Highlights of a GAO Forum: Workforce Challenges and Opportunities
For 21st Century: Changing Labor Force Dynamics and the Role of  
Government Polices (01-JUN-04, GAO-04-845SP).			 
                                                                 
The U.S. workforce of the 21st century is expected to face a very
different set of opportunities and challenges than previous	 
generations. Demographic and economic trends indicate that the	 
size and composition of the labor force, as well as the 	 
characteristics of many jobs, are changing in the 21st century.  
To discuss these changing labor force dynamics and the role of	 
government policies, GAO hosted the "Workforce Challenges and	 
Opportunities for the 21st Century Forum" on April 22, 2004. The 
participants were a select group of national leaders and experts 
on the dynamics of theU.S. workforce. This group included	 
government officials, business and union representatives, and	 
other national experts on workforce issues. As agreed with forum 
participants, the purpose of the discussion was not to reach	 
consensus but rather to engage in an open, nonattribution-based  
dialogue.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-845SP					        
    ACCNO:   A10735						        
  TITLE:     Highlights of a GAO Forum: Workforce Challenges and      
Opportunities For 21st Century: Changing Labor Force Dynamics and
the Role of Government Polices					 
     DATE:   06/01/2004 
  SUBJECT:   Labor supply					 
	     Labor force					 
	     Labor statistics					 
	     Employment or training programs			 
	     Immigrants 					 
	     Human resources training				 
	     Training utilization				 
	     Diversity						 
	     Retirement 					 

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GAO-04-845SP

June 2004

HIGHLIGHTS OF A GAO FORUM

Workforce Challenges and Opportunities For the 21st Century: Changing
Labor Force Dynamics and the Role of Government Policies

Contents

Figures

Introduction from the Comptroller General of the United States

The U.S. workforce of the 21st century is expected to face a very
different set of opportunities and challenges than previous generations.
Demographic and economic trends indicate that the size and composition of
the labor force, as well as the characteristics of many jobs, are changing
in the 21st century. To discuss these changing labor force dynamics and
the role of government policies, GAO hosted the "Workforce Challenges and
Opportunities for the 21st Century Forum"  on April 22, 2004. The
participants were a select group of national leaders and experts on the
dynamics of the U.S. workforce. This group included government officials,
business and union representatives, and other national experts on
workforce issues. As agreed with forum participants, the purpose of the
discussion was not to reach consensus but rather to engage in an open,
nonattribution-based dialogue.

GAO began the 21st Century Workforce Forum by presenting some of the key
demographic, economic, and fiscal trends. In the past 50 years, the size
of the U.S. labor force has more than doubled. However, over the next 50
years, the labor force as a whole is projected to grow much more slowly-at
about one-third the previous rate. The labor force is also projected to
become much more racially and ethnically diverse in the future. In
addition to these demographic trends, a number of broad economic
trends-global interdependence, technological change, and the growth of the
knowledge-based economy-are changing U.S. labor markets; these changes
include the kind of skills and knowledge needed within the workforce for
the United States to compete effectively while maintaining a high standard
of living. As the U.S. labor force changes, the role of the federal
government must be examined. While the federal government sets
immigration, tax, and labor policies and provides information on labor
force dynamics, it also funds a variety of employment and training
programs that increase the skills of workers and help match job seekers
with employers. However, the federal government faces large and growing
deficits that might constrain future spending on these programs and affect
a wide range of workforce issues.

Participants generally agreed that the United States will soon face tight
labor markets, in part because of changes in demographic trends and
demands for higher skills. Some participants noted that the approaching
retirement of the baby boom generation will contribute to tight labor
markets and affect some industries more than others. They also discussed
low labor force participation rates among certain groups, such as high
school dropouts, low-income individuals, and some minority groups. Some
participants explained that immigrants-both legal and undocumented-help
the United States meet its labor demands. In addition to these demographic
trends, participants agreed that the gap between the skills needed by
employers and the skill level of U.S. workers poses a challenge for the
U.S. labor market. Participants explained that several factors contribute
to this skills gap, including the growth of the knowledge-based economy,
decreased support for training programs, and insufficient emphasis on
career education in schools.

While considering both the needs of the U.S. labor force and the realities
of a tight fiscal environment, participants discussed several ways to
address the possible tight labor market in the coming years. Some
participants questioned the effectiveness of current public training
programs. Many agreed that employers together with unions should take an
active role in determining training needs. To increase the number of
skilled workers, most participants agreed that youth and young adults,
especially those who do not plan on attending college, need alternative
education and training opportunities. In addition, some agreed that
keeping older workers in the labor force longer by offering more flexible
retirement options, such as phased retirement approaches, could lessen
future labor shortages and help pay for costly benefits, such as health
care. Participants also debated the need to change immigration policies
and visa priorities to better meet future workforce needs.

Appendix I summarizes the collective discussion, as well as subsequent
comments we received from participants on the draft summary of the forum
discussion. This summary does not necessarily represent the views of any
individual participant, including GAO. Appendix II lists the forum
participants. Appendix III contains related GAO products on workforce
issues. This report will be posted on our Web site at www.gao.gov. For
additional information on workforce development issues, please contact
Sigurd Nilsen at (202) 512-7215 or [email protected]. Key contributors to
this report include Alicia Cackley, Elizabeth Morrison, Cheri Harrington,
Elizabeth Caplick, and Janice Peterson.

I wish to thank all the forum participants for taking the time to share
their knowledge, insights, and perspectives. We will use the knowledge
gained from the forum's deliberations in our work for Congress and the
country. I

look forward to working with the forum's participants on important
workforce issues in the future.

David M. Walker Comptroller General of the United States

21st Century Workforce Challenges and Opportunities: Highlights of Forum
DiscussionAppendix I

Highlights of Workforce Challenges and Opportunities for the 21st Century
Forum: Changing Labor Force Dynamics and the Role of Government Policies

GAO began the 21st Century Workforce Forum by presenting some of the key
demographic, economic, and fiscal trends, including data on the size and
composition of the labor force as well as the characteristics of many U.S.
jobs.

Background

In the past 50 years, the size of the U.S. labor force has more than
doubled, increasing from 62.2 million workers in 1950 to 140.8 million
workers in 2000. However, over the next 50 years, the labor force as a
whole is projected to grow much more slowly. Between 2040 and 2050, the
labor force growth rate is projected to drop to 0.6 percent from its
recent peak of 2.6 percent in the 1970s. (See fig. 1.) One reason for this
drop is that while women's share of the labor force increased dramatically
over the past 50 years-from 30 percent in 1950 to 47 percent in 2000-their
share of the labor force is projected to remain at around 48 percent over
the next 50 years. Without a major increase in productivity, low labor
force growth will lead to slower growth in the economy and to slower
growth of federal revenues.

Figure 1: Labor Force Growth Rate from 1950 to 2000 and Projected Growth
Rate, 2000 to 2050

The U.S. labor force is also projected to become older and more racially
and ethnically diverse in the future. As the baby boom generation ages,
older workers are expected to compose a larger share of the labor force.
The 55-and-older age group, which made up 13 percent of the labor force in
2000, is projected to increase to 20 percent by 2020. It is estimated that
by 2050, this age group will make up 19 percent of the labor force.
Further, immigration-from both legal and undocumented
immigrants-contributes to the U.S. population. In 2002, approximately 1
million legal immigrants entered the United States. Moreover, it is
estimated that about 500,000 undocumented immigrants are added to the U.S.
population each year. Of the estimated 9.3 million undocumented immigrants
who currently reside in the United States, 6 million are estimated to be
in the labor force. As the number of U.S. immigrants increases, so does
the diversity of the U.S. labor force. From 2000 to 2050, the share of
white non-Hispanics in the labor force is expected to fall by about a
quarter, while the share of Hispanics and Asians is expected to more than
double within this same time frame.

In addition to these demographic trends, a number of broad economic trends
are changing the nature of labor markets and employment in the United
States. Increasing global interdependence and technological change are
often identified as the driving forces behind many economic changes, and
they have major implications for the U.S. workforce. As U.S. firms
increasingly compete within the global marketplace, they seek to reduce
costs, through either technological innovation or outsourcing of
production, or increased use of temporary workers. Technological change,
particularly the spread of computer and information technology,
contributes to changing skill demand on the part of employers. While
technological changes could create demand for higher-skilled workers,
these changes-depending on the industry-could also decrease employer
demand for highly skilled workers. The growth of the knowledge-based
economy and innovations in management systems, such as the adoption of
high-performance practices that emphasize problem solving and teamwork,
have also contributed to the need for increased skill levels in many
industries. All of these changes have the potential to increase the wage
gap between high-and low-skill workers, with significant socioeconomic
implications for U.S. society.

Global interdependence, technological change, and the knowledge-based
economy have all helped change the relationship between workers and
employers. Because workers are less likely to spend a major portion of
their careers with a single employer, they are more likely to seek
training that is marketable to a variety of employers instead of training
that is employer specific. Similarly, employers might not invest in worker
training if the training will make the employees more attractive to other
companies. In addition, because global interdependence has increased
pressure on companies to streamline operations, employers are more willing
to lay off workers and move operations to lower-cost locations
domestically and internationally. These changes have implications for both
the types of skills that workers need and the incentives for individual
workers or employers to acquire or provide training.

As the U.S. labor force changes, the role of the federal government must
be examined. Currently, the federal government plays an important role in
promoting the labor force through a variety of mechanisms, including
workforce development programs, unemployment insurance, skills
development, education, pension, and health care policies. In 2003, the
federal government spent over $148 billion on employment and training
programs, education grants, loans, tax credits, and income support
programs such as unemployment insurance and assistance to low-income
families. At the same time, the federal government faces large and growing
structural deficits that might constrain government spending on these
programs in the future. Given that the U.S. population is aging, the
proportion of the federal budget dedicated to mandatory programs-such as
Medicare and Social Security-is likely to grow, and the amount available
for discretionary programs-such as employment and training assistance-is
likely to decrease. From 1964 to 2004, discretionary federal spending
decreased from 67 percent of the federal budget to 39 percent, while
mandatory spending more than doubled. (See fig. 2.) Lower economic growth
resulting from low labor force growth, unless accompanied with a
significant jump in productivity, will only accentuate the overall
pressure on the federal budget.

Figure 2: Federal Spending for Mandatory and Discretionary Programs

aCurrent services estimate.

Participants considered questions related to the effect of these economic
and demographic trends on U.S. workers and the appropriate role for
government in responding to workplace challenges and opportunities.
Specifically, they responded to the following questions: (1) Is the United
States facing an impending shortage of labor as the baby boom generation
retires over the next 20 years? (2) Do workers entering the workforce and
those already working have the skills employers will need to be
competitive globally? and (3) What changes in the structure of the
nation's workforce development system are needed to meet the changing
needs of businesses and workers, and what is the appropriate role of the
federal government in addressing workforce policy?

The United States May Face Tight Labor Markets in Part because of Changes
in Demographic Trends and Demand for Higher Skills

While participants debated the existence of future labor shortages and
which industries and workers may be affected, they generally agreed that
the United States may soon face tight labor markets in part because of
projected demographic trends and the need for higher skills.1 Several
factors affecting tight labor markets include the retirement of the baby
boom generation from the workforce, an insufficient number of workers
entering certain occupations, and the insufficient supply of skilled
workers. Specifically, they noted:

o The baby boom generation could affect the U.S. labor market.
Participants acknowledged that the aging of the baby boom generation and
that generation's approaching retirement might lead to tight labor
markets, particularly 20 years from now. Some stated that these workers
could leave the labor market gradually, either by delaying retirement or
by working part-time, thereby lessening the impact on the labor force. In
contrast, others argued that older workers might, for various reasons,
leave the workforce immediately when they reach retirement age. They noted
that often, corporate pension policies encourage employees to retire early
and do not allow part-time employment in their own companies for
individuals receiving their pensions. Some participants reinforced the
notion that the retirement of baby boomers would decrease the
worker-to-retiree ratio and thus put additional financial pressures on
Social Security and Medicare. In addition, some participants said that the
retirement of baby boomers might affect some industries more than others.
Specifically, in certain industries, many more workers will retire than
will pursue jobs and be hired. For example, one participant noted that
while many nuclear engineers are retiring, few new workers are entering
this occupation. Similarly, it was noted that the average age of current
workers in some manufacturing jobs is 50 or older.

o Labor force participation rates are low among certain populations.
Participants also discussed low labor force participation rates among
certain groups, such as high school dropouts, low-income individuals, and
some minority groups. While participants agreed that these populations
could serve as an additional source of labor in the future, they also
noted that another source-women-is projected to have a much lower rate of
labor force growth between 2000 and 2050.

o Immigrants help meet U.S. labor demands. Immigrants-both legal and
undocumented-have a role to play in the current and future workforce. The
H-1B program, which was developed to provide employers with temporary
foreign workers who are highly skilled, has become a transitional program
that enables many of these workers to become permanent legal residents in
the United States. On the other hand, since the events of September 11,
2001, visas have been more difficult to obtain for immigrants entering the
United States for higher education purposes. This may limit the
availability of this source of skilled labor in certain industries where
foreign workers have a strong presence.

In addition to noting these demographic trends, participants agreed that
the gap between the skills needed by employers and the skill level of U.S.
workers-both those entering the labor market and those already
employed-poses a major challenge for the U.S. labor market. Participants
discussed an array of factors contributing to the skills gap, including
the need for workers to have more advanced skills than their predecessors,
the need for workers to have specialized skills, the decreased
availability of employer-based training programs and incumbent worker
(i.e. employed worker) training funding, and the emphasis on college
preparation at the expense of other career education options in schools.
Specifically they said that:

o The United States is moving toward a knowledge-based economy that
requires higher skills. A knowledge-based economy increasingly requires
workers to have more advanced skills and higher levels of education than
in the past. While creation of new technology-an area where the United
States has traditionally been strong-can potentially mitigate tight labor
markets, the United States needs workers with advanced skills in order to
benefit from nascent technologies. Participants noted that industries that
traditionally have not required their workers to obtain postsecondary
education-such as some factory jobs-increasingly need employees that have
a higher education level and more advanced skills than in the past. For
example, one participant noted that in the past, a factory floor
supervisor held a relatively unskilled position, but today, that same
person would need a 2-year college degree and on-the-job training.
Employers need not only workers with strong math skills and good technical
skills; they also need employees who have mastered the soft skills, such
as communication and team building. In addition, there are certain
occupations, such as those in the nuclear engineering and health care
fields, that require specialized skills and will continue to be in demand.

o Workers are not receiving sufficient training. Participants generally
agreed that  more training is needed, although it is unclear who is
responsible for training-the employers, employees, or both. Previously, in
many industries, employers provided long-term training. Today, however,
employers are less likely to train their employees because in a tight
labor market they face the risk of losing workers to other firms that do
not train. Although society as a whole benefits from trained workers,
individual firms that provide training may not see a return on their
investment. Similarly, prospective workers are unlikely to invest in
training without knowing which skills will provide them with jobs that pay
well.

o Some countries have a greater supply of young, well-educated workers.
The United States faces a significant demographic difference in terms of
the age of U.S. workers and their technological skill compared with
workers in countries such as India. According to some participants, some
countries have large numbers of young, more recently trained workers
entering their workforce. They noted that if workers in the United States
cannot maintain the same skill level as new workers in these other
countries, the United States will face a serious skills shortage that will
affect the future rate of innovation and productivity. Several
participants noted that maintaining incumbent worker skills might be
difficult, as both employers and the federal government have reduced
incumbent worker training support.

o Offshoring of jobs has increased and is likely to continue. Rapid
advances in technology, increased trade, lower transportation costs, and
communications innovations have greatly facilitated the offshoring of
jobs, especially in the services sector. Given the high level of education
and worker skill development in some countries, the jobs moving offshore
are no longer low-wage, low-skilled jobs, but instead are those that
attract high-skilled workers. In addition, the high cost of health care in
the United States and the fact that it is factored into employer costs
have contributed to employers' decisions to offshore certain functions.

o Career education and apprenticeship training are not given enough
emphasis. Other participants cautioned that parents and schools place too
much importance on all young adults obtaining a college degree. Some youth
may not pursue higher education and instead need training such as career
education or apprenticeship training so that they can participate more
fully in the labor force. Participants emphasized that there are many
occupations-such as those in the building trades-that do not require a
college education but can provide adequate wages to individuals with honed
skills.

Participants Discussed Strategies for Addressing the Tight Labor Market

Participants suggested several potential solutions to address the tight
labor market that take into consideration both the needs of the U.S. labor
force and the realities of a tight fiscal environment. A few participants
questioned the effectiveness of current public training programs, and many
agreed that employers, with the help of unions, should take an active role
in determining training needs. To increase the number of skilled workers,
most forum participants emphasized the importance of providing youth and
young adults-especially those who will not attend college-with alternative
education and training opportunities. Some also agreed that keeping older
workers engaged in the labor force through flexible retirement policies
could lessen future labor shortages. Finally, participants debated the
need to change immigrant worker policies to better meet future workforce
needs. Participants' suggestions included the following:

o Increase the effectiveness of publicly funded training programs. Some
participants questioned the effectiveness of public employment and
training programs in helping job seekers enhance their job skills,
identify job opportunities, and ultimately find employment. While the
Department of Labor is responsible for overseeing many of these programs,
such as those authorized under the Workforce Investment Act2 and the H-1B
Technical Skills Training Grant Program,3 other agencies, such as the
Departments of Health and Human Services, Education, and Housing and Urban
Development, also support employment and training programs. Some
participants argued that many of these employment and training programs
provide overlapping services and said too many resources are spent
operating duplicative programs, which serve relatively few people.
Alternatively, one participant noted that current training funds are small
relative to the total U.S. budget and argued that U.S. training investment
per person is too low to be successful. To strengthen the public training
programs, some participants suggested the following proposals:

o expand Labor's High Growth Initiative so that it prepares workers for a
variety of jobs, not just those in high-growth and top-paying industries;

o reauthorize the Workforce Investment Act to provide greater emphasis on
incumbent worker training;

o consolidate public training programs to save resources and serve more
individuals;

o present labor force statistics in a more useful way;

o evaluate newer models and programs that support disadvantaged workers;
and

o restructure federal programs so that they are driven by employer needs.

o Encourage employers and unions to take the lead in determining training
needs. Because employers are good at matching available jobs with skilled
workers, some participants said that employers together with unions should
take a leading role in determining training needs for workers. However,
some participants said that employers are unlikely to actually provide
training because they run the risk of losing trained employees to other
employers-an outcome known as the free rider problem. Participants debated
whether the federal government should encourage employers to provide
training by offering them training tax credits. Specific points raised
included the following:

o The federal government should give employers training tax credits to
create a steady supply of skilled workers, solve the free rider problem,
and correct for the depreciation of skills.

o Training tax credits were criticized by some participants because these
credits reward companies that already have training programs in place, and
the public views such tax credits as corporate welfare. An alternative
would be to make these credits marginal, that is, credits would only be
given for training above current spending levels and would target
less-educated and nonmanagerial workers.

o Instead of going to companies, training tax credits should be given to
individuals.

o Giving training tax credits to individuals would result in the same
challenges as individual training accounts, which provide individuals with
blocks of training dollars. Workers generally do not know what training is
needed by employers, so leaving training decisions to workers would
require additional education on what skills and training are considered
necessary.

o Promote alternative education and training opportunities. Participants
explained that many individuals lack the skills needed to get jobs with
adequate wages. In some cases, these individuals are left out of the labor
force. Some participants commented that the secondary educational system
primarily focuses on preparing students for college and does not groom
youth for alternative career paths. They felt that policy makers need to
focus on policies and programs that promote the development of a wide
range of skills needed for various jobs, including skilled jobs that do
not require a 4-year degree. To increase the number of skilled workers,
some participants recommended that business and unions have a central role
in designing alternative education and training opportunities and made the
following suggestions:

o Career education needs to be emphasized in high school so that youth
understand the linkages between classroom study and workforce skills.

o Programs that help disadvantaged young people connect to the labor
force, such as Job Corps and Career Academies, need more funding.

o Vocational education needs to be incorporated into the high school
curriculum for those who do not plan on attending college.

o Apprenticeships need to be promoted as a respectable and alternative
career path.

o Education and training grants, such as Pell Grants, need more funding.

o Keep older workers engaged in the labor force. Some participants
explained that older workers vary in the amount of hours they want to work
before retiring. However, many pension policies do not offer older workers
the flexibility to work part-time. To encourage the baby boom generation
to retire gradually and to retain the skills of older workers, some
participants suggested the following policy changes:

o support pension policy and regulation changes that allow workers to work
part-time and still receive a pension;

o remove barriers to phased retirement that arise from confusion over tax,
pension, and age discrimination laws; and

o clarify the law on rehiring retirees.

o Consider changing immigrant worker policies. Some participants argued
that the federal government needs to change its immigrant worker policies
to address future workforce challenges, while others warned that changing
immigrant policies would not significantly meet the demands of a tight
labor market and might only be a short-term solution. One participant
explained that immigrant workers, at some point, would also need
additional training. However, most participants agreed that current
immigration policies were developed decades ago and do not address current
workforce needs. Participants offered the following suggestions to change
immigrant worker policies:

o U.S. policies should support more permanent immigrants and fewer illegal
immigrants.

o The federal government's visa programs should not have fixed yearly
limits on the number of people who may enter the country. Instead, the
number of allowable visas should be given in a range that adjusts to meet
workforce demands.

o The executive branch, not Congress, should be responsible for
determining the number of temporary workers who can enter the United
States. Another participant argued that Congress should be responsible
because it represents the larger social interest.

o U.S. immigration policy should not differentiate between permanent and
temporary workers; instead, foreign workers should be considered
transitional.

o Non-native U.S. college graduates should be given green cards
immediately after graduation instead of being sent back to their home
countries.

o The U.S. visa program for foreign students to attend college and
graduate school in the United States should be revised. Recent declines in
the admission of foreign graduate students, especially in math and
science, have implications for future U.S. productivity and innovation.

In summary, there was general agreement among the participants, who
represented workforce experts, policy makers, and the U.S. business
community, that action needs to be taken to address the impact of the
projected demographic and economic changes on the U.S. labor force. Aging
workers, a more diversified labor force, and the need for enhanced skills
are all factors that will affect the ability of the United States to
compete in a global economy. To address these issues, participants
emphasized the importance of employers taking the lead in identifying
training needs. In addition, to prepare for projected workforce
challenges, participants suggested that the federal government enhance
public training programs, provide alternative education and training
opportunities for youth, engage older workers in the labor force, and
consider changing immigration policies to better meet future workforce
needs.

21st Century Workforce Challenges and Opportunities: List of Participants
Appendix II

Mason Bishop

Deputy Assistant Secretary Employment and Training Administration U.S.
Department of Labor

Peter Cappelli

George W. Taylor Professor of Management Wharton School of Business
University of Pennsylvania

Anthony Carnevale

Vice President for Public Leadership Educational Testing Service (ETS)

Phyllis Eisen

Vice President, the Manufacturing Institute Executive Director, Center for
Workforce Success National Association of Manufacturers (NAM)

Linda Ewing

Director, Research Department International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW)

Cynthia M. Fagnoni

Managing Director Education, Workforce, and Income Security U.S. General
Accounting Office

Ellen Galinsky

Co-founder and President Families and Work Institute

Lee Goldberg

Long-Term Care, Policy Manager Service Employees International Union
(SEIU), AFL-CIO

Steve Gunderson

Senior Consultant and Managing Director The Greystone Group

Harry Holzer

Professor of Public Policy Public Policy Institute, Georgetown University

James Jarrett

Vice President for Worldwide Government Affairs, Intel Corporation

Catherine Mann

Senior Fellow Institute for International Economics

Representative Donald Manzullo

Chairman, House Small Business Committee

Demetrios Papademetriou

President Migration Policy Institute

Jeffrey S. Passel

Principal Research Associate The Urban Institute

Anna M. Rappaport

Consultant Mercer Human Resources Consulting

Harley Shaiken

Professor and Director, Center for Latin American Studies Graduate School
of Education University of California, Berkeley

Robert Tobias

Institute for the Study of Public Policy Implementation, American
University

David M. Walker

Comptroller General of the United States U.S. General Accounting Office

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October 13, 2000.

H-1B Foreign Workers: Better Controls Needed to Help Employers and Protect
Workers. GAO/HEHS-00-157.  Washington, D.C.: September 7, 2000.

Contingent Workers: Incomes and Benefits Lag Behind Those of Rest of
Workforce. GAO/HEHS-00-76.  Washington, D.C.: June 30, 2000.
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