the FDDs that are utilized? My understanding is they are 
notoriously complicated and imbalanced legal documents. Talk to 
me about how we can improve the FDDs and related contracts and 
prevent some of the mistreatment that you just talked about 
with respect to the franchise owners.
    Mr. Miller. Well, in one part, the document is so huge, the 
disclosure document. It is 500 pages to 1,000 pages. So you 
have got to remember a lot of what the industry advertises to 
for those seeking the American Dream of, you know, ``be your 
own boss, no experience necessary'' proven business models. So 
you are often reaching out to people who are not, you know, 
having MBAs, and yet you are giving them this document that is 
500 to 1,000 pages. So trying to find the nuggets of 
information in there is very difficult.
    You also have the financial performance part of that 
document, which is not a required piece. A franchisor can just 
say, ``We choose not to put anything in the financial 
representation part.'' That can be left out.
    Senator Cortez Masto. And explain that, if you would, a 
little bit more. For somebody who wants to start a business, 
they are going to have to take a loan out and start as a 
franchisee. But wouldn't it be helpful for them to have from 
the franchise owner, to receive in that FDD actual revenue, 
store closing information that would help them as well as the 
SBA that is going to be giving them the loan to see how 
successful this franchise company could be?
    Mr. Miller. Well, there are two parts to that. First of 
all, obviously, if it is a franchise business model that is 
supposed to be proven, there is history and data. It is not 
like I am going up and opening Keith's Subs tomorrow and have 
no history. So there is history there. And, again, this data is 
not required.
    The SBA requires you to come up with first-year 
projections. Well, first-year projections have to start with 
some kind of revenue projection. Every franchise company knows 
what sales are happening in each of their outlets. That is how 
they collect royalties. So why are we not requiring, when 
people are accessing Government/taxpayer-guaranteed money this 
first-year revenue number that everybody has? And what makes it 
worse, the second step is if you notice in my examples almost 
every one of these people were assigned to a hand-picked 
specific loan broker or consultant that the franchisor gave 
them. These people are giving revenue numbers outside of the 
disclosure document and not violating any disclosure law by 
doing that.
    I have copies of spreadsheets that people have gotten from 
these loan brokers. This is the information that is going on 
the SBA loan, and this is how they are qualifying. These loan 
brokers, as I said, have actually figured out how to reverse 
engineer, if you are taking out X amount of a loan, how much 
profit you have to show to get that loan, and then figure out 
how much revenue they have to show to get that.
    Senator Cortez Masto. And the franchisee does not see that 
information because that is shared between the franchisor and 
the broker?
    Mr. Miller. Well, no, the broker will probably show it to 
the franchisee, but a third step, I guess, in there is--and the 
SBA actually presented this at a conference--that franchisors, 
to help loans get approved, can talk to the bank, but before 
they do so, sign a confidentiality agreement so they do not 
violate any of the disclosure laws. I cannot think of anything 
in the world where the borrower who is signing on the dotted 
line does not know every bit of data that went into that 
decision.
    Senator Cortez Masto. And then the financial disclosure 
documents or the franchise disclosure documents, they also 
contain nondisparagement clauses. Explain how that impacts the 
actual individual owner.
    Mr. Miller. So people always talk about doing due diligence 
in the industry before they buy a franchise. Well, one of those 
parts of the due diligence is calling existing owners. Those 
franchise agreements have that nondisparagement clause in it. I 
can tell you, if I am in one of my stores and somebody calls me 
and starts asking questions, and let us say I have a negative 
experience, am I going to really say so? I do not know who is 
on the other end of the line. And while that may not itself 
cause the termination, it is not hard to be more difficult on a 
franchisee.
    The second part of the due diligence would be following up 
with past franchise owners who have gotten out of the system, 
and you have two problems there. Number one, the list in the 
disclosure document shows their store location. Well, they are 
ex-franchisees. They are not at that store location anymore, so 
you do not have access to reach them, number one. And, number 
two, if they have had a bad experience and been terminated, 
there is usually nondisclosure clauses as part of that and, 
therefore, they cannot comment or say anything.
    Senator Cortez Masto. Thank you.
    Senator Cotton. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman. Thank you all for 
being here.
    This is kind of personal to me. About a month ago, I was 
down in northern Florida, coming back from Sea Island, and when 
I go down to Jacksonville--that is where I grew up. I went to 
the trailer park I grew up in. The reason I go there is to try 
and find some kid that is like me: 19-years old, living in a 
trailer park, not going to high school, trying to figure out a 
way to get out of that circumstance; six brothers--five 
brothers and sisters, three of which never graduated high 
school; two got their GEDs; two of us went on to get a college 
degree. I did after attending two technical schools and three 
other schools and getting my degree when I was 36-years old.
    I did that in an environment in the 1980s, beginning in the 
1980s, because we actually had optimism, and we took it on 
ourselves to get the degrees, get the additional education, and 
then move up. So I go to that trailer park trying to find a 17-
year-old or 18-year-old to say, ``I did it. You can, too.'' So 
what I am really interested in are the policies that are going 
to make sure that those teenagers coming up today have the same 
opportunities that we do.
    And I will as a footnote, for my five brothers and sisters, 
the two that went to get their GED, the one that never 
graduated high school, they are all living happy, stable lives.
    Mr. Cass, you mentioned in some of the research from, I 
think it was, Pew that we get so obsessed with mobility, but it 
sounds like to me at least in one of those reports there was 
more of a focus on stability. Can you tell me a little bit more 
about that?
    Mr. Cass. Yeah, thank you for that question and for that 
background, which I think is actually really illustrative of 
the theme that I want to emphasize. When most Americans--and, 
of course, we cannot speak of all Americans, but, generally 
speaking, when Americans think about their own goals and dreams 
for themselves, their children, it is those things. It is to 
have a stable life, to be able to support themselves, to have a 
good family, and for some people, particularly who have strong 
academic aptitude, that college education makes tremendous 
sense as part of that.
    The problem is there are a lot of people for whom college 
is unlikely to be the best pathway to that, and when by default 
we say for everybody, including the children who might be 
growing up in a trailer park, even in a very wealthy community, 
there are plenty of kids who are not going to be very 
successful in college. We know that from the data.
    Senator Tillis. I actually want to tap into something else, 
because even upward mobility with respect to education--I think 
of that slide that talked about a business in South Dakota, 
Senator Cramer's example, is a good one, where you make more 
money with a CDL than you make with an MBA. That may not be 
true over the course of time, but it is true right now given 
the economic dynamics in South Dakota.
    I guess I am trying to figure out how to--one of the things 
we need to do, number one, does anybody on the panel think that 
bigger Government and smaller corporations are the solution to 
this problem? Ms. Lee?
    Ms. Lee. Well, I think there is certainly a role for a 
strong Government that is focused on fairness and equality. Not 
so much smaller corporations, but I think when we do not 
address concentration of market power, we give too much power, 
inordinate power to corporations, and sometimes they use that 
in their own interests and against that of working people.
    Senator Tillis. I for one believe that we came out--
fortunately, I was not 18 in 1968. I was 18 in 1978. And it is 
actually when our country took a very different turn in terms 
of the relationship of Government to the private sector, so I 
think we need to be very careful to think a big-gov solution on 
tracking people and education or controlling the size of 
corporations or getting them to a point where they need to be 
broken up I think are absolutely at odds with what we are 
trying to accomplish with this hearing and for opportunities 
for people who have my same circumstances, and as Mr. Cass 
rightly pointed out, even people in high-net-worth households.
    So I would just say that I do believe that we need to find 
more opportunities, that Government needs to play a role. But 
what I absolutely reject is--I will give you this last story. 
It is somebody I spoke with yesterday, someone who immigrated 
from India in the 1970s because he concluded he could not be a 
doctor in that country because he was not of the right caste 
and he did not have the right connections and it is a big 
government in India. So he decided to come to the United States 
where he could study medicine and become a doctor, and he did. 
That is another realization of an American Dream.
    So I think as we start looking and crafting solutions for 
how we actually continue to have that opportunity for 
stability, opportunity for mobility, count me in on anything 
that gets Government out of the way but inspires people to 
realize the same dream I did.
    Thank you, Mr. Cotton, Senator Cotton, Chairman Cotton.
    Senator Cotton. Senator Smith.
    Senator Smith. Thank you, Chair Cotton, and thank you 
Ranking Member Cortez Masto. And thanks to all of you for being 
here.
    Ms. Lee, you say in your testimony that the most important 
path to the middle class is a healthy labor market that 
provides employment opportunities with good pay and benefits 
equally available to all. Could you talk a little bit about how 
we ought to think about the trade negotiations that we are 
currently looking hard at, especially USMCA, and how decisions 
around USMCA can contribute or not to that healthy labor market 
that creates opportunities for everyone?
    Ms. Lee. Thank you so much, Senator Smith, for the 
question. The healthy labor market has so many components to 
it. One is the Federal Reserve, but the other is how the United 
States engages in the global economy and what are the set of 
rules that we put in place that are balancing the interests of 
working people, the environment, consumers, and businesses. 
Certainly, the USMCA negotiations, the renegotiation of NAFTA, 
has addressed some of those issues around strengthening the 
worker rights provisions in NAFTA and strengthening the rule of 
origin. And it has not addressed other issues around the price 
of pharmaceutical products and some of the environmental 
protections.
    But it is part of this ongoing conversation that we are 
having about how do we engage in the global economy. What we 
have not done in the past is put American workers and 
manufacturing and communities at the center of our trade 
policy. We have been too focused on corporate profits and 
outsourcing opportunities and not enough on a healthy domestic 
manufacturing sector and all the kinds of supports that 
manufacturing needs, in terms of tax treatment, training 
opportunities, and infrastructure. We have had failures 
domestically as well as in trade policy. If the United States 
wants to be a global leader in trade in 2019 and 2020 and 
beyond, we cannot do that by cheapskating infrastructure, 
skills, and educational opportunities. We need to have basic 
rules in place that are encouraging exports and domestic 
production and not outsourcing.
    Senator Smith. Thank you very much. So, really, you are 
saying that in our overall goal of having a healthy labor 
market in the United States, which is going to create the kind 
of mobility and also shared opportunity, that we can accomplish 
that with good, strong trade deals but that put American 
workers at the--you know, and that strong labor market not as 
an afterthought but as a forethought in the way that we 
negotiate these deals.
    Ms. Lee. Exactly. I think thoughtful trade policies that 
put workers, American manufacturing, and domestic producers at 
the center are an essential, but not the only, part of a 
healthy labor market.
    Senator Smith. Thank you.
    Now, this is such an interesting topic. I want to go to 
another issue. You all have recently done some looking at what 
is going on with teachers and teacher shortages. This is 
something--just the other day I heard from Minnesota's 
superintendents who are describing at this time of the year 
they are looking to fill jobs in teaching professions, and this 
is the case across the board, rural areas, small towns, and the 
big cities. They are barely getting a one-to-one application 
pool for these open positions, and so it is a significant issue 
across all areas. And so I am very concerned about this.
    Could you talk a little bit in the short time that I have 
about what you see contributing to this and what we ought to be 
doing to think about this as we talk about how important 
education is as a component of mobility and opportunity?
    Ms. Lee. Yes, thank you so much. What the Economic Policy 
Institute research has shown is that there is a real wage gap 
between teachers and people with comparable education 
experience in the private sector, around 17 percent on a 
national basis. It is much higher in certain States. Over time, 
States have been undercutting teacher pay, and then they are 
concerned when there is a teacher shortage, and they cannot 
find the teachers they need. These are people that we are 
entrusting with our children's education. I think we have all 
agreed that this is an essential part of economic mobility and 
opportunity. If we want to attract the very best people into 
the teaching profession, we need to make sure we are paying 
them at least as much as we pay people with comparable 
educational backgrounds in other sectors. This will take a 
national commitment to addressing the shortfall in teacher pay, 
and that will go a long way.
    Also, we need to give teachers the support they need at 
school in other areas, too. We need to invest in a safe and 
healthy school environment with adequate support staff around 
social services and so on----
    Senator Smith. Mental health.
    Ms. Lee. Mental health, absolutely, in schools. Thank you.
    Senator Smith. Thank you very much.
    Thank you, Mr. Chair.
    Senator Cotton. Senator Sasse.
    Senator Sasse. Thank you, Mr. Chairman and Ranking Member, 
for holding this hearing. I think this is one of the most 
important topics that we do not consider nearly enough around 
here. And just to underscore one of the really important things 
that has been said already, Dr. Levin, your point about median 
household experience at a consumption level with inflation and, 
in particular, health care, higher education, and housing, and 
the point you made about restricted supply and subsidized 
demand inevitably producing inflation, which is unsustainable 
and unjustifiable in those sectors, and all sort of money 
equality where the consumer is not actually empowered in that 
decisionmaking equation. So I think that alone makes this 
hearing worth having, Mr. Chairman.
    I would love to hear a few of you debate the future of the 
median worker experience over the next decade, if you would. In 
my neighboring State of Wyoming--we do not have exactly 
vacation destinations that have entire communities that look 
like Jackson Hole. But in Wyoming, there is now a shorthand 
that a lot of people live in the broader county around Jackson 
Hole, in Jackson proper, where they say that almost everybody 
who lives in Jackson or who visits Jackson is either a three-
house or a three-income person. You have got the people who 
live in Jackson as one of their two or three or four housing 
destinations in life, or you have people in the uberization 
economy, to put it broadly, that are cobbling together wages 
from a whole bunch of different jobs. Absent big debates right 
here about policy changes--and those are important debates that 
flow from this conversation, but I would love to hear you all 
speculate on what do you think the median worker experience is, 
duration at a job, combination of different income sources, 10 
years from today. Mr. Cass, can we start with you?
    Mr. Cass. The median worker experience is certainly a 
single full-time job.
    Senator Sasse. In 2030?
    Mr. Cass. Yes. I mean, it is--the share that is working 
multiple jobs is so low now that to reach a majority by 2030 
would be extraordinary. And the same goes with respect to the 
gig economy where people who are genuinely using that as their 
primary income as opposed to a supplement or a sort of 
flexibility is extraordinarily low. So I do not see that sort 
of shift reaching the median as quickly as 2030. I think all of 
the trend lines absent policy change point to an ever greater 
divide in our labor market between a higher end that consists 
of primarily college-educated people earning higher incomes in 
single typical jobs and everyone else who has not been given 
the opportunity to develop the skills to work in that kind of 
job and that is more likely to find less stable, lower-paying 
employment.
    Senator Sasse. Dr. Levin, let us just go down the table.
    Mr. Levin. Well, thanks for the question. I think it is a 
very important question to raise, and it points to a pattern 
that I would describe as a kind of bifurcated concentration 
where we have in a lot of areas in American life, and not just 
in terms of income but in a lot of the ways our cultures lives 
now, too, we have concentration at the top and at the bottom, 
and the median just matters less. It describes less than we 
would imagine. There are fewer people near the median than 
there might have been in the America of the middle of the 20th 
century.
    I do think that it is easy to overstate the transformation 
and the direction of the gig economy, which at least for now is 
not really happening in the economic data just yet. It is easy 
to imagine that could happen, that could become transformative, 
but I do agree that it is likely that in 20 years the median 
worker is still a full-time employed worker. But, again, 
because the median matters less, I think we have to think about 
how to make opportunities available to people for whom the way 
to be in the upper concentration as opposed to the lower now is 
basically now a college degree. And there have to be more 
options than that because a college degree is not and cannot be 
the only way to move up in American society.
    And I think the Federal Government has a lot of say over 
what other options exist through the kind of power that it 
exercises over the accreditation of higher education, informal 
power through student loans and the rest of it, but enormous 
power. And we have to make it a priority to open up more 
options for people after high school and to think of the step 
after high school as the first step into adult life rather than 
thinking of college as just 13th grade and that is what you do 
when you graduate. That is not what most people do when they 
graduate. It does not need to be. And there are ways to give 
people other opportunities, other ways of moving forward, that 
right now, frankly, Federal policy is standing in the way of in 
a lot of ways.
    Senator Sasse. Mr. Ponnuru?
    Mr. Ponnuru. So I agree with the things that have been said 
so far. In terms of the percentage of American workers with 
multiple jobs, the latest number is that it is about 5 percent. 
It has moved in a very narrow range. It is actually a little 
bit down from where it was 25 years ago. So I think that the 
median worker is going to be somebody with one full-time job.
    I think one interesting question which is policy dependent 
is going to be: To what extent is that worker dependent on his 
job for nonwage benefits? What percentage of his compensation 
will be wages and what percentage will be benefits? I think 
that the Government plays a big role in affecting that, and not 
always a positive one.
    Senator Sasse. Mr. Chairman, could I ask for one extra 
minute so Ms. Lee can have a shot at this, too?
    Senator Cotton. By all means.
    Senator Sasse. Thank you.
    Ms. Lee. Thank you, Senator Sasse, for the question. I 
think it is an excellent question, and I would say it depends 
on the path we take and that you take as a legislative body, 
that if we continue on our current path, we could end up with 
more bifurcation between the three-house or the three-job 
people, and that kind of polarization in the labor market where 
you have a small number of very, very wealthy people and a 
large number of people who cannot afford sometimes to get to 
work or child care or health care, and that is something which 
I think should trouble us.
    So the questions that we have, I think, in terms of policy 
choices are whether as labor markets evolve, as technology 
changes, whether we give employers more and more power to 
undermine workers' bargaining power through forced arbitration, 
noncompete, employee misclassification, or whether we make sure 
that workers can really exercise their voice at work, their 
rights that we have, symmetry of information and disclosure, 
the kinds of issues that Mr. Miller raised.
    So I think those are really important decision points that 
you all have to make as to where we end up 10 years from now.
    Senator Cotton. We will go to the second round of 
questioning starting with Senator Cortez Masto.
    Senator Cortez Masto. Thank you.
    Let me follow up on that, Ms. Lee, because I think this is 
an important topic. So I come from Nevada. It is a right-to-
work State, but we have strong organized labor. In fact, we 
have in Nevada one of the smallest gender pay gaps in the 
country. There is still a group, but it is smaller. And it is 
partly because of our strong union presence.
    I saw a study. According to the Pew Charitable Trust, women 
in unions make 88 percent of what men earn compared with the 81 
percent that women make outside unions.
    So, in addition to shrinking that pay gap, I guess my 
question to you is: How do unions improve the financial status 
of low-wage and middle-class families and give that worker 
power back? What are the benefits that we see? Because too 
often I see our unions are just being attacked or denigrated, 
and really what they are doing is fighting for those middle-
class and working families.
    Ms. Lee. Thank you so much for the question, Senator Cortez 
Masto. Unions do close the race and gender pay gap, and partly 
it is because they make sure that workers are treated equally. 
There is a certain amount of fairness at the workplace that is 
statistically proven in union workplaces. And unions actually 
help non-union workers as well as union workers. It is an 
interesting fact. In States with higher union density, the 
wages for non-union workers are also higher because employers 
are operating in that competitive environment.
    But the value of a union, to individual workers and 
employers, and to the economy, is that it provides a voice and 
a channel for workers, a democratic voice for workers, and it 
provides countervailing power. So if we think about the 
evolution of the U.S. economy over the last 20 or 30 years 
where there is more and more wealth amassed in a small number 
of individuals, and corporations are getting bigger and more 
powerful, who stands up for working people? A union is the 
countervailing power and the countervailing voice for working 
people. And as unions have been attacked and denigrated and 
weakened and eroded, we have actually seen the erosion of the 
middle class at the same time. So you can superimpose the 
decline of unions with the decline of the middle class in the 
United States over the last couple of decades.
    Congress does have an opportunity to rebuild that and also 
to modernize our labor laws as we come into a new era. We do 
not have the labor market that we had 75 years ago. Our labor 
laws need to evolve to make sure that whatever kinds of 
employment opportunities people have, that they can exercise 
their voice at work. They can come together with their co-
workers to exercise that right. So I am happy to see that 
Congress is beginning to take that up.
    Senator Cortez Masto. Thank you.
    Mr. Ponnuru, let me ask you, do you believe that immigrant 
labor is displacing and/or lowering the wages for workers on 
our cattle ranches and farms in this country?
    Mr. Ponnuru. I think that there is some evidence, although 
it is disputed, that particularly for people without high 
school diplomas, immigration has had a negative effect on 
wages. Whether that is the case in every sector of the economy 
and every place, of course, is a different question. But I 
think that, one, there is some evidence and, two, it stands to 
reason that a larger supply will tend to reduce the price--in 
this case, the price of labor.
    Senator Cortez Masto. Yeah, and I would be curious to see 
the data that you have, because I have not seen that data, and 
I will tell you--and, Ms. Lee, I will have you answer this as 
well. Come to Nevada. Talk to our farmers and cattle ranchers. 
This is the first thing I hear, is that there are individuals 
that--they open it up to Americans or citizens, whatever you 
want to say, and they do not want to do these jobs. And so they 
are having immigrant labor coming in to do the jobs, and they 
are paying them very well.
    And so that is what I see in Nevada. I do not see a 
displacement. I do not see a lowering of wages for immigrants. 
In fact, I see just the opposite, that the immigration in this 
country has contributed to our economy, and it does not 
displace workers.
    Ms. Lee, I am curious to see what data or information you--
--
    Ms. Lee. I can provide some citations, but I think over 
time the empirical evidence about the impact of immigrants on 
the U.S. workforce has changed, and we do not see the negative 
impact that we used to see. One of the key things, I think, is 
how we treat immigrant workers. Unscrupulous employers can take 
advantage of immigrants without legal status to undermine wages 
and to treat workers as disposable. They can call the 
immigration services if those workers try to organize a union 
or ask for a raise or ask for a bathroom break or safety 
goggles. That is more the problem than it is the number of 
immigrants or even the education status of those immigrants.
    Senator Cortez Masto. Thank you.
    Senator Cotton. So unscrupulous employers who want to 
exploit immigrant labor is a real problem. That is one reason 
why I support mandatory and permanent employment verification 
systems so all employment work sites require an accurate and 
timely check of one's immigration status.
    I would also add that I hear some of the same complaints 
from Arkansas employers, that there are not enough workers. 
There are still 50,000 Arkansans who are not working. Of the 
working-age population, I think, in this country, it is more 
like 5 million. Most of the time when employers say Americans 
will not do this job, they put a period at the end of that 
sentence when it deserves a comma followed by a clause saying 
``at the wage I want to pay them.'' And one thing we have seen 
over the last 2 years is that as wages go up for working-class 
Americans, more people are coming off the sidelines.
    I want to turn, though, away from immigration. We discussed 
that in the first round, which is one way you can hurt blue-
collar jobs by importing workers to take them. A second way is 
through bad trade agreements by exporting their jobs to other 
countries. I want to focus here in particular on China. I think 
one of the worst decisions in Washington in the last 20 years--
and both parties are guilty of it--was first to grant China 
most-favored-nation status after that had been rebranded 
permanent normal trade relations, and then to admit them into 
the WTO. There were many predictions by politicians on both 
sides about China becoming a more liberal and democratic 
society and respecting its people's rights and paying its 
workers more and becoming a more normal, civilized nation. 
There is no set of predictions that has failed more terribly, I 
would submit, in the last 20 years than the prediction about 
what would happen with China.
    If these jobs were not to be done in America, at least 
maybe they could have been done in a country like India or 
Vietnam that is not explicitly committed to displacing America 
as the world's super power. This has no doubt had terribly 
negative effects on the manufacturing base and blue-collar 
workers in this country.
    Mr. Cass, I want to talk to you about that so-called China 
shock, as some people call it, and what we can do to reverse it 
and also reinvigorate the industrial base here in America and 
blue-collar jobs in the manufacturing sector.
    Mr. Cass. Yes, thank you, and I think it is important to 
recognize that the trade and immigration discussions are really 
two sides of the same coin. You know, I agree entirely with Ms. 
Lee that we want to have a healthy labor market, we want 
workers to have power in that market, and so incredibly 
important is the question of who gets to be a worker in that 
market. Who do employers have access to to get the work done? 
And, historically, the answer has been the people in America. 
And through both our immigration and then our trade policies, 
specifically with Chinese, we have changed that answer to 
whoever in the world you can find to do it most cheaply. And in 
that sense, immigration and trade have very parallel effects, 
both of which to the detriment of American workers. And what we 
have seen with China in particular is a very enthusiastic 
choice of employers to have things made there. And what we have 
seen with the China shock in particular--and that happened with 
unprecedented speed--is just the shuttering of factories in the 
United States and the shifting of that production.
    And I think it is important to emphasize that while 
politicians were entirely wrong about PNTR, this is essentially 
what economists said would happen. Standard economics of free 
trade says, well, yes, all of the manufacturing that can be 
done more cheaply with less skilled, oppressed workers in 
China, firms will move it there. The problem is that economists 
did not attend to the question of what would happen to the 
workers left behind. They either assumed that they would simply 
retrain for new jobs quickly or that ultimately, in fact, it 
does not matter what happens to workers as long as stuff gets 
cheaper for everybody.
    And so those are the effects that we have seen, and I 
think, again, from both the trade and immigration lenses, 
focusing on this idea that constraining who employers and firms 
can use as their labor pool is critical to strengthening the 
health of the labor market and, therefore, the opportunities 
for American workers.
    Senator Cotton. Dr. Levin, could you weigh in on the 
question?
    Mr. Levin. Yeah, I certainly agree with what Mr. Cass has 
said, and I would add that there are other elements that enter 
this question when we talk about China in particular, because 
China also presents various kinds of national security issues 
where it matters where certain things are made. It matters that 
the United States has the ability to produce some things and 
not just to consume those things. And so it does seem to me 
that the question--even for those of us who believe in free 
trade as a general matter, the question has got to take 
specific forms in specific instances, and China presents a set 
of challenges that should have been thought about rather 
differently.
    It also matters ultimately what it is that people in 
America do. You know, I think an economist looking at what has 
happened since China entered the WTO could say unemployment is 
lower now than it was then. And it is. But there is a 
difference between service work and manufacturing work, a 
difference in terms of its effects on communities, its effect 
on families, its effect on the lives of workers that just has 
to be taken seriously or we cannot surrender ourselves to 
abstract economic theory and imagine that that is all there is 
to social policy and public policy. There is more to it.
    Senator Cotton. Ms. Lee, it looked like you wanted to 
respond.
    Ms. Lee. I did. Thank you so much, Mr. Chairman. I would 
just like to say in defense of economists that not all 
economists drank the Kool-Aid in terms of China PNTR. I worked 
for the AFL-CIO during the debate, and we were fighting very 
hard not just about whether China would join the WTO but on 
what terms. And it was our view that our negotiators were 
putting too much emphasis on multinational corporate profits 
and mobility and flexibility and not enough on American jobs. 
And we did not assume that American workers would automatically 
be reemployed. Most economists were saying it was going to be 
fine, that we were going to have a smaller trade deficit with 
China and so on, and that did not happen.
    But I would say that the United States does need to 
reorient its trade policy, particularly with respect to China, 
which is our most problematic and most lopsided trading 
relationship. We need to address the systematic and egregious 
unfair trade practices. I would put two or three at the top of 
the list for China. One is manipulation or misalignment of 
currency. The other is illegal subsidies that we have not done 
a good job addressing, even though we have tools under the WTO 
to do so. And the third is workers' rights. When we engage in 
this trade relationship with China and we do not address the 
fact that workers in China do not have basic human rights at 
the workplace, that they cannot form an independent democratic 
union if they want to do so, we are putting American workers 
and thereby American businesses that are still producing on 
American soil in direct competition with workers who are not 
free to negotiate for their fair share. And that has led to 
this imbalance. It is not just the size of the trade deficit 
with China. It is also the composition. Our bilateral trade 
deficit with China is in advanced technology products, it is in 
important areas where the Chinese government has been very 
strategic about addressing 5-, 10-, 15-year plans. On the other 
hand, the U.S. Government has not been strategic and does not 
have a coherent, comprehensive plan to address that or even to 
identify it as a problem.
    So I would say it is an important issue in terms of a 
healthy U.S. labor market going forward. So thank you for the 
opportunity.
    Senator Cotton. If China had allowed total unfettered 
access to its market for American manufactured goods over the 
last 30 years and totally excluded investment banks, hedge 
funds, and consulting firms, do you think the consensus in 
Washington might be different on the trade question?
    Ms. Lee. Maybe.
    Senator Cotton. Thank you.
    Senator Smith.
    Senator Smith. Thank you, Mr. Chair.
    I am interested in this conversation about the interplay 
between a healthy labor market and immigration and want to just 
agree with Senator Cortez Masto that what I hear in Minnesota 
is issues around the shortage of labor, especially in 
agriculture and food processing and seasonal work. But, Chair 
Cotton, you make a point, which is people say--you know, this 
question of nobody is available to do the work at that wage. So 
I would like to ask Ms. Lee, what can we do to increase wages?
    Ms. Lee. Thank you. Well, there is a minimum wage bill that 
will be taken up by the House tomorrow, so that is an 
exciting----
    Senator Smith. When is the last time we raised the minimum 
wage?
    Ms. Lee. It was 9 or 10 years ago, so this is the longest 
stretch we have gone without raising the minimum wage. The 
minimum wage now is 25 percent below where it was in real terms 
in 1968. This is an enormous erosion in a wealthy society, a 
society that is more productive, more technologically advanced 
than it was in 1968. We ought to be able to pay workers enough 
so that they can afford to feed their families and have a 
decent place to live. We need to fix our broken labor laws so 
that workers have a fair chance at coming together to be able 
to bargain for their fair share of the wealth that they create.
    Senator Smith. This is a question that I ask Minnesota 
businesses all the time. If you have trouble recruiting people 
to fill the jobs that you have, have you tried paying more?
    Ms. Lee. Yes, as an economist, you have to say there is no 
such thing as a labor shortage. There are only wages that are 
too low.
    Senator Smith. Right.
    Ms. Lee. It should be very straightforward, that if you 
want to attract more and better workers, do not sit there with 
the same low wage and scratch your head as to why people are 
not lining up to take those jobs. Maybe you need to just pay 
more and not argue for more visas or other things.
    Senator Smith. It would suggest that there is something 
that is not working in the labor market, that there is an 
imbalance of power in the labor market, which causes wages not 
to be stagnant while there is so much wealth in the economy.
    Ms. Lee. When we are at a place where real wages for the 
bottom 70 percent of American workers have been stagnant for 20 
or 30 years, there is clearly something broken there. Wages are 
so low that it is actually dysfunctional. Maybe Senator Cramer 
mentioned it earlier--that there is a low labor force 
participation rate in the economy. Raising wages, empowering 
workers to form unions, protecting labor standards, and making 
sure that labor relations are fair would actually draw people 
into the labor force. Wages might be so low and jobs so bad 
that it is rational for people not to come to work if they 
cannot pay for transportation and child care.
    Senator Smith. Thank you. I have another couple minutes. 
Would anybody else on the panel like to respond to this issue? 
Mr. Miller?
    Mr. Miller. I would like to, because I think those of us in 
the quick service franchise world are kind of stuck in the 
middle on this, and that is because, yes, we see a real 
shortage of workers. And then you ask the question, well, why 
don't we pay more? And we are in a margin squeeze right now. 
Our whole industry is in a margin squeeze, yet you see many of 
our franchise companies reporting record earnings per share 
while the local franchise owner is working harder and longer 
for less money than ever.
    Senator Smith. So who is squeezing the margin, Mr. Miller?
    Mr. Miller. Well, between national promotions many times--I 
mean, I am in California, so obviously we are not the cheapest 
labor market in the world. You know, consumers are--you know, 
overbuilding of our industry, we have too many restaurants--I 
mean, the pace of restaurants being built outpaces population 
growth. Therefore, you know, simple economics. I am a sandwich 
guy. I can figure these economics out. And the pie is getting 
cut too tight. But, you know, the franchise company makes more 
and more. If you build ten units, you know, instead of eight 
units, they get it on top-line revenue; we are getting it on 
bottom-line profit.
    Senator Smith. Someone is taking the money.
    Mr. Miller. Yes.
    Senator Smith. Right. Thank you.
    Mr. Miller. We are--like you say, pay more, but our 
business model is not allowing us to pay more at this point.
    Senator Smith. Thank you, Mr. Chair.
    Senator Cotton. That buzzer you heard was votes being 
called on the Senate floor, so I think we are going to have to 
adjourn here. But I do want to thank--oh, Senator Cortez Masto 
has follow-up.
    Senator Cortez Masto. Thank you, because I do want to 
follow up on that conversation because this is the reason why I 
am introducing legislation later this month to ensure that 
prospective franchise owners receive accurate revenue and store 
closing information from the franchise corporation before they 
receive a guaranteed loan from the Small Business 
Administration. But let us elaborate on this, Mr. Miller, 
because what I hear from our Nevada franchisees is that--I will 
give you an example. Some franchise owners I have heard from 
tell me they are forced to sell products that they and their 
customers do not want, that they are charged fees for services 
that are not valuable to them, and they stay open longer than 
is profitable, and only buy products and services from approved 
and overpriced vendors. And I am assuming that is because that 
is what they are told to do or dictated to by the terms of the 
contract with the franchisor. Is that correct?
    Mr. Miller. That is correct.
    Senator Cortez Masto. And that goes to why you just talked 
about your margins----
    Mr. Miller. Margins, and I will give an example because it 
was blatantly obvious to everyone. Quizno's grew to about 5,000 
units. It is now a little under 400 units. And the interesting 
part is it was not that they were a consumer failure. The 
business model failed. Quizno's took on additional debt, the 
corporation, to try to expand. They also owned the distribution 
channel. And what was happening was, as they started getting 
cash-flow tight, they would increase the margins on the 
distribution model. When they filed bankruptcy, they were 
actually collecting almost double the amount of revenue off of 
their distribution channel as they were off of royalties. They 
were collecting 7 percent royalties; 21 percent, there is no 
way they could make it in our industry. So there are ways--and 
when we go to disclosure, one of the big problems with 
disclosure is disclosure is only valid the day you get that 
disclosure. So if you went to go buy a Quizno's and you would 
see maybe, oh, they were--people talk about rebates or 
kickbacks in our industry, and they have to be reported. But 
let us say for the last 20 years a brand took 1 percent rebate 
from the vendors and then used that for advertising. Full 
transparency, I would not mind that. That is what is in the 
disclosure document. You buy that franchise, and what happens 
if next year they take 10 percent rebates? Because the contract 
says they can take rebates. It does not cap it. And so here you 
have this disclosure that for 20 years they have taken 1 
percent. They raise it to 10 percent, that completely changes 
your business model.
    Senator Cortez Masto. Thank you, and thank you for--Ms. 
Lee, did you have a comment?
    Ms. Lee. Just a quick point--I wanted to reinforce what Mr. 
Miller is saying. One of the things that we are seeing is a 
risk shift from employers to workers or to franchisees. In Mr. 
Miller's testimony, he talked about a lot of the ways in which 
there is only an upside for the franchise companies. For the 
franchisees, the little guys, there are so many risks and so 
many unfair conditions imposed. These are the same kinds of 
things we see in terms of the battle in California over Uber 
drivers, where the company has all the upside and the workers 
take on the risk. Workers take on the expenses of gas and 
upkeep and repairs on their cars, but also the risk of not 
enough business. The company cannot lose from that model. They 
have all these folks that are just circulating around, driving, 
and wasting their time. And so the shift from being an employer 
to having a bunch of independent contractors who own their own 
equipment and take on all the risk is one of those things that 
has systematically undermined worker power in the economy.
    Senator Cortez Masto. Thank you. And thank you to all the 
panelists. This was a great conversation today. Thank you.
    Senator Cotton. Thank you to the witnesses. We Senators 
need to go vote, so this hearing is adjourned.
    [Whereupon, at 11:05 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                PREPARED STATEMENT OF SENATOR TOM COTTON
    Welcome to the Economic Policy Subcommittee hearing on this 
important topic of: ``Economic Mobility: Is the American Dream in 
Crisis?'' I'd like to thank the Senator Cortez Masto and the witnesses 
for being here, and also our Banking Committee staff for their help 
putting this together.
    Now I'd like to introduce our terrific witnesses.
    Mr. Oren Cass is a Senior Fellow at the Manhattan Institute and the 
author of the 2018 book, The Once and Future Worker: A Vision for the 
Renewal of Work in America. Mr. Cass was formerly the Domestic Policy 
Director of Mitt Romney's Presidential campaign in 2012.
    Dr. Yuval Levin is a Resident Scholar at the American Enterprise 
Institute and the Founding Editor of National Affairs. Dr. Levin served 
as a Member of the White House Domestic Policy staff under President 
George W. Bush.
    Mr. Ramesh Ponnuru is a Visiting Fellow at the American Enterprise 
Institute, a Senior Editor for National Review, and a Columnist for 
Bloomberg Opinion.
    Ms. Thea Mei Lee is President of the Economic Policy Institute and 
formerly the Chief International Economist for the AFL-CIO. She has 
served on advisory boards for the State Department and the National 
Bureau of Economic Research.
    Mr. Keith Miller is the founder of Franchisee Advocacy Consulting. 
A Subway franchisee himself since 1988, he served as Director on the 
North American Association of Subway Franchisees. Thank you all for 
coming and for your testimony. Your written testimony will be entered 
into the record.
    We're here to discuss economic mobility and the American Dream. 
When economists discuss these things, they often think in terms of GDP 
growth and consumer prices. To exaggerate just a little, they often 
seem to believe that so long as the economy grows at 3 percent and 
Americans can afford more cheap plastic stuff from China, that America 
must doing great. But is that really true?
    When I talk to Arkansans, I hear a different story. Most of them 
don't dream of extravagant wealth, much less abstract ideas like 
``economic growth'' and ``consumer surplus.'' They know a life of 
getting and spending cannot hope to fulfill ones dreams.
    Instead they dream of a career that pays an honest wage so they can 
live in a decent neighborhood. They dream of getting married and 
starting a family. And ultimately, they dream of passing on this 
standard of living to their children--plus a little bit more. That's 
the American Dream I hear, according to the Arkansans that I know.
    The question for today is: Is our Nation helping Americans achieve 
this American Dream, or are we failing them?
    I have to say, I think in some important ways our Nation is failing 
our fellow citizens. The labyrinth of subsidies, regulations, and 
misguided priorities constructed by Washington does little to help the 
large majority of Americans who don't graduate from college; the 
``Silent Majority'' who work with their hands and on their feet.
    Our Government doesn't offer these Americans much beyond 
occasionally moralizing about their supposed shortcomings: ``Go to 
college,'' ``abandon your hometown,'' or ``learn to code.''
    What they really need are more viable career paths that don't 
involve expensive educations. There are many good-paying, honorable 
jobs for people without college degrees in this country. But, how do we 
create more of them? How do we prepare workers so they're ready for 
those jobs?
    There's another urgent context for today's hearing as well: our 
economic competition with China. For decades, Washington pursued a 
policy of integration with China. The architects of this policy hoped 
naively that enriching the Chinese Communist Party would make it more 
pliable and less communist. Instead, it gave China the means to 
challenge America around the world--all while decimating the American 
heartland.
    If we want to remain the world's strongest economy, we'll need to 
marshal every citizen, every skill, every talent, at our disposal. 
We'll need to recover the vitality, productive abilities, and indeed 
patriotism that contributed to America's resounding triumphs in the 
past century.
    If we build a more productive economy, it'll serve not only our 
strategic interests as a Nation, but the interests of the American 
people, by helping them achieve the American Dream.
    I look forward to your thoughts and to my colleagues' questions.
                                 ______
                                 
          PREPARED STATEMENT OF SENATOR CATHERINE CORTEZ MASTO
    Thank you Chairman Cotton and welcome to all our witnesses here 
today.
    I appreciate Chairman Cotton suggesting a hearing to explore 
barriers to economic mobility in the United States.
    The Senate Banking Committee has jurisdiction over many of the most 
pressing issues facing Americans today--from housing, to lending, to 
transportation.
    Today, we discuss how Congress can improve economic outcomes for 
children and families.
    We want our children to grow up and become financially self-
reliant.
    We want the children of renters to be able to own their own homes 
if they wish.
    We want children whose parents struggled to put food on the table 
to be able to afford a full pantry and even a few meals out every 
month.
    We want children who survived homelessness to grow up with an 
income adequate to not just pay the rent but save for their children's 
college education and their own retirement.
    We want workers retiring from one career to be able to open a small 
store and have it thrive.
    Yet, those dreams--the American Dream--are unattainable for too 
many.
    Parents who lack affordable bank accounts end up with financial 
products that can lead to a debt trap. As they struggle with bank fees, 
they may see their car repossessed, resulting in getting fired from 
their job and getting evicted from their home.
    The average college senior graduates with more than $30,000 in 
debt, and total student debt nationwide has topped $1.5 trillion 
dollars.
    And some college graduates cannot find jobs that pay enough to 
manage their crushing student loan debt. They delay starting a family, 
buying a home, and saving for retirement for a decade or more.
    An entrepreneur buys a franchise business but finds the business 
never earns as much as she was promised. As she struggles to keep her 
store in the black, she does it all on her own--she can't afford to 
hire employees and pay them a living wage. That's wrong.
    It is wrong that the ZIP Code where a child is born and grows up 
affects their future income and financial success more than that 
child's education, aptitude or work ethic.
    It is wrong that a lack of affordable financial products prevents 
families from building up savings to respond to a broken arm or a 
broken car without a major financial crisis.
    It is wrong that corporations use noncompete clauses, union busting 
and arbitration clauses to keep wages low and corporate profits high.
    It is wrong that high housing costs, lack of affordable child care 
and inadequate transit restrain economic mobility for struggling 
families and young adults.
    It is wrong that entrepreneurs who purchased a franchise--many of 
them immigrants, retirees and veterans--were misled by unfair 
contracts, deceptive financial information, and nondisparagement 
clauses.
    We need solutions.
    And we know many of them are already out there.
    In their written testimonies, the witnesses have suggested 
significant investment in education, health, and other public services. 
They want to empower workers and franchise owners. They recommend 
tackling monopolies and corporate concentrations that drive out 
competition and result in lower wages for workers.
    We have seen how Government can protect homeowners, small business 
owners and entrepreneurs from predatory and abusive practices and 
financial products.
    I want to especially thank Mr. Keith Miller who took the red eye 
from California to be here today.
    Mr. Miller has helped Nevada franchise owners who have seen their 
incomes plummet when they bought a franchise. These entrepreneurs were 
upper-middle class but now face foreclosure and bankruptcy in a few 
months or years only because they bought a franchise.
    Later this month, I plan to introduce legislation to ensure 
prospective franchise owners receive accurate revenue and default 
information from the franchise corporation before the franchisee 
receives a guaranteed loan from the Small Business Administration. I 
encourage others to join my bill.
    In closing, I look forward to hearing from today's witnesses.
    It is my hope that today's hearing will jumpstart a discussion on 
the Senate Committee of Banking, Housing and Urban Affairs about how we 
can improve economic mobility for current and future generations.
    I hope to work with my colleagues in the Senate on solutions.
    Because every family in America hopes for the same thing: that 
their children's lives will be more stable, safer, and more prosperous 
than their own.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                PREPARED STATEMENT OF YUVAL LEVIN, Ph.D.
        Director of Social, Cultural, and Constitutional Studies
         The American Enterprise Institute and National Affairs
                             July 17, 2019
    Chairman Cotton, Ranking Member Cortez Masto, and Members of the 
Committee: Thank you for the opportunity to testify today.
    It is very encouraging to see this Subcommittee take up the crucial 
question of economic mobility, and seek to understand it from a variety 
of angles and perspectives.
    We Americans have always prided ourselves on the extraordinary 
degree of mobility this country has made possible for its citizens--the 
idea that, with hard work and a little luck, an immigrant or a child of 
poor parents can start out with nothing and end up successful and rich. 
We still believe this about ourselves. International comparisons of 
public opinion find that Americans express far greater confidence than 
citizens of other developed nations that hard work is rewarded and that 
everyone has a real chance to rise out of poverty. But by many 
measures, the United States actually does not stand out among advanced 
economies in terms of economic mobility, and has not for decades.
    At some level, we surely sense this even if we do not know all the 
facts and figures. There is a divergence between what many Americans 
want to believe about our country and its promise and what we know to 
be true about the circumstances and pressures too many Americans now 
face. Americans at the bottom of the income scale do not have enough 
opportunities to move up, many in the middle feel stuck, younger 
workers are having trouble getting started, and Americans in general 
seem less inclined to follow after opportunities. These various 
challenges are all distinct, but they all describe forms of immobility.
    In what follows I will offer a brief overview of the state of 
mobility in our economy and a few thoughts about potential policy 
responses.
                                 ______
                                 
    Economic mobility is ultimately about improved living standards 
over time. It is therefore a measure of material progress, and of 
whether our economy is allowing people to better their conditions, 
which must after all be its primary purpose.
    Mobility is notoriously difficult to measure, in no small part 
because even agreeing on its basic meaning is a challenge. But to keep 
things relatively simple for our purposes, we can begin to understand 
the state of economic mobility in America by breaking it down into two 
key components: relative mobility and absolute mobility.
    Relative mobility refers to a person's economic status in relation 
to the Nation as a whole. Economists often describe it in terms of 
moving up the income quintiles, and the rest of us tend to think of it 
in the form of rags-to-riches stories. Can someone born in poverty 
today rise into the middle class and beyond it? Does the child of a 
middle class family stand a reasonable chance of ending up wealthy? Or 
are people destined to end up roughly where they start? The available 
evidence suggests that in terms of relative mobility we are now lagging 
behind Canada and much of northern Europe. Economist Markus Jantti and 
his team have found that over the past generation about 25 percent of 
Danish men who were born in the bottom 20 percent remained in that 
lowest quintile as adults, compared with 42 percent of American men. 
Some economists have questioned the methodology behind this finding and 
suggest mobility looks rather similar across the developed world. But 
no one argues that Americans are at this point uniquely mobile. At best 
we are on par with Europeans and Canadians.
    And this is not because relative mobility has declined in America 
in the 21st century. Although you would not know it from some of our 
political debates, the data suggest that our national level of relative 
mobility has been remarkably stable--and remarkably low--for at least 
the last five decades. A child born to parents living in poverty at any 
point since the mid-1960s has had only about a 30 percent chance of 
ever making it into the middle class, and about a 5 percent chance of 
ending up in the highest fifth of income earners. Rags to riches 
stories, even rags to comfort stories, are awfully rare. And this has 
not changed much in living memory.
    It is far too difficult to rise out of poverty in America, and it 
was so even throughout what we have thought of as America's postwar 
economic golden age. This problem has not gotten markedly worse (or 
better) as inequality has grown, and it has not improved or worsened 
with rising or falling growth, or tax rates, or spending levels. 
Neither party's economic prescriptions seem likely to change it much. 
It will require some new thinking.
    The story of absolute mobility, meanwhile, is more complex and 
suggests some significant problems of relatively recent vintage. 
Absolute mobility involves changes in people's living standards not 
relative to society as a whole but relative to their own past or to the 
prior generation. Are you better off than you were 10 years ago? Are 
you wealthier than your parents were at your age?
    By this measure, America looks rather good over the long run but 
rather bad over a shorter run and the difference is one major reason 
why mobility should be a priority for us. Data from the Pew Economic 
Mobility Project show that the vast majority of Americans, about 84 
percent, now have higher incomes than their parents did at their ages--
adjusted for both inflation and family size. Such intergenerational 
absolute mobility is actually highest among the poor: fully 93 percent 
of Americans in the lowest fifth of earners have higher incomes and 
greater purchasing power than their parents did at their ages, compared 
to 70 percent of Americans in the top fifth. Overall American living 
standards have risen over time, and this has lifted essentially 
everyone's living standards some, even if it has not done much to 
change people's relative positions in society.
    But the significance of this good news is limited in two ways that 
will help us to clarify the mobility challenge as policymakers must now 
confront it. First, strong absolute mobility amid weak relative 
mobility means that people are more comfortable where they are in life, 
but that they are not moving ahead in terms of skills or status. The 
mother working long days behind a restaurant counter in the hope that 
her children have better opportunities than she did would not be 
satisfied to hear that her children will be a little better paid for 
working behind that same counter all their lives.
    Second, and perhaps most important, absolute mobility has declined 
significantly in the last two decades, so that while most Americans are 
doing better than their parents did at the same age they are often not 
doing better than similarly situated families (and maybe even their own 
families) were doing 20 years ago. This is the most pressing way in 
which many Americans are feeling the sting of immobility these days--as 
stagnant wages create the sense that they're running in place.
    The simplest way to illustrate this trend is to consider the median 
family. Adjusted for inflation and expressed in 2017 dollars, the 
median American household's income was $60,062 in 1999 and $61,372 in 
2017, according to most recent available data from the Census Bureau. 
In other words, the purchasing power of the median family has barely 
budged over the course of the last two decades.
    The average household is a little smaller than it was two decades 
ago, but even adjusted for family size the median income today is 
essentially where it was in the late 90s. This is in part the effect of 
the severe 2008-09 recession, which reduced household incomes sharply 
for a time, but it is largely a result of the fact that incomes have 
simply not been growing quickly, even in good times, especially since 
the beginning of this century. The last 2 years have seen meaningful 
improvements, and these should not be underestimated, but neither 
should they be overstated. Mobility remains a serious concern, and 
would become all the more of a problem if the economy slows.
    That last point suggests, of course, that robust economic growth is 
an essential precondition for robust economic mobility. This is 
doubtlessly true. But although growth is necessary for mobility, it is 
not sufficient. A mobility agenda must begin with growth, but cannot 
end with it--and growth should not be pursued at the expense of other 
necessary preconditions for mobility.
    What other obstacles to mobility do policymakers need to be aware 
of, then? I would like to focus here on two sets of obstacles in 
particular. I emphasize them not because they are the only barriers to 
much-improved economic mobility but because I think they are barriers 
we too often tend to overlook, and so would benefit from greater 
attention and--up to a point--might also benefit from some policy 
responses.
                                 ______
                                 
    The first of these is the rising cost of living for working 
families. It may seem strange to raise alarms on this front, since 
inflation has been remarkably low for more than three decades in 
America. But while this is true of general inflation, household costs 
have actually risen dramatically in three areas of particular 
importance to economic mobility. We might call them ``the three H's'': 
health care, housing, and higher education.
    These three areas are of enormous importance to American families 
in the working-class and middle-class who are striving to improve their 
living standards. Health care and housing are often essentially 
unavoidable expenses, while higher education is among the most 
effective means of securing a middle-class lifestyle for the rising 
generation. And yet in all three areas we have seen prices run far 
ahead of value for decades.
    In all three areas, too, public policy has played a major role in 
that increase in costs by simultaneously restricting supply and 
subsidizing demand. Subsidizing demand while restricting supply has 
predictable consequences: It increases prices, and therefore costs.
    In health care, the supply restrictions have especially (though by 
no means exclusively) had to do with the regulation of health insurance 
in ways that have restricted options and competition and so have closed 
off potential avenues for lowering costs. The subsidization of demand, 
meanwhile, has consisted of the exceedingly generous tax subsidy for 
employer-provided insurance, the enormous growth of Medicaid, and new 
forms of subsidy in the individual market through Obamacare as well as 
new subsidies for prescription drugs.
    In housing, we have seen local, State, and Federal policies 
interact in ways that in many places have restricted supply through 
tighter zoning while subsidizing demand through tax benefits, pseudo-
governmental home-loan subsidies, and various kinds of first-time-buyer 
benefits. Obviously there was a huge crash in this market a decade ago, 
but the basic pattern didn't change in the wake of that crash.
    In higher education, the restriction of supply happens especially 
through the overly narrow accreditation process (which is a function of 
public policy combined with politically enabled incumbent control of 
the process) and subsidization of demand has happened especially 
through student loans and assorted tax and other benefits.
    Each of these policies is plausibly defensible in itself. And even 
the combination of restricting supply and subsidizing demand can be 
defended: If the government is going to provide a subsidy for 
something, it needs to have some definition of that something so that 
the money is used for its intended purpose, and that definition is 
inherently going to constrict and regulate the subsidized good. But the 
sum of all this has been a lot of inflation in three areas that are 
crucial to the lives of vast swaths of our society.
    A cost-of-living agenda that tried to counteract this tendency 
should have a lot of appeal if our politics ever gets back to thinking 
in terms of solving problems people face rather than just revving up 
outrage. There are steps to be taken on both the supply and the demand 
sides of each of these sectors of the economy, though political 
pressures will surely make addressing the supply restrictions more 
attractive than reducing subsidies for demand. That means opening up 
more options in health care and higher education through Federal policy 
changes (like broadening the definition of qualified health insurance 
and allowing greater experimentation in the accreditation of higher 
education and the uses of student aid). In housing, the politics of any 
changes on both the supply and demand sides would be exceedingly 
painful, particularly because the subsidization of demand generally 
happens at the Federal level while the restriction of supply is largely 
local. But that doesn't make such reforms any less important.
    Rising living costs--paying more and more without getting more and 
more--naturally obstruct economic mobility. And they are among the 
obstacles to mobility for which public policy is most at fault, and 
could do the most to overcome.
                                 ______
                                 
    If cost-of-living pressures are among the barriers to mobility that 
might prove most amenable to public-policy responses, the second set of 
barriers I'd like to emphasize may well be the least amenable: Simply 
put, among the most significant obstacles to economic mobility in 
contemporary America is the breakdown of the capacity of many Americans 
to amass social capital.
    Social capital describes the resources at our disposal to enable 
effective cooperation--the skills, habits, networks, arrangements, 
grooves, and channels that make it possible for our society to hold 
together and for its members to benefit from it. It is absolutely vital 
to economic mobility, and to the health of our society more broadly. 
Such capital is amassed within institutions, as the result of the kind 
of connections we make and formation we receive in the family, the 
community, the church, the school, the union, the workplace, the market 
economy, politics, and other arenas of mutual action.
    The concept of social capital offers a particularly helpful lens 
through which to better understand obstacles to mobility and 
opportunity in America because it offers us the promise of overcoming 
the familiar partisan division between focusing on money and focusing 
on culture.
    The fact is that our country has become deeply divided and 
fragmented in ways that create some particularly pernicious and 
complicated obstacles for Americans trying to rise out of poverty. And 
our political system has sought to pin the blame for this phenomenon 
somewhere without fully acknowledging its character. The left tends to 
see economic inequality as the root of all other forms of social 
fracturing, and argues therefore that a policy of more aggressive 
redistribution would not only help ease income inequality but also 
mitigate the political power of the wealthy, strengthen poor 
communities and families, and create more opportunities for all. An 
emphasis on cultural problems like family breakdown, many progressives 
now suggest, is a distraction from these real causes--if not an attempt 
to blame the victims and opportunistically advance an oppressive 
cultural agenda that can only further burden the most disadvantaged.
    The right sees cultural disintegration--marked especially by the 
breakdown of family and community--as the source of the persistence of 
entrenched poverty in America. Conservatives therefore argue that 
social policy must focus on family and community, and worry that the 
Left's misguided efforts to address entrenched poverty through greater 
economic redistribution can only make things worse by hampering the 
economy, distorting the personal choices of the disadvantaged with 
perverse incentives, and exacerbating dependency.
    In an effort to avoid the rather obvious conclusion that cultural 
and economic factors are inseparable, progressives and conservatives 
thus tend to exaggerate the implications of their favored explanations. 
They predict that either growing inequality or increasing family and 
cultural breakdown, respectively, will turn out to be unsustainable, 
and so will lead to a cataclysm, or a rip in the social fabric that 
will force a great reckoning.
    But things are likely both better and worse than that: Both growing 
inequality and increasing social breakdown may well be sustainable, but 
may not be compatible with human flourishing. We are not headed for a 
cataclysm, but we are stuck in a rut, and getting out of it will 
require understanding it. No moment of change will be forced upon us, 
so if we are to revive the fortunes of the least among us, we will need 
to act.
    It is precisely mobility that is imperiled when people are denied 
the means to amass greater social capital. Without robust social 
capital, the material benefits provided by the welfare state could 
never be enough to enable disadvantaged Americans to rise. Without 
robust social capital, no amount of moralizing about discipline and 
responsibility could make a difference in the lives of broken families 
and communities. Social capital is what makes it possible for help to 
help.
    And the liberalization of our society--both moral and economic--has 
undermined our capacity to sustain and replenish social capital. That 
liberalization has advanced under a banner of individualism, seeking to 
liberate each of us from constricting moral constraints and from 
oppressive regulation but in the process often also unmooring us from 
relationships of mutual obligation. And as it has advanced, it has also 
robbed us of mutual trust, which is an essential ingredient in the 
development and retention of social capital.
    Social capital is built up slowly and exhausted slowly. It is built 
by long, arduous work constructing relationships, establishing 
institutions, cultivating norms, shaping expectations, and developing 
mutual trust. Decline is often slow as well. We can burn this capital 
for a long time while taking it for granted. But we have lived through 
a very long decline in social capital in recent decades, and its 
effects are being visited upon us now--and especially upon the most 
vulnerable among us.
    The steps we incline instinctively to take in response can make the 
problem worse. The expansion of welfare programs that substitute for 
thick social networks with a check and the acceleration of efforts to 
liberate the economy from socially imposed restraints for the sake of 
greater growth that might help everyone both tend to exacerbate the 
pattern by which the mediating layers of our national life are emptied 
out. Those layers, between the individual and the national state, are 
where social capital is built up and put to use. And a replenishment of 
social capital, a recovery of the capacity to make use of opportunities 
and to endure setbacks, will require a revitalization of those middle 
spaces.
    This is a cause toward which our national politics is not now 
naturally disposed. Instead, we incline to a politics that answers the 
problems created by an excessive individualism by further empowering 
the national government. It is important to see that this inclination 
is likely a symptom of the problem we are in need of solving.
    Radical individualism involves the corrosion of people's sense of 
themselves as defined by a variety of strong affiliations and unchosen 
bonds and its replacement by a sense that all connections are matters 
of individual choice and preference. It breaks up clusters of people 
into isolated units. Politically, such individualism tends to weaken 
mediating power centers that stand between the individual and the 
Nation as a whole--from families to local communities (including local 
governments), schools, religious institutions, fraternal bodies, civil-
society organizations, labor groups, and the small- and medium-sized 
businesses that comprise much of the private economy. In their place, 
it strengthens individuals on the one hand and a central government on 
the other, since such a government is most able to treat individuals 
equally by treating them all impersonally. For this reason, a hyper-
individualist culture is likely to be governed by a hypercentralized 
government, and each is likely to exacerbate the worst inclinations of 
the other.
    Some of the most distinctive problems of our era--the detachment 
from family, work, faith, and community, and the persistent patterns of 
bifurcated concentration throughout the American experience--are in 
important respects functions of a view of society as consisting only of 
individuals and a state, and are particularly difficult for a nation 
that often understands itself that way to address.
    The problems we confront therefore call for solutions that somehow 
reinvigorate the middle layers of society, and resuscitate our 
mediating institutions. Those institutions may be the ones most capable 
of addressing the characteristic problems of our diffusing society--and 
the isolation and alienation that are such prominent symptoms of so 
many of those problems--without requiring the kind of wholesale 
national reconsolidation and re-centralization that simply aren't 
plausible now. They might better allow us to pursue diversity without 
atomism, profusion without isolation, and a great variety of ways of 
life without estrangement from the sources of human flourishing.
    This would seem to make subsidiarity--the entrusting of power and 
authority to the lowest and least centralized institutions capable of 
using them well--a key to addressing some of the most stubborn 
obstacles to mobility in American life. Beyond the familiar policy 
applications of this kind of approach--in school choice, say, or in 
some conservative approaches to health care reform--there are ways that 
forms of decentralization could be of some use in taking on some of the 
distinct problems of this particular time. It could help, at least at 
the margins but maybe also near the core, to combat wage stagnation and 
the loss of working class jobs for instance by enabling experimentation 
not only with welfare and wage supports but with different forms of 
labor law and worker organizing and by encouraging competition in 
higher education and skills training that can create new opportunities.
    It could help us meet the challenge of better enabling economic 
mobility, as well, by allowing for experimentation with various 
approaches to assisting Americans in need. Experimentation, after all, 
is what you do when you do not know the answer. And it is hard to deny 
that when it comes to our most profound socioeconomic problems in 
America, we do not have a reliable formula for effective help. The 
challenge facing welfare reformers is daunting: They have to find ways 
to help people who lack not only money but often also stable families, 
functional communities, and decent schools. They have to encourage work 
and responsibility while offering aid, and they often have to help 
people break bad habits or confront addiction or abuse while also 
respecting their dignity and independence. This can't be done by a 
government check. Welfare often works best when it is accompanied by 
advice, by obligations, and by evident compassion at a personal level. 
Using public resources to let different institutions--from State social 
agencies to local civic groups to churches and nonprofits--try 
different ways of meeting this challenge in different circumstances is 
what we need to do when solutions are not clear, and when it isn't 
clear that any one solution will suffice in different circumstances. 
That kind of policy logic, the logic of subsidiarity, would serve us 
well in many arenas.
                                 ______
                                 
    Needless to say, neither an emphasis on restraining increases in 
the cost of living nor an emphasis on empowering mediating institutions 
offers a simple recipe for greater economic mobility in America. But 
these are both areas that require greater attention. Seeing them more 
clearly would help us better understand the broader challenge of 
mobility. And it is right that this broader challenge should be front 
and center in our economic thinking.
    There is more to political life than economics. But prosperity 
matters, and mobility is the right way to think about what prosperity 
means. Americans have often understood our national Government in 
particular to be rightly devoted to that cause.
    In a message to Congress on the Fourth of July, 1861, amid the 
painful early setbacks of the Civil War, Abraham Lincoln sought to 
articulate what made the struggle worthwhile. When it came to 
describing what we valued in our Government, Lincoln said this:

        On the side of the Union it is a struggle for maintaining in 
        the world that form and substance of Government whose leading 
        object is to elevate the condition of men--to lift artificial 
        weights from all shoulders, to clear the paths of laudable 
        pursuit for all, to afford all an unfettered start and a fair 
        chance, in the race of life. Yielding to partial and temporary 
        departures from necessity, this is the leading object of the 
        Government for whose existence we contend.

    America has often been gloriously successful in advancing that 
cause, but it has been notably less so in recent decades. We have 
ignored that fact for too long. I commend this subcommittee for turning 
its attention to this challenge, and I thank you for the opportunity to 
testify.
                                 ______
                                 
                  PREPARED STATEMENT OF RAMESH PONNURU
           Visiting Fellow, The American Enterprise Institute
                             July 17, 2019
    Chairman Cotton, Ranking Member Cortez Masto, and distinguished 
Members of the Economic Policy Subcommittee of the Senate Committee on 
Banking, thank you for convening this hearing on ``Economic Mobility: 
Is the American Dream in Crisis?'' I am a visiting fellow at the 
American Enterprise Institute, a fellow at the National Review 
Institute, a senior editor at National Review, and a columnist for 
Bloomberg Opinion. This testimony reflects my own views and not those 
of any organization with which I am affiliated. It is an honor to be 
testifying before you.
    Our topic today, economic mobility, has been central to America's 
self-conception and so it is fitting that legislators should examine 
its condition today and what can be done to improve it. While we 
rightly prize relative mobility--the chance to move over the course of 
a lifetime from the poorest to the richest segment of society, which 
implies the chance to move in the opposite direction--our main concern 
is and should be absolute mobility. We want and should want the bulk of 
our population to be able to perform rewarding work, to have the 
wherewithal to raise a family, and to enjoy rising living standards 
over time.
    There is a widespread sense that this kind of economic progress is 
a thing of the past. Today I wish to make four main points about 
economic mobility.
Our recent record on mobility has been poor.
    There has been less mobility in recent decades--but it is important 
to get the timeline correct in order to draw the right lessons from it.
    It is often claimed, for example, that the average wage, adjusted 
for inflation, has fallen over the last 50 years. The Pew Research 
Center suggests that this figure peaked in 1973.\1\ But widely repeated 
claims of this nature turn out, thankfully, to be misleading, for two 
main reasons.
---------------------------------------------------------------------------
    \1\ DeSilver, Drew. ``For Most Americans, Real Wages Have Barely 
Budged for Decades.'' Pew Research Center. August 7, 2018. Accessed 
July 13, 2019. https://www.pewresearch.org/fact-tank/2018/08/07/for-
most-us-workers-real-wages-have-barely-budged-for-decades/.
---------------------------------------------------------------------------
    First, wage figures ignore nonwage compensation, which has been a 
rising share of compensation over time.\2\ While it may be argued that 
government policies should change in ways that would encourage a shift 
in that mix back toward wage compensation, that's a different question 
from the one we would face if total compensation had been stagnant or 
falling for more than four decades.
---------------------------------------------------------------------------
    \2\ See, e.g., Appelbaum, Binyamin. ``One Reason for Slow Wage 
Growth? More Benefits.'' The New York Times. September 25, 2018. 
Accessed July 13, 2019. https://www.nytimes.com/2018/09/25/us/politics/
wage-growth-benefits.html.
---------------------------------------------------------------------------
    Second, the estimate of falling wage compensation is itself based 
on a faulty method of adjusting for inflation. Pew, for example, uses 
the Consumer Price Index--and specifically a measure called CPI--U. It 
overestimated housing inflation before 1983. Before 1999, it did not 
account for the way consumers blunt the impact of inflation by changing 
their behavior, and it still does not fully account for it. Using the 
PCE deflator to estimate inflation over time avoids these problems.\3\ 
Over time the difference is large: It turns out that the average wage 
rose 21 percent from 1973 through 2018 rather than falling.\4\ Average 
compensation must have risen even more. One could certainly wish that 
the increase had been even larger, but this is not a picture of decline 
or stagnation.
---------------------------------------------------------------------------
    \3\ For more on this, see Winship, Scott. ``Debunking Disagreement 
Over Cost-Of-Living Adjustment.'' Forbes. June 15, 2015. Accessed July 
13, 2019. https://www.forbes.com/sites/scottwinship/2015/06/15/
debunking-disagreement-over-cost-of-living-adjustment/.
    \4\ Author's calculation using data available at 
fred.stlouisfed.org.
---------------------------------------------------------------------------
    Median family income over this stretch of decades has also grown. 
The family in the middle of the income spectrum in 2015 made 45 percent 
more than its counterpart in 1970, again using the PCE deflator.\5\ 
That gain of course reflects not only rising wages but increased labor-
force participation by women.
---------------------------------------------------------------------------
    \5\ Ibid.
---------------------------------------------------------------------------
    The point of providing this reassuring data is not to deny that our 
country has any problems with respect to absolute economic mobility. It 
is to identify the problems we have more precisely. The data are not 
uniformly positive. The median family income of 2014 was actually 
lower, in inflation-adjusted terms, than it was in 2000. It had risen 
by 11 percent from 1970 to 1985, and by another 24 percent from 1985 to 
2000.
    The American mobility machine has stalled out for much of this 
century. The trends over the last few years have, on the other hand, 
been pretty good, and could get better if this expansion continues.
Effective counter-cyclical policy is crucial for economic mobility.
    The poor performance of household income for much of the last two 
decades had a lot to do with the sharp recession that began in December 
2007 and the agonizingly slow recovery from it. Median family income 
dropped more than 7 percent from 2007 through 2011, the sharpest 
decline since this data series started in 1953. It did not recover 
completely until 2015.
    When thinking about increasing absolute upward mobility, then, it 
is vital to consider whether our anti-recession policies are 
sufficiently effective. This is especially the case because the effects 
of recessions linger. The lost output and time in the workforce is 
never fully regained, and people who begin their working lives during 
recessions have lower lifetime incomes as a result of that timing.
    In the United States, the Federal Reserve has primary 
responsibility for counter-cyclical policy. It is frequently asserted 
that it acquitted itself well in the response to the Great Recession. 
That it avoided some of the worst mistakes central banks can make is 
beyond dispute. But there is no reason for complacency about its 
record. The institution's first move after the collapse of Lehman 
Brothers was a contractionary one: beginning the policy of paying banks 
interest on excess reserves, which has depressed lending and reduced 
the effect of the stimulative policies that it adopted thereafter.
    The Federal Reserve has consistently undershot its inflation target 
over the last decade and even pursued a course of interest-rate 
increases while undershooting it. Whether the institution will be 
effective in fighting the next recession, given the limited room to cut 
interest rates, is also in question. The Federal Reserve should give 
serious consideration to whether its current approach biases it toward 
excessively tight monetary policy, making recessions more severe and 
recoveries weaker than they could be and thereby suppressing growth in 
employment and incomes.\6\
---------------------------------------------------------------------------
    \6\ I have written a short article on this topic recently. Ponnuru, 
Ramesh. ``Better Inflation Targets Will Help in the Next Recession.'' 
Bloomberg Opinion. April 23, 2019. Accessed July 13, 2019. https://
www.bloomberg.com/opinion/articles/2019-04-23/better-inflation-targets-
will-help
-in-the-next-recession.
---------------------------------------------------------------------------
Mobility requires higher economic growth.
    But cyclical factors are not the only reason for the disappointing 
performance of most of the last two decades. Even before the great 
recession, economic growth was slower than it had been during past 
expansions. It was the combination of slow growth and sharp recession 
that made the overall economic record of 2000 to 2014 so frustrating 
for most Americans.
    Economic growth isn't everything, but it is a prerequisite for 
broad-based prosperity. Reforms that would raise the rate of economic 
growth over the long run should therefore be a high priority.
    While there is no silver-bullet solution to raising economic 
growth, some policy changes hold promise. One would be to continue to 
reform the tax code to reward investment in the United States. A 
particular priority should be a permanent provision allowing businesses 
to write off investments immediately while scaling back the 
deductibility of debt.
    Another promising idea would re-orient our immigration system to 
the recruitment of individuals with economically useful skills rather 
than to the reunification of extended families. This shift would be 
conducive to opportunity, possibly in two ways. It would raise average 
productivity, and it might help to boost wages at the low end of the 
labor market. There is some, albeit disputed, evidence that low-skilled 
immigration has reduced the wages of high-school dropouts--some of 
whom, it should be noted, are themselves immigrants. It might be that 
relatively low-skilled immigrants would find more opportunity for 
upward movement in the United States if there were fewer of them.
Geographic mobility enables economic mobility.
    A common way that Americans have historically bettered their lot is 
by picking up and moving from places with few opportunities to ones 
that are thriving. But they have been doing a lot less of that in 
recent years. Interstate migration rates have been falling since 
1980.\7\ While the reasons for this change are not well understood, one 
might expect--and some evidence suggests--that it has reduced wage 
growth, productivity, and employment rates, and at the same time 
increased the duration of spells of unemployment and the variation in 
income among regions of the country.
---------------------------------------------------------------------------
    \7\ Molloy, Raven, Smith, Christopher L., Wozniak, and Abigail K. 
``Declining Migration within the United States: The Role of the Labor 
Market.'' NBER. April 17, 2014. Accessed July 13, 2019. https://
www.nber.org/papers/w20065.
---------------------------------------------------------------------------
    Public policy has likely contributed to the reduction in geographic 
mobility in multiple ways. Restrictive zoning laws in many 
jurisdictions, especially ones with rapid economic growth, have made 
housing expensive and thus reduced the ability of Americans in slower-
growing regions to move there. A relaxation of these rules would 
conversely be expected to expand opportunity. But since many of the 
economic gains would be reaped by people who are not currently voting 
within those jurisdictions, while those who already reside there might 
see their property values decline, the political obstacles to local 
action are formidable.
    The expansion of occupational licensure by State governments also 
works against mobility. In the 1950s, 5 percent of workers held jobs 
requiring a government license; by 2008 that figure had risen to 29 
percent. Licensing can suppress economic mobility within particular 
communities by making it more difficult for people to begin working in 
the field of their choice, and it can also limit mobility among 
communities as relocating in a new State may require the acquisition of 
a new license in order to work. Licensing has been estimated to reduce 
interstate migration by as much as 20 percent.\8\ Those who already 
possess licenses are, however, motivated to resist liberalization.
---------------------------------------------------------------------------
    \8\ Johnson, Janna E., and Kleiner, Morris M. ``Is Occupational 
Licensing a Barrier to Interstate Migration?'' NBER. December 2017. 
Accessed July 13, 2019. https://www.nber.org/papers/w24107.pdf.
---------------------------------------------------------------------------
    Many of our government benefit programs--including programs that 
help with housing, child care, job training, and groceries--are 
operated by States and localities and vary from one jurisdiction to the 
next. Moving can mean re-applying for benefits via unfamiliar 
enrollment processes. Here the path to better policy is both 
politically and conceptually thorny, since the problem arises from the 
way our government's Federalist structure has evolved.
    The Federal Government may be able to exert a positive or at least 
counteracting influence in some of these areas. My American Enterprise 
Institute colleague Michael Strain has suggested that several months of 
unemployment benefits be made available in a lump sum to aid relocation 
for people seeking greener pastures.\9\ But even national attention to 
the mobility problem may spur beneficial steps in some places.
---------------------------------------------------------------------------
    \9\ Strain, Michael. ``A Jobs Agenda for the Right.'' National 
Affairs. Winter 2014. Accessed July 13, 2019. https://
www.nationalaffairs.com/publications/detail/a-jobs-agenda-for-the-
right.
---------------------------------------------------------------------------
    As this brief discussion of mobility suggests, increasing it is a 
multifaceted challenge. It would require sustained attention to 
multiple policy areas, some of them Federal, some of them State and 
local, where obstacles to mobility have grown without notice. But if 
the work is difficult the potential rewards are substantial, and worth 
the seeking.
    My thanks, again, to the Committee for the invitation to speak.
    
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                                Addendum
                                
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RESPONSE TO WRITTEN QUESTION OF SENATOR CORTEZ MASTO FROM OREN 
                            M. CASS

Franchise Loan Transparency Act
Q.1. At the hearing, my pending bill, the Franchise Loan 
Transparency Act was discussed, attached is proposed bill text 
and a short description of the bill. Please share with me your 
thoughts and concerns about the bill (See Appendix 1, pg. 85). 
If you can also note if you would recommend legislators support 
or oppose it, that would be helpful.

A.1. I have not studied the issue closely enough to offer an 
informed opinion about the bill.
                                ------                                


 RESPONSES TO WRITTEN QUESTION OF SENATOR SINEMA FROM OREN M. 
                              CASS

Q.1. Our country is in the longest period of economic expansion 
in U.S. history, with a reasonably strong labor market. Yet, 
wage growth continues to lag most economists' expectations. Why 
do you think that is?

A.1. Standard labor-market measures (e.g., the unemployment 
rate) may not fully reflect the market's dynamics, for several 
reasons. One reason is that an unprecedented share of prime-age 
workers left the workforce in recent years and they are 
returning only gradually it is difficult to know how much slack 
remains. Another is that, in an era of globalization, the pool 
of labor to which employers have access is not necessarily 
bounded by the American market. In many cases, the option to 
move work overseas serves as a check on the pressure to raise 
domestic wages. The Nation's refusal to enforce its immigration 
laws likewise offers firms access to large pools of labor that 
are poorly captured in traditional data.

Q.2. According to recent reports, including the Federal 
Reserve's 2019 Consumer & Community Context report and Freddie 
Mac's June 2019 survey, fewer millennials are buying homes due 
to the rise in student loan debt. What kind of implications 
will a decline in home ownership by younger Americans have on 
the housing market?

A.2. It would be difficult to predict effects in the housing 
market without knowing more about consumer behaviors--for 
instance: Are they simply choosing to rent instead of buy? Are 
they reducing their expenditures on housing? Are they remaining 
in their parents' homes rather than forming new households? All 
those questions merit further study.

Q.3. We hear from small- and mid-sized employers that they 
cannot find individuals with the skills necessary to fill jobs. 
How do we encourage skills development and retention? How do we 
enable Americans to move to where good jobs are and succeed?

A.3. I would refer the Senator to my written testimony and 
accompanying report, ``The Workforce-Training Grant: A New 
Bridge from High School to Career'' (Manhattan Institute, July 
2019), which describes the failures of our college-focused 
education system to provide most people with the skills they 
need to succeed in the labor market, and proposes an 
alternative in which employers rather than colleges play the 
leading role. I would also note that having Americans ``move to 
where good jobs are'' is neither a desirable nor likely 
outcome. People value the ability to reside near family and 
friends in the communities where they have built their lives 
and a well-functioning American economy would ensure that 
widespread prosperity reaches them in those places.
                                ------                                


   RESPONSE TO WRITTEN QUESTION OF SENATOR CORTEZ MASTO FROM 
                         RAMESH PONNURU

Franchise Loan Transparency Act
Q.1. At the hearing, my pending bill, the Franchise Loan 
Transparency Act was discussed, attached is proposed bill text 
and a short description of the bill (See Appendix 1, pg. 85). 
Please share with me your thoughts and concerns about the bill. 
If you can also note if you would recommend legislators support 
or oppose it, that would be helpful.

A.1. I have not studied this issue but commend the senator for 
calling attention to it. Before proceeding with Federal 
legislation, I would want to have a stronger sense that the 
problem is both large in scale and persisting at that scale (or 
growing in scale). If, for example, we are seeing increased 
transparency within the current regulatory environment, change 
to that environment may not be necessary. The potential costs 
of the proposed regulations would also be needed. Further study 
may thus be called for to determine whether regulatory change 
is required.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM RAMESH 
                            PONNURU

Q.1. Our country is in the longest period of economic expansion 
in U.S. history, with a reasonably strong labor market. Yet, 
wage growth continues to lag most economists' expectations. Why 
do you think that is?

A.1. Some economists believe that as unemployment rates fall, 
wages should rise in some predictable way. But this belief is 
erroneous. Employee compensation, adjusted for inflation, has 
been growing roughly in line with productivity.

Q.2. According to recent reports, including the Federal 
Reserve's 2019 Consumer & Community Context report and Freddie 
Mac's June 2019 survey, fewer millennials are buying homes due 
to the rise in student loan debt. What kind of implications 
will a decline in home ownership by younger Americans have on 
the housing market?

A.2. Student-loan debt has likely played a role in reducing 
millennials' home ownership rate, but there are additional 
reasons for the generational decline in that rate. Millennials 
are also marrying later than previous generations and having 
smaller families (although the high price of housing may affect 
these decisions, and therefore the causal arrow points in both 
directions). In many cases, millennials began their working 
lives in a sharp recession and a slow recovery from it, which 
made it harder for many of them to save for a downpayment. 
Lending standards are also stricter than they were. Millennials 
have also disproportionately looked for housing in high-cost 
areas.
    Some analysts have speculated that millennials place a 
lower value on home ownership than previous generations, seeing 
it for example as an inferior investment to stocks. To the 
extent such changes in preferences are reducing home ownership, 
the effect should be to make renting more expensive and housing 
less so, and policymakers should not be greatly concerned. To 
the extent that restrictive zoning laws and other public 
policies have reduced homeownership rates, on the other hand, 
they need to be revisited.

Q.3. We hear from small- and mid-sized employers that they 
cannot find individuals with the skills necessary to fill jobs. 
How do we encourage skills development and retention? How do we 
enable Americans to move to where good jobs are and succeed?

A.3. As my fellow witness Oren Cass has pointed out, about a 
sixth of young people follow the path our educational system 
seeks to put them on: earning a high-school diploma, enrolling 
in college, obtaining a college degree, and then getting a job 
that requires that degree. That fortunate fraction enjoys high 
lifetime earnings. The system needs to change to work better 
for the vast majority of Americans. In particular, we should 
expand vocational-education options involving employers.
    As for matching workers and employers geographically: There 
is a natural incentive for people to move where they can earn 
higher wages. They must weigh them against their existing 
family and community ties, their desire to stay where they have 
been, and so forth. To the extent government policies make it 
harder for people to move, however, it impedes the healthful 
functioning of our labor market. Restrictive zoning laws, 
onerous and geographically varying occupational licensing 
requirements, and lack of portability in government benefits 
could all be changed in ways that make it easier for people to 
move where the jobs are. The government could also offer 
mobility grants, letting people take unemployment benefits in a 
lump sum in order to finance a move to a place where they can 
more readily find employment.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM THEA M. 
                              LEE

Q.1. Our country is in the longest period of economic expansion 
in U.S. history, with a reasonably strong labor market. Yet, 
wage growth continues to lag most economists' expectations. Why 
do you think that is?

A.1. It is true that nominal wage growth is relatively 
lackluster, especially considering that unemployment has been 
below 4 percent for a year and a half, and we are 10 years into 
an economic recovery. In our view, there is no single cause, 
but a cumulation of factors over several decades.
    Josh Bivens, EPI research director, wrote: ``This failure 
of wages to get in gear should tell us three things: (1) there 
remains room for unemployment to fall even further (https://
www.epi.org/blog/the-fed-shouldnt-give-up-on-restoring-labors-
share-of-income-and-measure-it-correctly/); [1] (2) policy and 
labor market institutions have been turned decisively against 
(https://www.epi.org/publication/what-labor-market-changes-
have-generated-inequality-and-wage-suppression-employer-power-
is-significant-but-largely-constant
-whereas-workers-power-has-been-eroded-by-policy-actions/) most 
workers' ability to bargain effectively for wage increases; [2] 
and (3) if we don't reorient these policies and institutions to 
support wage growth, workers will have to rely solely on high-
pressure labor markets to see raises in the future--but these 
high-pressure labor markets have been the exception and not the 
rule (https://www.epi.org/publication/the-importance-of-
locking-in-full-employment-for-the-long-haul/) for most of the 
time in recent decades.[3] ''

[1] https://www.epi.org/publication/labor-day-2019-macropolicy/#_note2.
[2] https://www.epi.org/publication/labor-day-2019-macropolicy/#_note3.
[3] https://www.epi.org/publication/labor-day-2019-macropolicy#_note4.

    It is no coincidence that this is the longest period in 
U.S. history without an increase in the Federal minimum wage, 
which is now worth 17 percent less than it was 10 years ago--
and 31 percent less than in 1968.
    Another major concern is the decline in manufacturing 
employment over the last 40 years, which has traditionally been 
the sector of the economy that pays relatively high wages to 
the noncollege-educated workers who still make up a large 
majority of the U.S. workforce. The workforce has shifted 
toward the service industry. In addition, growing trade 
deficits have cost the United States 5 million manufacturing 
jobs in the last two decades. EPI research indicates that 
manufacturing jobs offer total compensation that is 15 percent 
higher than the nonmanufacturing sector. The evidence over the 
same period suggests that there is a widening gap between the 
wages earned by those with higher education and those without. 
One important step we can take toward getting the trade balance 
back on track is to rebalance trade by realigning the dollar.
    The decline in union membership has also had a negative 
effect on the pay and benefits of both union and nonunion 
workers. The share of workers covered by a collective 
bargaining agreement dropped from 27.0 percent to 11.7 percent 
between 1979 and 2018, meaning the union coverage rate is now 
less than half where it was 40 years ago. Without the right to 
collectively bargain, workers lack leverage to ask for better 
pay and benefits. It is also worth noting that people of color 
have historically benefited disproportionately from 
unionization. On average, a worker covered by a union contract 
earns 13.2 percent more than a peer with similar education, 
occupation, and experience in a nonunionized workplace in the 
same sector. One step legislators can take to sustain 
unionization is to support the Protect the Right to Organize 
(PRO) Act, which would make it easier for employees to 
collectively organize and bargain for better wages and 
benefits.

Q.2. According to recent reports, including the Federal 
Reserve's 2019 Consumer & Community Context report and Freddie 
Mac's June 2019 survey, fewer millennials are buying homes due 
to the rise in student loan debt. What kind of implications 
will a decline in home ownership by younger Americans have on 
the housing market?

A.2. The burden of student debt is an important reason that 
millennials may not be buying homes, but we also need to 
consider the fact that they have suffered from the post-
recession job market. Due to their experience with the 
recession, individuals may also view home ownership as a risky 
asset. The combination of debt burden, a weak job market (in 
terms of real wages), and low home ownership rates will present 
challenges to the millennial generation and the economy in 
coming decades, as these factors will negatively impact wealth 
accumulation and retirement security.

Q.3. We hear from small- and mid-sized employers that they 
cannot find individuals with the skills necessary to fill jobs. 
How do we encourage skills development and retention? How do we 
enable Americans to move to where good jobs are and succeed?

A.3. On average, American workers have more education and more 
skills than past generations. But it is also true that the U.S. 
Government spends less (as a percentage of GDP) on workforce 
development and training than other wealthy industrialized 
countries, and the private sector does not compensate. 
According to the National Skills Coalition, ``The U.S. invests 
just .1 percent of GDP on active labor market policies, less 
than any other industrialized country except for Mexico. 
Australia invests 24 times that amount, and Ireland invests 48 
times that amount. At the same time, the United States has the 
largest economy in the world and more than 160 million workers 
in the workforce.'' And Government spending on workforce 
programs has plummeted in recent years, with the Workforce 
Innovation and Opportunity Act (WIOA) spending cut almost in 
half since FY2001.
    Yet there is little evidence of a genuine shortage of 
skilled workers. Evidence of a skills shortage would be 
unusually strong wage growth for workers with the targeted 
skills. If employers can't find the workers they need, they 
will offer higher wages to attract needed workers from other 
firms, who will then raise wages in an attempt to keep their 
employees, and so on. Therefore, if a skills gap were the 
problem, we would expect to see faster wage growth. Instead, 
wage growth for many skilled workers has been relatively flat 
over much of the last year, despite low unemployment rates. For 
example, computer and mathematical science occupations, which 
are often cited in conversations about skills shortages, have a 
low unemployment rate, at 2.3 percent, but have also seen very 
low real wage growth, at less than 1 percent in 2018.
    One reason that firms are not raising wages, as one would 
expect, is monopsony power. Monopsony occurs when there are a 
limited number of employers offering skilled jobs in a given 
area. So, when a firm with the power to set wages at a low rate 
complains about not being able to find workers at the wages 
they are offering, it's useful to remember that they are 
choosing to keep wages low in order to increase profits. Under 
such conditions, legislated interventions for wage increases 
can lead to increases in employment, in addition to benefiting 
individual workers.
    But even in the absence of a skills shortage, there is no 
question that both workers and employers benefit from high-
quality, well-designed and targeted training and apprenticeship 
programs, ideally with a strong union partner. These programs 
should be fully funded and focused on underserved communities 
and evolving technologies.
                                ------                                


                            Works Consulted

Bivens, Josh, and Heidi Sheirholz. ``Fair Competition in Labor 
Markets Requires a Politician's Thumb on the Workers Side of 
the Scale.'' ``Unrigging the Market: Convening to Restore 
Competitive Labor Markets'' Hosted by the Harvard Labor and 
Worklife Program, June 4, 2018. Accessed August 5, 2019. 
https://lwp.
law.harvard.edu/files/lwp/files/webpage_materials_papers_ 
bivens_shierholz_june_13 _2018.pdf.

Gould, Elise. ``Job Growth Stays Solid but Wages Disappoint--
again.'' Economic Policy Institute (blog), August 2, 2019. 
Accessed August 5, 2019. https://www.epi.org/press/job-growth-
stays-solid-but-wages-disappoint-again/.

National Skills Coalition: https://
www.nationalskillscoalition.org/federalpolicy/body/CIAW-Invest-
in-AW.pdf.

``Nominal Wage Tracker.'' Economic Policy Institute, 2 Aug. 
2019, www.epi.org/nominal-wage-tracker/.

Schmitt, John, Josh Bivens, and Elise Gould. America's Slow-
Motion Wage Crisis. Report. September 13, 2018. Accessed August 
5, 2019. https://www.epi.org/publication/americas-slow-motion-
wage
-crisis-four-decades-of-slow-and-unequal-growth-2/.

Scott, Robert. ``The State of American Manufacturing.'' 
Economic Policy Institute, February 5, 2019. Accessed August 5, 
2019. https://www.epi.org/blog/the-state-of-american-
manufacturing-the-failure-of-trumps-trade-and-economic-
policies/.

Shierholz, Heidi, and Elise Gould. ``Why Is Real Wage Growth 
Anemic? It's Not Because of a Skills Shortage.'' Economic 
Policy Institute. July 19, 2018. Accessed August 5, 2019. 
https://www.epi.org/blog/why-is-real-wage-growth-anemic-its-
not-because-of-a-skills-shortage/.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA FROM KEITH R. 
                             MILLER

    Senator, thank you for your questions, and the opportunity 
to provide my answers. As I stated at the hearing, my expertise 
is within the franchise industry, and how that relates to, 
realizing the American Dream. For me, it was important in my 
testimony to not only discuss the issues but give real life 
challenges franchise owners have seen. The franchise industry 
should be the model for those seeking the American Dream, and I 
wish to see improvements in the industry to make that hold 
true.
Q.1. Our country is in the longest period of economic expansion 
in U.S. history, with a reasonably strong labor market. Yet, 
wage growth continues to lag most economists' expectations. Why 
do you think that is?

A.1. Much of the labor growth in employment numbers come from 
the continued growth in the number of businesses open, this is 
especially true in the franchise industry, and even more true 
in the quick service restaurant (QSR) industry. This growth has 
far outpaced population growth. This fact means the pie is 
being cut into more pieces, so the competition to draw that 
population into the outlets is extreme, often using deep 
discounting, which may keep the revenue moving, but squeezing 
the profit margins of the outlet. Being a Subway franchise 
owner, I have seen this first-hand. The franchised brands in 
the QSR space have continued to push deep discounting. The 
impact, with the added units in the total system, has often 
seen the franchise company see increased profits, but the local 
franchisees squeezed tighter on margins than ever. You have to 
remember that it is these local franchisees that are the 
employers of the masses, not the franchise company. Most of us 
employers would like to pay higher wages to attract and retain 
employees, but simply, we have to make the business model work 
for us, which is a real challenge. I just don't think the 
industry has realized that its sustainability long-term, is the 
more balanced distribution of the monies in the business, from 
the franchise company, to the franchise owners, to the 
employees.

Q.2. According to recent reports, including the Federal 
Reserve's 2019 Consumer & Community Context report and Freddie 
Mac's June 2019 survey, fewer millennials are buying homes due 
to the rise in student loan debt. What kind of implications 
will a decline in home ownership by younger Americans have on 
the housing market?

A.2. Well, this is probably not a question that goes to my area 
of expertise, but I'll give my thoughts, tying it closer to my 
expertise areas. The costs of education, as we know, have 
skyrocketed, and creating a level of student debt never seen 
before. On top of that, the so-called good jobs for graduates 
seem to be centered in high cost housing markets. In many of 
these markets, even well-paying jobs have no chance of success 
in affording a home. I think the implications are widespread, 
and not just on the housing market. One point to remember is 
that many real estate firms operate under a franchise flag. 
With less buyers, there will be less business, creating a 
strain on the franchise owner. I think the big concern here is 
that after finishing their education, many of these students 
are unable to find jobs in an affordable area and are saddled 
with debt and tight budgets. These tight budgets make them even 
less likely afford normal spending, which drives many of the 
franchised businesses. The high costs of education and 
resulting debt are far reaching.

Q.3. We hear from small- and mid-sized employers that they 
cannot find individuals with the skills necessary to fill jobs. 
How do we encourage skills development and retention? How do we 
enable Americans to move to where good jobs are and succeed?

A.3. The statement is correct that we cannot find enough 
individuals. There is a critical labor shortage. Franchised 
business can be split into two, those that require skilled 
positions, and those that need little in skills. For businesses 
like automotive repair, for example, it seems few are being 
taught the trades. In the push for higher education, the trade 
skills seem to be lost. For many, avoiding the high cost of 
education and learning a trade is likely better financial 
decision, but we need to add more emphasis on that, and remove 
the stigma that not attending college is bad. For businesses 
that need untrained staff, and can train them, there are a few 
problems. As mentioned above, due to the tight business model 
margins, we often lose our best employees quickly to better 
paying jobs, like the banking industry. If we had the margins 
to pay better, that would help. However, I think we can do a 
much better job assisting our lower skilled employees in 
attaining better financial situations. It's an odd situation, 
but one I have heard repeated, that as wages increase 
(remember, I am in California which is a higher wage State), 
many that are on government assistance can start to make too 
much and start to lose their assistance. To the employer, it 
means the employee asks to make the same total pay, reducing 
hours, which means the need to hire more employees to satisfy 
the same total labor requirement. In a tight labor market, that 
is tough. We seem to have created systems with a ceiling, and I 
think both business and government can do better to help people 
bust through that ceiling. From a business standpoint, we can 
have mentorship programs and certification programs that teach 
these employees real skills that can later be used and 
transferred to better jobs, more mobility. If the starting, 
lower-paying jobs, were viewed in that light, the reluctance to 
work in them would be lessened. From the governments point of 
view, the ceilings on earnings for assistance need to be 
adjusted and sliding. It should never be a good result for 
someone to ask for less earnings than their potential, it 
really benefits no one.

          Appendix 1. Franchise Loan Transparency Act (Draft)
          
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              Additional Material Supplied for the Record
              
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