59

In any event, you can try to find out what the cost is, because
I know the Department of Labor would not give these jobs to for-
eigners if we had replacement workers.

About the tax on these things, you have no problem in increasing
the tax and registration to cover the cost of employing these people,
if ou are against the FUTA tax itself?

ir, LrrrLe. The farm bureau has no policy on increasing the
level of the user fee, and I am not authorized to make policy.

Mr. RANGEL. Well, the consultant certainly is. That is what I
want to be. I like them.

Mr. BRowN. The consultants do, but he is not a consultant.

Mr. RANGEL. I know. That is why I am looking at you. You have
the job, as a consultant. [Lau tor}

On one hand, it would make a lot of sense, really, that the pro-
gram pays for itself. On the other hand, of course, employers never
want to pay more. Would you say that is basically where you are?

Mr. Brown. Yes.

Mr. RANGEL. That is why I want to be a consultant. [Laughter.]

Thank you, Mr. Chairman.

Chairman SuHaw. Mr. Little, you heard Secretary Uhalde refer to
the fact that the certification process was operated at a loss. If we
were to do away with the FUTA tax, then turning to certification,
what would be your thoughts as far as bumping that figure up? It
sounds like a very little bit of money when you look at the whole
scheme of things, $10 a worker. What are your thoughts on that?

Mr. Littie. Again, I have to offer the disclaimer that I am not
authorized to make policy for the farm bureau, and we do not have
policy on this. I assure you that our process of making policy is un-
believably complicated.

However, in general, we are supportive of user fees to support
governmental activities. All I could do at this stage would be to go
back to the policymaking process and ask them to consider it.

Chairman SHAW. It might be helpful if your organization could
took. into that, because that may be a good way to trade off some
of this.

Mr. Lrrr ie. I will do that.

Chairman SHaw. Thank you both very much. It was a very good
panel.

Our final panel consists of Louis Jacobson, senior economist,
Westat, Inc., in Rockville, Md.; Debra Bowland, the administrator
of the Ohio Bureau of Employment Services and treasurer of the
Interstate Conference of Employment Security Agencies; Walter
Corson, vice president, Mathematica Policy Research, Inc., in
Princeton, N.J.; and Bill Cunningham, legislative representative of
the American Federation of Labor and Congress of Industrial Orga-
nizations.

We have each of your written testimony, which will become a
part of the permanent record. If you care to summarize, that would
be just fine. We will start out with Dr. Jacobson.

Mr. RANGEL. Mr. Chairman.

Chairman SHAW. Yes.

Mr. RANGEL. Could I have the courtesy of introducing the son of
Bill Cunningham, who is here? For those who would not normally
be too kind to the AFL-CIO, as a father, I would appreciate the


123

expand training programs at the expense of business. ‘The Alliance is totally opposed to any diversion of UI
funds or the FUTA surtax to pay for worker training and education. ‘The responsibility for helping disadvan-
taged people, the unskilled, or structurally dislocated workers should continue to be shared by the society at
large out of general funds.

Manufacturers Alliance does not advocate that the “temporary” 0.2 percent FUTA surtax be allowed to
expire, although we would not oppose such action. The Alliance proposes, however, to dedicate this tax to
the extended unemployment trust fund. If the trust fund achieves 2 surplus during the economic expansion,
this will reduce the federal budget deficit. But in a severe economic recession, the trust fund will be available
to provide emergency extended UI benefits.

Consolidation of Employment and
‘Training Programs

As mentioned previously, rapid technological innovation, corporate restructuring, the global economy, and
defense downsizing have accelerated the pace of economic change and displaced many workers in the process.
Dynamic economic change would be less cause for concern if today’s workers were highly skilled and could
adapt easily to the job opportunities that are being created. This does not appear to be the case, however.
‘The unemployment rate for persons who have not completed high school rose from about 7 percent in the 1970s
to 11 percent in the 1980s and early 1990s. By way of contrast, the unemployment rate for college graduates
is only around 2 percent to 3 percent. Clearly, there are large mismatches between the abilities of those looking
for work and the requirements of available jobs.

Further evidence of the need for a more effective education and training policy is the widening disparity
in earnings between the hig and low-wage workers, During the 1980s and early 1990s, wage differentials
widened significantly as low-skilled, primarily male, workers were forced to compete with workers in
developing countries overseas for jobs in low productivity growth industries. Men with less than four years
of high school experienced a decline in inflation-adjusted median usual weekly earnings of about 20 percent
from 1981 to 1991. In contrast, men with four years of college achieved a real earnings gain of 2 percent,
and those with five or more years of college achieved a substantial 14 percent increase in earnings over the
10-year period. Wage differentials have widened at a time when inflation-adjusted weekly earnings for all full-
time wage-and-salary workers declined 0.2 percent per year. In other words, only the most highly educated
people in the workforce (college graduates) have been able to improve their purchasing power in the last decade,

Society has a responsibilty to assist individuals who have some job tenure and become unemployed because
of structural change. ‘The current dislocated worker adjustment system, however, should be completely
overhauled. It is inequitable because many dislocated workers do not fall into the specific categories under
the two largest programs, the Economic Dislocation and Worker Adjustment Assistance (EDWAA) or the Trade
Adjustment Assistance (TAA), and are therefore nt eligible forthe special services available under these
programs. The General Accounting Office (GAO) estimates that the fiscal year 1994 budget contained 154
education and training programs administered by 14 federal departments and agencies providing about $25
billion in assistance 10 out-of-school youth and adults not enrolled in advanced-degree programs to enhance
their skills or employment opportunities.’ Despite the Administration's and the Congress’ rhetoric about
consolidating various programs, the number of separate programs grew to 163 in fiscal year 1995. Under the
existing programs, the enormous complexity of the system means that applicants often must fill out numerous
forms to access the services available in their community and may haVe to go to a number of locations 10
‘determine what services they are entitled to receive and how to obtain them.

Assisting Dislocated Workers

tis time for a fundamental change in how federal education and training funds are administered, particu-
larly for displaced workers. The Alliance fully supports a radical reform of the entire federal employment
and training system as long as the goal is to deliver services more effectively and efficiently to recipients.

Various proposals to consolidate programs into employment and training block grants to states are being
considered by the Congress. While the Alliance believes that states should be given flexibility to respond to
local labor market conditions and should not be overburdened with the federal government's administrative
procedures, the efficiency of state governments is not uniform. Some minimum requirements are needed to
ensure that the federal government's workforce development funds do not support bloated and inefficient deliv
ery systems at the state government level and that the funds go to the people most in need of the services.

‘The Alliance recommends that the Congress, in shaping training and related education policy, consider the
following points:

— All 163 federal training and related education programs should be consolidated into a few grants with

administrative procedures that allow the states sufficient flexibility to respond to local labor force needs.
No new targeted worker readjustment programs should be enacted in the future.

“Multiple Employment Training Programs: Conflicting Requirements Underscore Need for Change,”
statement of Linda G, Morra, Director, Education and Employment Issues, Health, Education, and Human
Services Division of the U.S. General Accounting Office, Labor and Human Resources Senate Subcommittee
‘on Employment and Productivity, March 10, 1994, p. 1


25

You also mentioned in your testimony—and Mrs. Kennelly re-
ferred to it—about TAA. You do not touch that. You indicate that
it could be the subject of an amendment on the floor.

Mr. MCKEON. We do not plan on doing that. I do not know who
would—I guess it is a subject if somebody wanted to do it. We have
no plans of doing that. It seems to me it comes under the jurisdic-
tion of the Ways and Means Committee, and if you want to do
something with it, fine. But we do not have any plans for that.

Mr. LEVIN. Well, I think the spirit within which you have been
working is important. Hopefully it might spread to some other
areas, but let’s for sure keep it in this area. And I hope the two
committees can work together within the same spirit that you have
with the administration.

Thank you.

Mr. McKeon. Thank you.

Chairman SHAW. Mr. Ensign.

Mr. ENSIGN. No questions, other than just to add my com-
pliments to working in a bipartisan fashion. As a freshman, par-
tisanship is not exactly something that you like to see, and I just
compliment your efforts on a bipartisan fashion, and hopefully the
rest of the committees will start exercising more of it.

Thank you.

Mr. MCKEONn. Well, thank you. I am not far removed from being
a freshman, being my second. term here. And I know I can be as
partisan as anyone. But as we started on this process, in my deal-
ings with the administration, with the other side of the aisle, I
said, you know, there is no reason for us to have disagreements
just because you are a Democrat and I am a Republican. If we dis-
agree on philosophy, that is something else. And we can work those
out. But we will not have a disagreement just because we have a
different party label, and I think we have really held to that. I
think we fave done a pretty good job.

Chairman SHaw. Mr. Rangel.

Mr. RANGEL. Following that bipartisan theme, I want to thank
you for keeping the bill open, at least for suggestions, which is
about as far as we get in this committee. [Laughter.]

But during the course of our marking up of the welfare bill, I
was trying to impress my colleagues with the fact that it has been
my experience in talking with the experts that one of the ways to
reduce this out-of-wedlock pregnancy was to concentrate on edu-
cation. It has been my experience that the kids who are educated
and have job opportunities and, indeed, are working, are not mak-
ing babies, are not doing drugs, are not doing crime and violence
and do not hinder us with the tremendous costs of going to jail.
And Chairman Shaw didn’t disagree, but pointed out that it was
not the jurisdiction of this committee to deal with the prevention
before the problem actually exists that we were working on.

So I went to the Speaker and shared this view with him, and he.
together with the Secretary of Labor, agreed that maybe we should
concentrate on seeing what education and job opportunities can do
in those communities of the very highest unemployment and have
these conditions which are really producing losers rather than
those with vision and hope. And then told the Secretary, try to get
six areas or at least allow someone to select six areas where you


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut.
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas L.F. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts

MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILLIP D. MOSELEY, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HUMAN RESOURCES
E, CLAY SHAW, JR, Florida, Chairman

DAVE CAMP, Michigan HAROLD E. FORD, Tennessee

JIM McCRERY, Louisiana BARBARA B. KENNELLY, Connecticut
MAC COLLINS, Georgia SANDER M. LEVIN, Michigan

PHILIP S. ENGLISH, Pennsylvania CHARLES B. RANGEL, New York
JIM NUSSLE, Iowa FORTNEY PETE STARK, California

JENNIFER DUNN, Washington
JOHN ENSIGN, Nevada

ay


119

employers. In fact, in terms of inflation, the overall FUTA tax has fallen dramatically
from $81 when the $7000 taxable wage base was adopted in 1983 to its present level
of $56. For this reason, we urge the Committee to reject calls for the repeal of the
FUTA surcharge.

Trade Adjustment Assistance and
NAFTA Transitional Adjustment Assistance

There is a great deal of discussion swirling around dislocated worker training
programs. There is talk of consolidation, block grants, and vouchers. Some have
called for the elimination of Trade Adjustment Assistance (TAA) for workers and the
related NAFTA Transitional Adjustment Assistance (NAFTA TAA) program. Others
have advocated the consolidation of these programs into a training block grant.

The UAW supports the continuation of TAA and NAFTA TAA programs as
separate programs. To some critics, these programs seem out of line because their
cost sometimes exceeds that of other dislocated worker programs. With all due respect
to TAA's critics, what's out of line is the low cost of many more ineffective programs
which fail to adequately retrain workers and waste scarce resources. In the UAW's
view, it is far worse to pretend to serve dislocated workers with low-cost programs
which fail to address the retraining needs of workers, than to give some trade-impacted
workers access to quality retraining and the income support necessary to successfully
complete that retraining. Until the United States adopts and funds a comprehensive
dislocated worker program and active labor market policies to provide jobs to
unemployed workers, the UAW will fight to preserve TAA and NAFTA TAA as separate
programs to address the specific needs of trade-impacted workers.

Both TAA and NAFTA TAA represent a promise (dare we say “contract”) with
workers harmed by our nation's “free trade” policies. The economic, social, and
emotional damage delivered by these free trade policies to eligible workers and their
communities far exceeds the funds spent on TAA and NAFTA TAA throughout their
history. Despite the claims made by NAFTA and GATT supporters of benefits to
American workers of our free trade policies, the UAW strongly objects to the elimination
of TAA and NAFTA TAA or their inclusion in a block grant.

Employment Service

Currently, there is a great deal of discussion and controversy surrounding
government training and reemployment services. In reacting to current criticisms,
Congress would be well advised not to forget history and to build upon, rather than
abandon, current programs. Every modern economy has a role for a public labor
exchange. The UAW supports the preservation and strengthening of the Employment
Service, and strongly opposes efforts to repeal the Wagner-Peyser Act or to include the
Employment Service in proposed training block grants.

In large measure, the Employment Service has been subjected to benign neglect
cover the last 25 years. Congress has frequently added new responsibilities such as
work registration of targeted populations or claimant profiling without providing
additional staff or funding to fulfill these responsibilities. State employment security
agencies have not been adequately funded over many years, and, as a result, the
majority of states have had to use state funds at various times to supplement federal
Wagner-Peyser dollars.

Despite this benign neglect, the Employment Service provides cost-effective
services to many employers and workers in the lower-wage sectors of the economy.
While many private employment services provide temporary placements for these
workers, the Employment Service remains the job finder of last resort for many in our
economy. With added support, the Employment Service has become a true one-stop
center for both employed and unemployed workers, as well as for employers, in some
communities. The Committee shouid take note of the many innovative and strong


68

for Food Stamps and AFDC, and their use for monitoring program performance has greatly
‘expanded over the past ten years.

‘The ES's ability to use its data to monitor performance and its ability to serve as an
honest-broker because it does not run expensive programs places it in an ideal position to
establish a system that would provide accurate feedback on the performance of the full array of
human resource programs.

In my view, the single most important step Congress could take to improve the
effectiveness of human resource development programs is to mandate that each state have a
system to provide accurate feedback, and establish a commission to develop a prototype system
for use by the states.

‘This step would greatly complement other efforts that are underway to profile UT
claimants, establish one-stop career centers, expand use of training vouchers, and combine
human service programs with similar goals into single block grants.

This analysis suggests that the ES has the ability to greatly expand its traditional role as
an information-broker beyond that of matching individual workers to job openings. It could
provide feedback to program operators, and perhaps most importantly, give workers the
information they need to decide what services would be of value to them, and precisely where
they should go to obtain appropriate public and private services. It is my hope that Congress,
the Administration, and the states work together to see that potential fulfilled.

Bibliography

1. Holtzer, Harry J. “Utilization of Public and Private Job Search Mechanisms: The
Experience of Employers and Employees," for the US-DOL Secretary's Commission on
Workforce Quality and Labor Market Efficiency, 1989.

2. Jacobson, Louis; "The Effectiveness of the U.S. Employment Service," March 14, 1994,
mimeo, for the Advisory Commission on Unemployment Compensation

3. Jacobson, Louis; “The Effectiveness of the Employment Service in Aiding Dislocated
Workers,” February 20, 1990, mimeo, submitted to the National Commission for
Employment Policy.

4. Jacobson, Louis, "Measuring the Performance of the Claimant Placement Program
(CPP) and the Employment Service (ES) in Aiding Unemployment Insurance (UI)
Claimants," June 18, 1993, report to the Washington State Employment Security
Department,

5. Jacobson, Louis and Ann Schwarz-Miller, "The Effect of UI Administrative Screening on
Job Search,” CRC 451, June 1981, for the Public Research Institute of the Center for
Naval Analyses.

6. Johnson, Terry, et al; “The National Evaluation of the Impact of the United States
Employment Service, Final Report,” August 1982; for the Office of Program Evaluation,
Employment and Training Administration, U.S. Department of Labor.

7. Katz, Arnold; “Job Search, Employment, Earnings and the Employment Service:
Comparison of the Experience of Unemployment Insurance Beneficiaries in
Pennsylvania, 1979-87." June 22, 1993, submitted to the W.E. Upjohn Institute for
Employment Research.

8. Potts, Michelle Harrington; “Trends in Job Search Methods, 1970-92," Monthly Labor
Review, October 1993.

9. U.S. General Accounting Office, Employment Service: Variation in Local Office
Performance (GAO/HRD-89-116BR, August 3, 1989)

10. U.S. General Accounting Office, Employment Service: Improved Leadership Needed for
Better Performance (GAO/HRD-914 -88, August 6, 1991)


79

At the same time, the training requirement could be replaced
with a requirement to participate in a job search program. Recent
research suggests that requirements to participate in job search
programs can increase employment and reduce the receipt of unem-
ployment benefits among recipients.

alternative approach would be to offer TRA payments only to
those individuals who actively participate in training. This ap-
proach would ensure that resources go to individuals who are ac-
tively attempting to adjust to a new industry or occupation. How-
ever, it would deny payments to displaced workers who cannot or
choose not to participate in the training. Our findings indicated
these, workers also experience severe earnings losses after their
layoff.

These recommendations about the training requirements are
based on the assumption that the program continues in some form.
Whether this is the case should depend on whether Congress
thinks that it is appropriate to provide more income support and
more reemployment services to trade-impacted workers than to
other displaced workers. Clearly, these workers suffer large income
losses as a result of their job loss, but so do other workers who lose
their jobs for other reasons. Thank you.

[The prepared statement follows:]


15

However, our legislation does Provide some broad parameters for
the design of a work force development system based on testimony
from our hearings and in talking to people around the country.

Specifically, title I of CAREE builds an infrastructure in
States and local communities for development and implementation
of a comprehensive work force development system. At the State
level, Governors will pull together key State agency heads and
leaders from business and education to develop a single State plan
and performance measurement system for the entire work force de-
velopment system.

In local communities, employer-led work force development
boards will provide policy guidance and oversee local systems and
will be responsible for establishment of local one-stop career cen-
ters—accessible single points of entry into the local work force
preparation system.

e Youth Work Force Development Program pulls school sys-
tems and postsecondary institutions together with local business
leaders to develop a school-to-work system for both in-school and
out-of-school youth in the community. This system is designed to
result in challenging academic and occupational competency gains
for all youth in the community, as well as completion of high
school, or its equivalent, and other positive outcomes such as place-
ment and retention in employment, or continuation into post-
secondary education or training.

Under the adult and vocational rehabilitation programs, up front
or core services, such as assessment of skills, counseling, job search
assistance, information on education, training, and vocational reha-
pilitation programs in the local community, and referral to appro-
priate programs would be available through a network of one-stop
career centers. For individuals with severe disabilities and deter-
mined to be in need of more intensive services, such services would
be available through vouchers and other means to be used with ap-
proved providers of vocational rehabilitation services.

For adults who are unable to obtain employment through the
core services, more intensive services in education and training
services would be provided through the use of vouchers or other
means that offer maximum customer choice in the selection of
training providers.

I now want to highlight some of the specific issues which are
likely to be of most interest to members of this subcommittee.

There are two major programs which the Opportunities Commit-
tee shares jurisdiction with Ways and Means: The Wagner-Peyser
Act of 1933, and the Trade Adjustment Assistance Program. Cur-
rentl , neither of these programs would be consolidated under CA-

E. .

Wagner-Peyser was not consolidated due to the fact that it is fi-
nanced by employers through the Federal Unemployment Tax Act.
There is an obligation to ensure that these funds are used for their
intended purpose, which is to maintain a national system of em-
ployment services.

CAREERS does amend the Wagner-Peyser Act. It ensures that
it is fully integrated into the one-stop delivery system, retains the
emphasis on job placement functions of the Employment Service,
continues to ensure that unemployment claimants are actively


128

ISSUE #2
Fe ERVE

The following NCOA recommendation does not concem the expansion of the
Unemployment Compensation Program, but proposes a change to the way National
Guard/Reserve compensation reduces the amount of unemployment compensation

guard/reserve members can receive should they lose their primary jobs or sources of income.

Mr. Chairman, the decision to be an active part of the National Guard or Reserve forces has
never been more important than it is today. At a time when the active forces have been
reduced to what many believe are bare minimum levels, decisions must be made that will
encourage young men and women to serve in guard and reserve forces. These members
receive only a minimal amount of compensation for their service and must rely on their
primary civilian jobs to provide for themselves and their families. If they lose civilian
employment, unemployment compensation provides them some financial relief until they
become reemployed. Some states exempt Guard/Reserve pay from unemployment
compensation determination. In other state however, the amount of unemployment
compensation a member of the guard/reserve receives is frequently reduced by the amount
of military compensation received as a result of guard/reserve service. NCOA believes that
such a computation formula unduly punishes a guard/reserve: member for the hardships
Incurred as a result of his or her desire to militarily serve their Country and ultimately

discourages continued participation,

NCOA recommends this subcommittee address the particular needs of guard and reserve

members by providing legislative relief that would uniformly exclude any guard/reserve pay
received from any offset computations to determine authorized levels of unemployment
‘compensation.

ISSUE #3


134

STATEMENT ON
RESTRUCTURING THE FEDERAL TRAINING AND EMPLOYMENT SYSTEM

‘The U.S. Chamber recognizes that America’s training and employment system is
inadequate to meet the demands of rapidly evolving technologies and intensifying global
competition. The current system is fragmented and duplicative, and often fails to provide
workers and employers with the fast and effective training and placement services they need.
Equally compelling is the fact that growing numbers of workers are becoming permanently
displaced through structural changes in government policy and corporate restructuring, as
‘opposed to cyclical changes in the economy. These weaknesses in the existing work-to-work
transition system need to be resolved.

The U.S. Chamber, therefore, supports restructuring the federal training and
employment system to make it more responsive to the needs of dislocated workers and skill
requirements of employers. To be effective, it is essential that the new system reflect the

following principles:

* The business community must be centrally involved in all phases of the
restructured system’s design, development, operation, and evaluation.

* ‘The new system must not impose any new federal mandates or regulatory
burdens upon employers. It must not be financed through the creation of a
new tax of an increase in any current tax on business.

. ‘The new system should assist workers in pursuing job search and placement
assistance, career advancement, and a career change. Services must be
delivered as promptly and effectively as possible to help employers make
quicker and less costly connections with prospective employees. Training
services must reflect the local and regional skill needs of employers.

* Information regarding career and training services should be offered
competitively at the local level. Service providers may include representatives
of the private sector, The creation and governance of the streamlined system.
must be business led. Attempts should be made to factor in the education,
employment and training programs of all federal agencies.

. There must be sufficient state and local flexibility incorporated into the design
and implementation of the new re-employment system. Provisions to maintain
accountability and standards of quality at the state and local level should be
a part of the national restructuring plan.

. The current labor market information system must be strengthened and
enhanced. Voluntary occupational skills standards should be integrated into
this system, so dislocated workers can know exactly what types of skills they
will need for certain occupations.

* In addition to strengthening state and local flexibility, the private sector
should be encouraged to compete for the delivery of education, employment
and training services. One way to help spur local competition and encourage
public sector programs to operate more efficiently is to put financial resources
directly in the hands of individuals to pursue private or public sector
postsecondary education and training. The overall goal should be to improve
the learning and achievement of individuals and help them to succeed in the
workplace of the 21st century.


74

Another resource is access to America's Job Bank, an interstate effort to match
jobseekers and employers. America’s Job Bank makes it possible for employers
who need workers with skills that are in short supply in their local areas to find
candidates in areas where there is a surplus of such skills. Just recently, access to
America’s Job Bank has been made available on the internet

{In addition to these resources, where funds are available, many state employment
service offices provide job search workshops, job clubs, and other activities that
support independent job search efforts. States also make space available free of
charge to community groups to conduct similar activities, .

Third, including the Employment Service in any proposed job training block
grant legislation would sever its linkage with the unemployment insurance
‘system-which is critical to application of the unemployment insurance “work-
test"--and could result in higher outlays for unemployment benefits.

A great deal of discussion about re-inventing the nation’s "unemployment" system
has focused on worker training/retraining programs. While state employment
security agencies see considerable merit in linking unemployment, employment, and
training programs to create a comprehensive workforce development system, the
many workers who go through periods of temporary unemployment and return to
their previous job or a similar one without retraining should not be forgotten.

In FY 1994 alone, the Employment Security System provided an estimated 8.4
million unemployed workers with unemployment checks totalling over $27 billion.
The average unemployed worker received benefits for just over 15 weeks. More
than 11.6 million jobseekers received job service assistance from the Employment
Service last year.

Most states require unempioyment benefit recipients to register for work with the
Employment Service. Registering with the Employment Service has two purposes:

The first is to help U! beneficiaries return to work as quickly as possible, The
information available about jobs, hours and wages, and employer requirements for
worker skills, as well as the job referral and placement services offered by the
Employment Service, help U! beneficiaries to reenter the workforce as quickly as
possible. Various studies have shown that the services provided by the
Employment Service can help Ul beneficiaries get back to work faster, reducing
outlays for unemployment benefits and keeping state unemployment charges to
employers as low as possible.

The second purpose of requiring UI beneficiaries to register with the Employment
Service is to demonstrate one aspect of the individual's efforts to meet the
requirements of the state unemployment insurance law to be available for and
seeking new employment each week for which benefits are claimed. Ul
beneficiaries who refuse a referral from the Employment Service to a job opening or
a job offer resulting from a referral may be disqualified from unemployment benefits.
This critical linkage in administration between the Employment Service and the
unemployment insurance system tests the commitment of U! beneficiaries to find
new work and is often referred to as the "work test.” While the overwhelming
majority of UI beneficiaries want to find new jobs as quickly as possible, the "work
test provides a means to address those who might abuse the system

Its linkage with the Employment Service is critical to the financial health and integrity
of the unemployment insurance system. The original legislation—still in effect~which
created the unemployment insurance system in 1935 includes a requirement that
unemployment benefits be paid through public employment offices. Those offices
had been created two years earlier by the Wagner-Peyser Act (June 6, 1933).


32

helping working people adapt to the new labor market and boost
their earnings. This strategy would build new systems for
redeploying Federal resources and drastically re-engineering the
current Industrial Age system. Many of the basic elements of the
President's proposal to redesign job training, education and
employment programs are also evident in other proposals being
considered by the Congress. We are working with Congressman
McKeon and others to fashion legislation that incorporates these
basic elements.

I would like to describe key componénts of the President's
proposal for redesigning the system and then discuss several
specific issues, including the use of FUTA funds for public labor
exchange services, the retention of the TAA and NAFTA~TAA
programs, the FUTA surtax, and the FUTA exemption for certified
foreign agricultural workers under the H-2A program.

The G.I. Bill for America's Workers: Consolidating Programs

This year, in the G.I. Bill for America's Workers, President
Clinton proposed a new approach for organizing services to help
citizens find jobs and get the training and education needed to
prosper in the new economy. The President's proposal
consolidated 70 programs and created a market-driven system, with
accountability based primarily on individual empowerment,
informed customer choice, and provider competition. The proposal
has three parts: an adult workforce development system, an adult
education and family literacy system, and a comprehensive youth
system consisting of an accelerated school-to-work reform
component focussing on in-school youth, and a second-chance
school-to-work component focussing on youth dropouts.

While proposing to streamline these programs, the President
also seeks to increase overall funding by $1 billion, reflecting
his belief that -- now more than ever -- education and training
are the ladder into the middle class and the best insurance that
workers have against economic change. In contrast, the recently
Proposed House and Senate budget resolutions contain dramatic
cuts in the funding for these systems. As Secretary Reich noted
last week, "We ought to be investing more in people, not
investing less..."

The G.I. Bill for America's Workers would create a workforce
development system designed to empower adult Americans to take
control of lifelong learning resources away from bureaucracies
and into their own hands--much like the original G.I. Bill. one
of its key components is to give purchasing power to individuals
through Skill Grants. These grants would be available to
Americans who lose their jobs and need new skills, as well as to
low-income workers seeking to learn their way into the middle
class. An estimated 2.1 million dislocated and low-income men
and women would use these vouchers each year to prepare
themselves to prosper in the new economy.

Another key part of the President's proposed adult system is
creation of a comprehensive One-Stop Career Center system, based
on four broad objectives: universal access, customer choice,
integrated system, and performance driven by outcomes. The
President's one-stop strategy expands on the approach designed
jointly with the governors, local elected officials, and the
private sector last year. | Under the President's proposal,
States ~- working in cooperation with communities, the private
sector, local schools and colleges -- will integrate ES, JTPA and
other local programs into a coherent system for job training and
job search assistance.

Many States and local communities have started to transform
the current system of multiple, separate categorical programs
inte a customer-friendly, accessible, and coherent One-Stop
system. Last year, six States -- Connecticut, Maryland,


103

certification process is funded through the FUTA tax. Since FUTA serves as the mechanism for funding
the costs ofthe certification process, there is an additional rationale for repealing the exemption of H2-
workers from FUTA taxation.

‘On the other hand, H2-A workers are ineligible to receive Unemployment insurance benefits since their
visas require that they return to their country of origin within ten days after their employment terminates.
Consequently, these individuals cannot meet the “available for work" test of the Unemployment Insurance
system. Thus, FUTA taxes would be imposed upon the wages of individuals who cannot receive
‘Unemployment Insurance benefits, which argues against imposing the FUTA tax on their wages.

On balance, the Couneit finds that the arguments in favor of FUTA taxation of alien agricultural
‘workers outweigh the arguments against continuing that exemption,

1994-7. Recommendation

‘As of January 1, 1995, the wages of alien agricultural workers (H2-A workers) should be subject
to FUTA taxes.

1995 FINDINGS AND RECOMMENDATIONS

THE PURPOSE OF UNEMPLOYMENT INSURANCE

‘The Advisory Council on Unemployment Compensation finds that, although an increasing percentage of
the unemployed experience long spells of unemployment, the majority of the unemployed experience
relatively short unemployment spelis. Similarly, while a growing minority of individuals who receive
Unemployment Insurance exhaust their benefits without having found new employment, the majority of
individuals receive Unemployment insurance benefits fora relatively short period of time before retuming
to employment. This reality dictates that the Unemployment Insurance system must be designed to deal
effectively with a variety of needs. tn particular, the system must both provide temporary wage
‘replacement to individuals and facilitate the productive reemployment of those individuals who experience
longer spells of unemployment.

‘The Unemployment Insurance system also serves an important macroeconomic stabilization role by
injecting additional money into the economy during periods of downturn. This objective, however, can
only be achieved effectively if the system is forward-funded, thereby accumulating funds during periods
of economic health

‘These findings lead the Council to a formulation of the following statement of purpose for the
‘Unemployment Insurance system.

1995-1. Statement of Purpose

The most important objective of the U.S. system of Unemployment Insurance is the provision of
temporary, partial wage replacement as a matter of right to involuntarily unemployed individuals who
have demonstrated a prior attachment to the labor force. This support should help to meet the necessary
expenses of these workers as they search for employment that takes advantage of their skills and
‘experience. Their search for productive reemployment should be facilitated by close coopera
the Unemployment insurance system and employment, training, and education services. In addition, the
system should accumulate adequate funds during periods of economic health in order to promote
‘economic stability by maintaining consumer purchasing power during economic downturns.

FUNDING OF THE UNEMPLOYMENT INSURANCE SYSTEM

‘The Unemployment Insurance system's capacity to promote economic stability rests on two key aspects
of its funding mechanism. First, the funding of the system is "experience rated"—that is, employers who
hhave been responsible for greater demands onthe system pay higher taxes and consequently beara greater
share of the system's costs. Second, during periods of prosperity, the system accumulates reserves that
are then spent during periods of economic decline.

Some members of the Council believe that experience rating is a crucial component of the program,
providing effective incentives for employers to avoid laying off workers, Other members believe that
experience rating causes employers to make excessive use of the system’s appeal mechanism in an atter
to keep their experience-rated taxes as low as possible. Although the Council was unable to resolve this
difference of opinion, it intends to address the issue of experience rating in its next annual report

‘The Council unanimously concludes, however, thet promoting economic stability is an objective that
transcends the interests of the states and cannot be achieved by states working in isolation. While some
states have attempted to maintain an adequate degree of forward funding, others have not, The low
reserves in some states" trust funds weaken the Unemployment Insurance system’s capacity to achieve its
‘economic stabilization function.

Effectively promoting the forward funding of the Unemployment Insurance system requires a coherent
federal strategy that includes congressionally stated goals.



39

The design of the proposal in the Economic and Educational Op-
portunities Committee is very similar. We do not know where the
funding is going to be. If you look at the House and Senate budget
resolutions that are proposed, we are going to take at least a 20-
percent cut in real terms. Over 7 years, that could grow to over a
40-percent cut. So in terms of the level of investment, it is quite
different.

Mr. Forp. The Budget Committee has suggested repealing the
Extended Benefits Program. What is the administration’s position
on this, Mr. Secretary?

Mr. UHALDE. Well, the administration would oppose the repeal of
the Extended Benefits Program. We think that the Extended Bene-
fits Program, as it operated in the last recession, was not very sen-
sitive to changes in the unemployment rate. It did not trigger on
as it should, and we did institute the optional total unemployment
rate trigger, which should help the next time around. But we would
not repeal the Extended Benefits Program. It is important to have
an effective program.

Mr. Forp. Would you support a 2-week waiting period for unem-
ployment benefits, as some Republicans are suggesting?

Mr. UHALDE. No, we would not.

Mr. For. You would not.

Mr. UHALDE. No.

Mr. Forp. Thank you. I yield back the balance of my time, Mr.
Chairman.

Chairman Suaw. Mr. Collins.

Mr. Couns. Thank you, Mr. Chairman.

You mentioned a lot about assistance. Let me give you an exam-
ple. I am 32 years old, I work at the textile mill that is an apparel,
a cut-and-sew plant. My company has just decided to close down
and move to Mexico. Just what type of assistance are you going to
offer me as a displaced worker, unemployed, a family to feed?

Mr. UHALDE. Well, the first thing is that 80 percent of the money
is already out there to the States. We put it out by formula, and
the State has a dislocated worker unit. On the day of the an-
nouncement of a plant closing we could be onsite with your workers
setting up tables and assistance to provide workers information on
their eligibility under unemployment compensation, and the serv-
jces that could be available from the Employment Service, to help
them start to think about resumes, about doing inventories of their
skills and their life skills and experiences. We can start from the
day of announcement through our system to be able to provide as-
sistance.

The State can provide assistance for job placement services, re-
training for workers, counseling and support and financial manage-
ment counseling services for families. If the State does not have
adequate resources—sometimes the dislocations are large and con-
centrated in communities—then they can apply to the Federal Gov-
ernment, and within a period of 30 to 45 days we can provide a
special grant to the State and to the local community.

We can provide for dislocated workers the ability to search for
work out of the community. If it is a small town and really the jobs
are elsewhere, there is out-of-area job search assistance. So there


64

unavailable the ES played a key role in providing governmental assistance. In periods where
there were massive shifts in labor demand across sectors or areas the ES played a major role in
making those shifts as orderly as possible. Perhaps equally remarkable, in periods where there
were no large-scale changes in labor market conditions the ES appropriately downsized its
‘operations focusing on finding jobs for workers, who in the absence of the ES’s aid, would have
had great difficulty finding work.

Indeed, one of the ES's most striking attributes is that it tends to help those who need
help the most by cooperating with private sector employers. Another key attribute is that it
tends to fill labor exchange niches that would not be filled adequately by private employment
agencies. Thus, the ES leaves to the private sector those areas, such as placing high-wage
‘managers and temporary clerical workers, where it can do an effective job.

Measurement of ES Performance

The ES has paid a high price for doing what most government social services programs
should do act as a "backstop" for individuals who have exhausted their own resources and those
of the private sector. Wagner-Peyser funding has fallen in absolute terms as the number of job
seekers who use its services has grown.

In my view, a key reason for this reduction in funding and the ES's generally poor image
"inside-the-beltway" is that policy makers use inappropriate comparisons between the ES and
other programs.

For example, it is true that the ES "placement rate" is about 16 percent compared to a
STPA “entered employment rate” that is above 70 percent. But the ES statistic is restricted to
only those jobs taken as a direct result of an ES referral, while the JTPA statistic reflects taking
any job. In addition, the ES places no restrictions on who registers, while JTPA can limit
Participants to individuals who are serious about finding a job. In fact, about one-third of ES
registrants are UI claimants most of whom are recalled to their former jobs, and up to another
third are economically disadvantaged individuals most of whom must register with the ES as a
condition of receiving welfare.

Perhaps of even greater importance, the ES spends only about $80 per registrant while
ITPA spends over 20 times as much on each participant Thus, it appears that the ES is
to perform at a level of an agency that is much more generously funded and can select
the individuals it chooses to serve.

Similarly, unfavorable comparisons can be made between the wage of the jobs found
through the ES relative to average wages. But those comparisons ignore differences between
starting wages and wages attained after several years on the job, as well as differences in the
skills and other characteristics of those placed by the ES relative to other job seekers.

Indeed, most jobs seekers who turn to the ES lack other means to find work or have
failed to locate jobs using other means. Thus, simple statistics end-up contrasting ES users, who
typically have had great difficulty finding work, to job seekers who have had access to superior
leads from friends and relatives or superior skills that made it easy to find work through want-
ads or direct applications at work sites. Such comparisons have little meaning,

Of fundamental importance, even adjusting measures of placement and wage rates for
differences in the characteristics of ES-users and those of other job seekers produces measures
that largely are irrelevant for determining the ES's value. Appropriate measures of benefits
include the reduction in joblessness, increases in earnings, and savings of transfer payments

t w ence o

When judged on that basis the ES performaive ‘elative to its cost iy impressive. For
example, detailed analysis of the experience of about 20,000 Pennsylvania claimants over a ten-
year period showed that each ES placement reduced the duration of unemployment of the long-

* Basic statistics about current operations are that there are about 20,000,000 ES registrants a year and
‘about 3,000,000 job placements. The total budget of the ES is about $1.6 billion, Of that amount roughly
‘$800,000 comes from Wagner-Peyser funds, The remainder are contributions made at each state's discretion
from other federal programs as well as state appropriations,



35

needed to repay general revenue loans to the Extended
Unemployment Compensation Account (EUCA) following heavy outlays
primarily for extended benefit (EB) payments. The surtax was
scheduled to terminate at the end of 1987 when the EUCA debt was
repaid. However, the surtax was extended four times, with the
latest extension authorized through calendar 1998.

Continuing the surtax through 1998 will allow for sound
financial management and accumulation of additional reserves to
cushion an economic downturn. Under the assumptions in the
President's Budget, the legislatively set limits on the accounts
in the Unemployment Trust Fund would be reached shortly
thereafter.

The need to build up balances during good economic times is
illustrated by the experience in the recent recession. Reserves
in BUCA were used to pay about 45 percent of the outlays
associated with the Emergency Unemployment Compensation program.
EUCA reserves did not pay more, because that account approached
insolvency and general revenues were needed. Unlike the
situation when the surtax was first imposed, EUCA does not have
to repay these general revenues. Nonetheless, assuring a EUCA
balance near its ceiling when the economy is in good shape is
simply prudent preparation for any future downturn.

Exclusion from FUTA of H-2A Workers

Last December 31, the exclusion from FUTA of wages paid to
temporary foreign alien agricultural workers with H-2A visas
expired. This exclusion was originally enacted in 1976, when
FUTA coverage was first extended to most agricultural workers,
and was subsequently extended on a temporary basis on six
occasions.

Under an H-2A visa, temporary foreign farmworkers are
admitted to the U.S. to perform agricultural services of a
temporary or seasonal nature. The visa may only be granted if
the Department of Labor certifies that U.S. workers are not
available to perform such services and that the employment of H-
2h workers will not adversely affect similar U.S. workers. The
visa requires H-2A workers to return to their country of origin
upon completion of their work.

The rationale for the exclusion is that employers should not
be required to pay the federal unemployment tax for H-2A workers
since, under the terms of the visa, such workers must leave the
u.s. if they are unemployed and therefore cannot collect
unemployment compensation. On the other hand, the exclusion
reduces employers’ costs of employing temporary foreign workers.

It should be noted, however, that the administrative costs
of the certification of H-2A workers are funded from FUTA
receipts. While employers of H-2A workers pay application fees
for such certification, the funds generated ($470,000) are far
below the estimated costs of $8.6 million in FUTA funds provided
to States to carry out certification responsibilities. (In
addition, over $1 million in federal administrative costs are
paid out of FUTA funds.) Thus, in effect, employers who pay FUTA
have been subsidizing the costs of of a certification process
that has benefited employers who have not paid FUTA for H-2A
workers.

The Administration would not oppose an extension of the
exclusion that is accomplished in an appropriate, revenue-neutral
manner. We believe that the best approach may be to increase the
H-2A application fees on employers to cover the certification
costs and eliminate the subsidy. We would be happy to discuss
other approaches to an extension of the exclusion with members of
the Subcommittee.


67

I strongly urge this committee to mandate development of such a system and establish an
independent commission to recommend how that best can be done. History suggests that state
and federal program operators are simply too pressed with day-to-day operational issues to
devote the time and resources required to carefully review the options and consider how
information systems currently in place can be improved.

‘The ES would be the most appropriate agency to monitor performance in a uniform
fashion. It currently has the data systems in place needed to measure performance, and of at
least equal importance, has no direct stake in the outcome of the evaluations. In contrast, the
current system which allows organizations to evaluate themselves creates strong incentives to
select measures that makes performance look good, at the expense of providing meaningful
feedback.

‘This brings me to my final point, An information system that would accurately inform
program operators about their performance, and permit them to adopt procedures of proven
effectiveness from other organizations, also would provide the basis for informing potential
consumers of those services about what types of assistance would be most helpful and where the
best quality services can be found.

Thus, the development of such an information system also would place the ES in an
excellent position to act as an honest-broker with respect to providing consumer information.
‘Not only is the ES well-positioned to serve in this capacity, several recent trends have led to
practical steps in that direction.

First, many states have begun to develop one-stop career centers with the ES playing a
lead role. These centers ate designed to acquaint individuals needing help with the array of
services available and help them select an appropriate assistance plan.

Second, the UI/ES system has been given the responsibility to "profile" each UI claimant
to determine his or her need for aid, to draw up an action plan in consultation with the
claimant, and make participation in the plan a condition for continuing to receive UI payments.
At present states are struggling to develop computer systems to help figure out what treatments
‘would be appropriate, as well as find the means to pay for mandatory services.

‘Third, there is growing state and federal interest in using vouchers to increase the
consumer's role in selecting services.

Fourth, the movement towards consolidation of the current array of programs into block
grants would greatly facilitate improving the match of services to the clients’ needs. At present

more effort often is spent determining if a client is eligible for a given service than determining
if the service itself is suitable.

Each of these four trends places a premium on improving the quality and quantity of
information available to consumers, honest-brokers, and program operators.

‘Summary

In summary, the U.S. Employment Service has shown itself to be an unusually resilient
and effective organization that provides direct job placement service of great value to workers
and employers.

‘The ES has been undervalued, however, because it is difficult to put its performance into
proper perspective, Disparate measures which are biased against the ES are used to compare
its performance to that of other programs, disparities in funding are ignored, and it is difficult to
take into account the fact that the ES delivers services to individuals who have exhausted their
‘own resources and those of the private sector.

More appropriate comparisons uniformly show that the ES substantially reduces the
duration of unemployment of registrants and places them at jobs which, if anything, are higher
paying than those the registrants could find on their own. ES referrals and placements also
substantially reduce UI payments both by placing claimants at jobs and ensuring claimants
assiduously search for work.


104

1995-2, Recommendation
Congress should establish an explicit goal to promote the forward funding of the Unemployment
Insurance system. {n particular, during periods of economic health, each state should be encouraged to

to pay al least one year of Unemployment Insurance benefits at levels,

‘comparable to its previous "high cost.” For purposes of establishing this forward-funding goal, previous

‘high cost” should be defined as the average of the three highest annual levels of Unemployment

{Insurance benefits that a state has paid in any of the previous 20 calendar years

To complement these forward-funding goals, financial incentives to encourage forward funding should
be created. This can be done by changing the structure of the interest rates that the federal government
pays to the states on their Unemployment insurance trust fund balances. A slight reduction in the interest
rate paid on low levels of states’ trust funds could be used to finance a fairly substantial interest rate
premium paid on high levels of reserves. While itis difficult to predict with accuracy how many states
would respond to such incentives, careful management of the interest rate structure could ensure that these
incentives could be financed without additional cost to the federal government

1995-3. Recommendation
To encourage further forward funding, an interest premium should be paid on that portion of a state's
Unemployment Insurance trust fund that isin excess of one "high cost" year of reserves. The cost of this
interest rate premium should be financed by a reduction in the interest rate paid on that portion of each
state's trust fund that is less than one “high cost” year of reserves. The U.S. Department of Labor should
‘be given authority to adjust periodically the interest rate structure to ensure that these incentives create
‘no additional cost to the federal government.

‘The Council finds that the current federal policy of providing short-term, interest-free loans to state
trust funds creates a disincentive for states to forward fund their systems. Preferential loan treatment
should be available only to states that have met, or made satisfactory progress toward, the forward-funding
goal. An example of how satisfactory progress might be defined is presented in Chapter 5 of this report.

1995-4. Recommendation
Preferential interest rates on federal loans to the states should be restricted to those states that have
achieved (or made satisfactory progress toward) the forward-funding goal. In particular, the current
system of making interest-free, cash-flow federal loans generally available to all states should be ended.
Rather, these interest-free loans should be made available only to those states that have achieved (or
‘made satisfactory progress toward) the forward-funding goal prior to the onset of an economic downturn.
In other states, these loans should be subject to the same interest charges that are incurred on long-term
loans to state Unemployment insurance trust funds.

1995-5. Recommendation
‘A method is needed for determining whether a state that has not yet met the forward-funding goal has
made "satisfactory progress” toward the goal. This method should be based on an empirical analysis of
the rate at which state trust funds must be restored during periods of economic health in order to achieve
the forward-funding goal prior to a recession.

1995-6. Recommendation
‘When states have achieved (or made satisfactory progress toward) the forward-funding goal, yet find it
necessary to borrow from the federal government, the interest rate charged on long-term loans should
be a preferential rate that is 1 percentage point lower than would otherwise be charged.

‘The Council has discussed the level at which the taxable wage base and tax rate established by the
Federal Unemployment Tax Act (FUTA) should be set. This is a complex issue. FUTA revenues are
earmarked for financing the administration of the nation’s Unemployment Insurance system, a5 well &
that of the U.S. Employment Service. However, because the trust funds are currently held within the
unified federal budget, itis not possible for these programs to achieve direct access to the funds that are
earmarked for them. In addition, a two-tenths surcharge that was imposed in 1977 to pay off trust fund
debis has been extended well beyond the time when the debt was repaid. Quite apart from these issues,
the Council has not yet made a determination of whether or not additional revenues from FUTA would
contribute to more efficient and effective operation of the Unemployment Insurance system and the
Employment Service.

‘Another element of complexity results from the fact thatthe minimum taxable wage base thatthe states
use for financing their Unemployment Insurance benefits is tied to the FUTA taxable wage base. On
average, those states with higher taxable wage bases have a higher level of reserves than do states that
hhave set their taxable wage base at the minimum level of $7,000. Consequently, raising the FUTA taxable
‘wage base might contribute to the overall forward funding of the system,

Furthermore, a low taxable wage base within a state tends to impose the burden of Unemployment
Insurance payroll taxes disproportionately on employers of low-wage workers. To the extent that
employers pass on a portion of the tax to their workers in the form of lower wages, therefore, @
disproportionate share ofthe burden of the taxis ultimately bome by low-wage workers. Those low-wage
workers who work part-time or part-year, however, are often ineligible for Unemployment Insurance. AS
4 result, the low taxable wage base within the Unemployment Insurance system is both regressive and
unfair.



126

‘on ex-servicemembers to hold down the cost of the program. It also limited benefits to 14

weeks while civilians could draw up to 39 weeks of benefits.

In 1991 with high unemployment rates and the impending plan to significantly reduce the
personnel strengths of the armed forces, Congress answered an NCOA recommendation that
unemployment compensation benefits pald to ex-servicemembers and unemployed civillans
should be equalized, Since 1991, NCOA Is pleased to report to the members of this
subcommittee that ex-servicemembers have rightfully enloyed parity In the payment of
unemployment compensation.

For the past number of years when “deficit reduction" has become the order of the day, the
elimination of UCX is continually being discussed as a source of revenue to either reduce the
national debt or provide funding to pay for other programs. The recommendations are for
the most part based on the premise that those who voluntarily terminate employment are not
eligible for unemployment benefits. Since military personnel terminate service by not
choosing to renew their contracts, they are labeled as a group who voluntarily “quit” their
jobs. NCOA suggests that military service is unique and a number of factors cause it to

differ from the traditional definition of the term "job". For instance:

‘© The majority of young men and women who are recruited into the armed
forces, do not envision serving for a full 20-year career, but only to fulfll their
military service obligation to the Country.

© The Department of Defense (DoD) admits thelr inability to manage the
personnel strengths, recruiting goals or upward mobility opportunities for
career-minded individuals of the armed forces if all who Joined would remain.
‘© Enlistment rationale vartes, but normally involves personal development,
opportunity, training, travel and Montgomery Gl Bill education benefits.
© Unlike civilian employment, military service requires a contractual
agreement between the individual and goverment for only a specified period
of years.


45

_ The other area that I wanted to address on employer concerns
is the use of FUTA funds only for their intended purposes. In that
regard, I am very happy to hear Congressman MeKeon indicate
that. they do not intend to use FUTA funds for their training block
grants. He very adequately represented the concerns of the em-
ployer community that these funds be used for the purpose for
which they are paid, which is the administrative cost of unemploy-
ment insurance and the Employment Service programs.

However, we would like to see some stronger language on requir-
ing the integration of the unemployment insurance and the Em-
ployment Service activities than is contained in Mr. McKeon’s bill,
which, basically, I think, is the present Wagner-Peyser language.

We support the language that is being proposed by the Interstate
Conference of Employment Security Agencies, and Debra Bowland
will give you that in her testimony. They were looking at it in
terms, primarily, if something needed to be done if Wagner-Peyser
were repealed.

However, I would suggest that it needs to be done whether
Wagner-Peyser is repealed or not, because in some States, there
has not been very good integration between the Employment Serv-
ice and the unemployment insurance activities. This integration is
essential for application of the so-called work test. The work test
is applied when the Employment Service refers an unemployment
compensation claimant to suitable work, and that is a basic re-
quirement of all UI laws. That is, for a person to draw UI benefits,
he must be able and available for suitable work.

So we think that you might well consider an amendment along
those lines, and they propose an amendment which is in the juris-
diction of this committee, incidentally. :

We appreciate the opportunity to appear before the subcommittee
and your consideration of our proposals to repeal the temporary 0.2
percent payroll tax and re airing integrated State UES programs
to best serve the needs of both the employer and the unemployed.

I would be happy to have any questions, and I would like to ad-
dress the solvency issue that Mrs. Kennelly raised, since she raised
the question as to whether you could afford to repeal the 0.2 per-
cent tax or not.

I think the basic issue there, I guess, is probably the one that
the Budget Committee was concerned about, in that you need the
money to make the total come out. However, as far as the solvency
of the trust funds are concerned, we do not feel that the projections
that the Labor Department has made and that Mary Ann Wyrsch
referred to justify any concern about solvency.

She was referring to projections in the Department of Labor, “UI
Outlooks,” January 1995 for the fiscal year 2000, when the ex-
tended benefit account is at $16.62 billion, which exceeds the statu-
tory ceiling by $550 million. The State loan account is projected to
be only $20 million under the statutory ceiling. The administrative
account is projected to exceed the statutory ceiling by $290 million.
Now, that assumes that the 0.2 percent would go through 1998.
However, it seems to me that there is plenty of leeway there for
these funds to still remain solvent even if the 0.2 percent tax were
repealed. Thank you.

e prepared statement and attachment follow:}


87

STATEMENT BY BILL CUNNINGHAM, LEGISLATIVE REPRESENTATIVE,
THE AMERICAN FEDERATION OF LABOR
AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
ON
UNEMPLOYMENT COMPENSATION ISSUES, THE EMPLOYMENT SERVICE AND
TRADE ADJUSTMENT ASSISTANCE AND NAFTA-TAA
TO THE SUBCOMMITTEE ON HUMAN RESOURCES,
WAYS AND MEANS COMMITTEE, U.S, HOUSE OF REPRESENTATIVES

May 16, 1995

| appreciate this opportunity to set forth some AFL-CIO concerns about the
nation’s federal-state unemployment compensation system, about possible
consolidation of federal job training programs, and about the future of the U.S.
Employment Service.

1n brief, in this statement we urge:
* Keep the Extended Benefit program of unemployment compensation for
long-term jobless workers in states with high unemployment;

* Continue the Wagner-Peyser law as the base for a revitalized
Employment Service and continued operation of the nation’s
unemployment insurance system;

* Continue Trade Adjustment Assistance and NAFTA-TAA as distinct
programs;

* Keep wages of alien H2-A farm workers subject to FUTA taxes;
* Continue the 0.2 percent FUTA surtax;

* Keep labor participation a formal part of any restructuring of job training
programs;

* Make accountability a formal part of any restructuring of job training
programs.

Let me comment briefly on the need for sound financing of the nation’s
unemployment compensation system.

The unemployment insurance system is the nation’s first line of defense for
workers and their families when job loss hits them. This Ul system is a key part of the
nation’s safety net to restore a minimum decent standard of living when workers lose
their jobs and their income from work.

But there's an important economic purpose of the UI system -- in addition to
the humanitarian safety net purpose of helping people without earnings and income.
The nation’s Ul system is a key economic stabilizer. In time of recession this system
quickly gets buying power into the hands of consumers who will spend it quickly ~~
thus cushioning the recession and helping business as well as helping families in need.

Unfortunately, the UI safety net is full of holes. Lack of adequate funding is the
biggest single factor behind excessive restrictions on eligibility and inadequate UI
payments. +


8

Mr. Crapo. Oh, OK. Then my numbers were obviously very dif-
ferent than that.

Chairman SHAW. But we will be sure both numbers are in the
record because I do want to be sure they are correct ones.

Mr. Rangel.

Mr. RANGEL. Thank you.

How many workers are we talking about? How many alien work-
ers are we talking about?

Mr. Crapo. Mr. Rangel, I do not have that information.

Mr. RANGEL. Where do they come from?

Mr. Crapo. I can tell you that in Idaho it is the sheepherders.
I can tell you the States where they are involved, but I cannot tell
you the nation.

Mr. RANGEL. I am very concerned about the Governor of Califor-
nia’s position on this, so I have got to know where they come from
because I know his feeling about aliens, whether they are legal or
illegal. This is not inconsistent with Governor Wilson’s idea.

Mr. Crapo. Mr. Rangel, I do not have personal knowledge of
Governor Wilson’s position, but I do not believe that this is incon-
sistent with his position. The reason is these workers who are com-
ing in, they are legal workers; they are not illegal immigrants.
They are legal workers.

Mr. RANGEL. You know this committee’s feelings about legal
aliens in terms of receiving Federal benefits.

Mr. Crapo. Yes, sir.

Mr. RANGEL. Which is very negative. So I want to be consistent
with my committee to make certain these people are not entitled
to any benefits at all. Are they?

Mr. Crapo. Mr. Rangel, the point here is that what I am talking
about is a benefit for the U.S. employers. Under the H-2A Pro-
gram, the workers who come in from foreign countries are still not
entitled to the unemployment benefits because they must go back
to their country unless they can continue their H-2A employment.
They are temporary workers brought in legally under a Federal
program, and we are not seeking to change that.

What we are saying is that the tax burden imposed on American
employers, if this exemption is not extended, will be unreasonable
because they will be taxed for a program that does not now and
will not ever benefit the employed worker.

Mr. RANGEL. Congressman, I am trying to say that as far as the
majority of this committee is concerned, whether they pay taxes or
not, there are certain benefits that we do not want them to have.
Is that consistent, that they do not receive any health benefits or
education benefits while they are here?

Mr. Crapo. Mr. Chairman and Mr. Rangel, I understand the
issue you are concerned about, but this issue is not related to the
benefits that are provided to those who may be legal immigrants
into the country.

Mr. RANGEL. Let me ask this. Aren’t we saying that we are going
to relieve the employers of a tax liability in order to allow him and
to encourage him to hire alien workers? Is that what we are here
‘or?


FEDERAL UNEMPLOYMENT COMPENSATION
SYSTEM AND CONSOLIDATION OF JOB

TRAINING PROGRAMS

TUESDAY, MAY 16, 1995

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HUMAN RESOURCES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 1:06 p.m., in room
B-318, Rayburn House Office Building, Hon. E. Clay Shaw, Jr.
(chairman of the subcommittee) presiding.
[The advisory announcing the hearing follows:]

q@


42

adequacy of the program; therefore, we would propose to keep TAA
separate.

Ms. DUNN. OK. Thank you, Mr. Chairman.

Chairman SHaw. Mr. Rangel.

Mr. RANGEL. Thank you.

Mr. Secretary, I cannot tell you how pleased I am to see the coop-
erative spirit in which the committee is working with you, and I
can think of no American that better understands the problems
that America has and what solutions than the Secretary, Secretary
Reich. I hardly can think of a problem that we face as a nation that
job training, job opportunity and giving people a chance to be pro-
ductive, that it would not make all the difference in the world.

I do not even understand why the educational system is not
linked to what you do so that the schools prepare not just for re-
gents and State standards and diplomas, but in addition to that,
to make America as productive as they can be.

I just left Israel. With all the debt and investment in armament
as they try to secure their national defense, they have doubled
their education budget so that their people would be able to be
competitive. And we continue to pay more attention to prisons than
we do the education and job training system.

I do not know whether you were in the room, but I was talking
with Speaker Gingrich, with Secretary Reich, about seeing whether
or not we could really show whether some of these education and
job training programs could make a difference in those districts
that are not only economically disadvantaged, but where we have
all of the plights of drug abuse and crime and children born out
of wedlock. We drafted that bill and I will be working with Chair-
man McKeon of the subcommittee of jurisdiction, but are you famil-
iar with the bill that I drafted?

Mr. UHALDE. I am somewhat familiar with it, yes, Mr. Rangel.

Mr. RANGEL. I hope that you might put this on your agenda in
dealing with the subcommitree, because I am convinced if we can
show the difference that hope and jobs make, that perhaps we
could come back and call it a deficit reduction bill or anticrime bill
or something that really captures the imagination of some of my
colleagues, because education and job training certainly cannot get
off the

But if we can prove that it works by comparing it with similar
communities that we are not paying attention to, maybe we can
turn around the thinking and not be punitive but think in terms
of investing in people as we think in terms of investing in plant
and equipment. So tell the Secretary to keep hope alive, because
he is the last one left.

Mr. UHALDE. Thank you, Mr. Rangel. Yes, we do have a long tra-
dition in employment and training of a bipartisan spirit in working
on _a lot of these issues, and it is good that, at this point, we are
able to keep that.

I am familiar with your proposal. I would like to share with you,
at some point, a drat report we have of a small pilot project we
undertook called the YOU demonstration, that tried to saturate
small neighborhoods not with jobs but with training services. It,
too, was for young people, and dia seem to have some neighborhoos


73

Implicit in this “contract” with the employer community is the understanding that
unemployment benefits will be paid only to those who are unemployed through no
fault of their own, as long as those workers are seeking to return to work. This
understanding is expressed in most state unemployment insurance laws by the
requitement that Ul recipients register with the Employment Service for job
placement assistance. Employers understand that their state unemployment taxes
will be kept as low as possible when recipients return to work quickly with
assistance from public labor exchange services

If the public labor exchange established by the Wagner Peyser Act is eliminated and
replaced by a block grant for employment and training services funded from general
revenues, Congress will be taxing business twice for the same services: one time in
the dedicated FUTA taxes, and a second time in taxes that produce general
revenues.

Second, employment and training consolidation and reform efforts must
recognize the difference between job training programs and job placement
services provided by Wagner-Peyser allocations from the Unemployment
Trust Fund.

The General Accounting Office (GAO) report now lists 163 federal employment
training programs administered by at least 14 federal departments. Others say that
there are actually fewer than that number, perhaps 80 or 60. Regardless of the
‘exact number, it is important to understand that the Employment Service, which is
included in most of these lists, is not a training program.

The Employment Service provides basic job search and job placement assistance
The Employment Service's core functions for jobseekers are: referral and
placement for the job-ready and workers in transition, labor market information,
referrals to training for the non-job ready, skill assessment and counseling, and job
search resources. For employers, the Employment Service provides: 1) critical labor
market information for business and economic planning, and 2) applicants for
employer job vacancies.

‘Ohio's experience shows the volume and value of this job matching. As you know,
by federal mandate we must serve every Ohioan who comes into our offices. Many
come. In a recent week, we served job-seeking customers by matching nearly
14,000 workers with employers. For our employer customers that week, we
matched 200 job orders each day of the week. We referred nearly 6,000 workers
directly to employers seeking to hire them. Last year, we filled over 99,000
employer jobs, and, when you count people who took several jobs during the year,
we helped Ohicans find 117,000 jobs.

Economic studies have shown that job placement services are by far the most cost
effective use of scarce resources to get the unemployed back to work, The U.S.
Department of Labor reports that the average cost per placement by the
Employment Service last year was $249. Studies have also shown that ES services
can shorten the duration of unemployment benefits, reducing trust fund outtays, and
eventually resulting in lower unemployment taxes.

In addition to the important job matching function, in recent years state employment
services have been developing self-help resources for jobseekers to use in
conducting their own job search. Resources include access to computerized job
listings, information about which industries and occupations are growing and which
are deciining in the local, state, and national labor markets, information about the
skills required for various occupations, and about the pay levels for different jobs
and occupations.


82

The Post-Layoff Employment, Earnings, and Job Characteristics of TRA Recipients

‘+ Ourfindings are consistent with the presumption that the TAA program serves unemployed
workers who are likely to have difficulty in finding reemployment. The post-layoff jobless
spells of TRA recipients were relatively long, and TRA recipients clearly experienced longer
jobless spells on average than did other UI exhaustees from the same industries. Jobless
spells were about 23 percent longer among TRA recipients than among UI exhaustees prior
to the 1988 legislative changes, and about 14 percent longer after the legislative changes.
This difference in the length of initial jobless spells between pre-88 and post-88 TRA
recipients was mirrored in the TRA benefit rates, the average pre-88 TRA recipient received
18.4 weeks of basic TRA payments, and the average post-88 TRA recipient received 15.3
weeks.

ur findings based on quarterly employment and earnings measures are consistent with the
findings on jobless spells. TRA recipients were employed less and eamed less than Ul
exhaustees throughout most of the three years after their intial UI claim, and the difference
was larger before than after the 1988 legislative changes Both before and after the 1988
legislative changes, TRA recipients experienced significant earings losses due to their layoff.

Even the TRA recipients who held a job three years after their initial UI claim experienced
significant wage and benefit losses. More than three quarters of the reemployed TRA
recipients earned less in their new job three years after their intial UT claim than they did in
their presayoff job. Wage losses were significantly higher among TRA recipients than among,
UI exhaustees, although much of the difference can be explained by the fact that the pre-
layoff wages of TRA recipients were higher than those of Ul exhaustees. The average levels
of post-layoff wages among the reemployed TRA recipients and UI exhaustees were similas
The majority of TRA recipients became reemployed in a different industry or different
‘occupation, and the industry- and occupation-switchers experienced greater wage losses than
those who did not switch

Post-Layoff Employment, Earnings, and Job Characteristics Among TAA Trainees

+ Asexpected, employment rates and average earings levels of TAA trainees were lower than
those of other TRA recipients throughout most of the first 12 quarters after their initial UL
claim, The differences partly reflect the investment decision made by trainees--to forego
employment and earnings in the short run in order to train for a new job that they hope will
enhance their earnings potential in the future. In addition, many trainees chose to enter
training only after they were jobless for a substantial period of time. Both factors caused the
lower employment and earnings levels among trainees throughout the post-layoff period

If training had a positive effect on employment and earings, we would expect that the
employment and earnings of trainees would eventually be higher than those of nontrainees,
other things being equal. When we examined employment and earings at the end of 12
quarters, we found that trainees tended to be employed more and to earn more than other
‘TRA recipients in quarter 12. But these differences are attributable largely to differences in
the observable characteristics ofthe two groups. After we controlled for these characteristics,
the outcomes of trainees and other TRA recipients were similar. Alternative estimates
derived for trainees who had exited training within two years after their initial UI claim
provide some indication that, at least for the post-88 sample, TAA training had a positive
effect on those trainees. However, without a longer observation period, we were unable to
isolate the impact of training on the remaining trainees, Nevertheless, our findings imply that,
if training has a substantial positive effect on employment or earnings among all trainees, it
is realized not earlier than three years after the initial UI claim

‘Among the TRA recipients who found a job, those who had participated in TAA training
received slightly lower wages on average than those who had not participated in training, but
the differences are generally not significant. TAA trainees also lost more fringe benefits than
did these other TRA recipients. However, this result is not surprising: TAA trainees were
more likely to have switched industry or occupation on their new job, and industry- and
‘occupation-switchers suffered greater wage and benefit losses than did stayers. Training thus
appears to be part of a transition process, in which workers move from their old industry or
‘occupation to anew industry or occupation. Among those respondents who switched industry


2

FEDERAL UNEMPLOYMENT COMPENSATION  SYS-
TEM AND CONSOLIDATION OF JOB TRAINING

PROGRAMS
HEARING
SUBCOMMITTEE ON HUMAN RESOURCES

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

MAY 16, 1995

Serial 104-8

Printed for the use of the Committee on Ways and Means

ts

U.S. GOVERNMENT PRINTING OFFICE
92-825 CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047528-7


108

State legislation often does not address the specifics of many of the situations that Unemployment
Insurance claimants face. As aresul, interpretations of nonmonetary eligibility requirements can also be
found in administrative and judicial case law and administrative rules. Testimony presented in the
Council's public hearings indicates that the complexity of these nonmonetary requirements creates
confusion about eligibility requirements. It can be difficult for both claimants and employers to
understand these requirements with a reasonable degree of certainty. ‘These problems can be particularly
pronounced for multistate employers

Not only can this ack of certainty impede the receipt of Unemployment Insurance, it may also increase
unnecessarily the number of appeals filed by both claimants and employers, These problems appear to
be particularly severe with regard to determinations involving employee misconduct, refusal of suitable
work, and voluntary leaving for good cause. Clarifying these issues would serve the interests of both
groups.

1995-21. Recommendation
A state-specific information packet that clearly explains Unemployment Insurance eligibility conditions
(both monetary and nonmonetary) should be distributed by the states to unemployed individuals.

‘The Council is particularly concerned about a number of specific nonmonetary eligibility conditions,
For example, it is not always clear whether an individual who is unavailable for shift work (perhaps due
to a lack of public transportation or child care) will be found to be eligible for Unemployment Insurance.
Consideration needs to be given to situations in which individuals quit their jobs because of one of the
following circumstances: a change in their employment situation e.g., change in hours of work), sexual
or other discriminatory harassment, domestic violence, or compelling personal reasons, including family
responsibilities. In addition, the Council is concemed about the varibility in the definition of misconduct
across states, and about the treatment of individuals who refuse employment because it is temporary or
commission work. The Council intends to address these and related issues in its third annual report,

ADEQUACY OF UNEMPLOYMENT INSURANCE BENEFITS
At the inception of the Unemployment Insurance system, much debate was devoted to the adequacy of
benefits. Many of the founders of the system argued that benefits should replace 50 percent of lost
‘earings; they believed that this percentage was high enough to allow workers to purchase basic
necessities, but not so high as to discourage prompt retum to work,

‘A number of presidents, including and following Dwight Eisenhower, have endorsed a goal of 50
percent replacement of lost earings within the Unemployment Insurance system. President Richard Nixon
advocated that the Unemployment Insurance system should seek to replace SO percent of lost earnings for
four-fifths of all Unemployment Insurance recipients

‘The level of a state's maximum weekly benefit amount has a direct impact upon the percentage of
Unemployment Insurance recipients who receive benefits that equal or exceed a given replacement rate
‘Those individuals whose earnings qualify them for their state’s maximum weekly benefit amount typically
hhave less than half of their wages replaced. Therefore, when a state’s maximum benefit amount is
relatively low as a percentage of the state's average weekly wage, the state will not meet the 50 percent
replacement rate goal for a large percentage of recipients

‘The Council endorses the long-standing goal of 50 percent replacement of lost earnings, and notes that
a state is likely to be able to achieve this goal fora large number of workers by setting the state maximum
weekly benefit amount equal to two-thirds of state average weekly wages.

1995-22. Recommendation
For eligible workers, each state should replace at least 50 percent of lost earnings over a six-month
period, with a maximum weekly benefit amount equal to two-thirds of the state's average weekly wages.*

‘The Council also notes that, starting in 1986, all Unemployment Insurance benefits became subject to
taxation. Taxation of Unemployment Insurance benefits results ina reduction ofthe effective replacement
rate.

1995-23. Recommendation
‘Unemployment Insurance benefits should be tax-exempt.**

‘The Council finds that the current system for reporting the average replacement rate of fost earings
‘within the Unemployment Insurance system needs to be improved. While the U.S. Department of Labor
routinely reports the replacement rate, the concept used in the calculation is flawed. The reported
replacement rate is calculated by dividing Unemployment Insurance benefits paid by the wages of all
covered workers. To the extent that those who receive Unemployment Insurance have lower wages than
the average covered worker, the reported replacement rate will understate the actual replacement ate
Conversely, if those who receive Unemployment Insurance have higher wages than the typical covered

One member ofthe Council objects to this recommendation.
**Four members of the Couneit object to this recommendation,


131

Service Members Occupational Conversion and Training Act (SMOCTA); Homeless Veterans

Reintegration Project (HVRP); Job Trai

ig Partnership Act (JTPA); National Veterans’

Training Institute (NVTI); and enforcement of the Uniformed Services’ Emplo-

nt and

Reemployment Act (USERRA).

The various House Bills as well as similar legislation in the Senate would alter or dismantle alt
or a portion of the aforementioned programs in some way and essentially cast veterans to
compete with everyone else, often at a distinct disadvantage as a result of service-connected

injuries or illnesses.

NCOA will never be persuaded that the obligation to veterans, and in particular to disabled
veterans, is anything less than a core responsibility of the federal government. Disabled
veterans are the product of the federal goverment. The obligation incurred should not be
Passed to the states, counties and cities unless veterans are specifically targeted and protected
in any block grant mechanisms.

NCOA is not contending that current programs for veterans are perfect. The Association
has and will continue to support efforts aimed at improving veterans programs including their
efficiency at less cost. NCOA is of the firm belief though that current highly successful
Programs are much more preferable than the proposed alternatives given the attendant de-
emphasizing of veterans that inevitably will be the result. NCOA will hold steadfast to the
proposition that answering the Nation’s highest calling must be a distinguishing and deciding
factor. Anything less is unacceptable to this Association.

Thank you.




109

worker, the reported replacement rate will overstate the actual replacement rate. Advisory Council
calculations using data available from selected states suggest that the reported replacement rate
significantly understates the actual replacement rate.

1995-24. Recommendation
The U.S. Department of Labor should calculate and report the actual replacement rate for individuals
who receive Unemployment Insurance. This replacement rate should be calculated by dividing the
weekly benefits paid to individuals by the average weekly earnings paid to those individuals prior to
unemployment.

REEMPLOYMENT INCENTIVES
‘The Councit finds that financial incentives (such as reemployment bonuses or self-employment subsidies)
for facilitating rapid reemployment have a positive impact on a small portion of the unemployed. In some
cases, this positive impact could be offset partially by negative impacts on others who find jobs more
slowly because they are displaced inthe job queue by those who receive the incentives, This displacement
‘effect is likely to be more pronounced during periods of relatively high unemployment.

‘The Council concludes, therefore, that the states should be permitted to experiment with reemployment
incentives, but it opposes incentives to encourage (or require) states to implement such strategies

Some members of the Council object to the use of self-employment incentives within the
Unemployment Insurance system—especially when an individual’s entite benefit is paid in lump-sum
form,

1995-25. Recommendation
States should be given broad discretion in determining whether reemployment incentives, such as
feemployment bonuses or aeitemployment allowances, should be included a # part" of their
‘Unemployment insurance systems.

ADMINISTRATIVE FINANCING

tates’ administrative costs are financed by the federal government with a portion of the revenues
generated by FUTA. This situation requires some systematic method for allocating these revenues among
the states. The Couneil finds that whatever method is chosen itis important to create financial incentives
for states to administer their Unemployment Insurance systems efficiently. For example, those states that
are able both to administer their Unemployment Insurance systems with less money than is allotted to
them and to achieve U.S. Department of Labor performance requirements could be allowed to keep all
or part of the surplus for other uses within their UI systems. The Council intends to address this issue,
‘conjunction with the U.S. Department of Labor's performance requirements, in its next annual report.
“The U.S. Department of Labor has proposed an Administrative Financing tntiative (AFI) that would
allocate FUTA funds based on a national unit cost with base-level and contingency-level funding. The
‘Council takes no position on the AFI, because the U.S. Department of Labor and the states have not yet
‘agreed on the details ofthis initiative.

‘The Council notes that itis inefficient for the federal government to require employers to fill out and
‘submit separate forms and payments for their FUTA and state Unemployment Insurance taxes. Not only
does this impose an unnecessary paperwork burden on employers, it also creates redundant tax collection
units in the federal and state governments. The expense of collecting Unemployment Insurance taxes
could be reduced by allowing the states to collect FUTA taxes on behalf of the federal government.

1995-26. Recommendation
FUTA taxes should be collected with other Unemployment insurance taxes by each of the states and
submitted to the federal government for placement inthe federal trust fund. States’ Unemployment insur-
ance taxes should remain in the state trust funds, as is currently the case.

Advisory Councit on Unemployment Compensation
200 Constitution Avenue, N.W., Suite S-4206
Washington, DC 20210


30

Now, this application fee is far below the estimated $10 million
cost of the Federal and State administrative costs that are paid out
for this certification process.

The administration would not oppose the extension of the exclu-
sion that has existed since 1976 if that can be accomplished in an
appropriate revenue neutral manner, and also we believe that the
best approach may be to increase the application fees on employers
for the H-2A certification so that we could cover the full certifi-
cation costs and eliminate the subsidy. Currently what happens is
that other employers are paying and subsidizing these employers
for the certification costs for bringing these workers in.

Mr. Chairman, this concludes my remarks, and we will be happy
to answer questions.

(The prepared statement follows:]


89

Keep Wagner-Peyser and The Employment Service

A revitalized and accountable Employment Service should be the centerpiece
of efforts to upgrade assistance to unemployed workers. Since it does not itself
operate training programs, the Employment Service can make objective assessments
about the quality of local education and training providers and the appropriateness of
referrals,

Some proposals for consolidation of job training programs would include
Employment Service operations in a job training block grant. But only the Employment
Service can make objective assessments about the quality of local education and
taining providers and the appropriateness of referrals. The present cost is
approximately $810 million annually.

First, employment and training consolidation and reform must recognize the
difference between the programs that are funded from the employer-paid, dedicated
Unemployment Trust Fund and those programs funded from general revenues.

Second, employment and training consolidation and reform must recognize the
difference between Employment Service job placement services and job training
programs,

Third, including the Employment Service in a job training block grant system
would sever its link with the unemployment insurance (UI) system which is critical to
application of the U! work test and could result in higher outlays for unemployment
benefits.

Fourth, the Employment Service provides universal access to labor exchange
services to any individual or employer who needs and asks for its services.

The Wagner-Peyser Act should not be repealed for the following reasons:

* The Employment Service does not belong in a job training consolidation
because it is not a job training program.

Reform efforts must recognize the difference between job training and
education programs, The Employment Service does not provide training. Instead, it
provides job placement services and labor market information for employers and job
seekers, skill assessment and counseling, and referrals to training programs. The
Wagner-Peyser Act has very few requirements; it is a block grant on its own.

* The Employment Service and job training programs are financed from
different federal taxes and should not be combined.

The Employment Service is financed from employer taxes deposited in the
Federal Unemployment Trust Fund. The ES is part of the entire "employment security
system", which includes the unemployment insurance program. The ES was
established primarily to help employers find workers and job seekers find jobs. The
job training programs are financed by general revenues raised by the income tax.
They were created long after the employment security system was created.

* The link between the ES and the unemployment insurance (UI) system
should not be broken by including the ES in a block grant or converting
ES dollars into vouchers.

Doing so would destroy the application of the "work-test” requirement for the
UI program and make it more difficult to move unemployed workers receiving
unemployment benefits into jobs. ES and unemployment insurance programs share
office space, and staff are cross-trained. Removing the ES funds would have a very


84

‘An altemative approach would be to offer TRA payments only to those individuals who actively
participate in training. Targeting TRA payments only at trainees would ensure that resources go to
individuals who are actively tempting to adjust to a new industry or occupation. But that approach would
deny TRA payments to displaced workers who cannot or choose not to participate in training. The findings
presented above indicated that these nontrainees will experience severe earings losses after their layoff.
Denying them the additional unemployment benefits might be socially undesirable.

‘The above recommendations are based on assumption that the TAA program continues in some form,
‘Whether this is the case should depend on whether Congress thinks that it is appropriate to provide more
income support and reemployment services to trade-impacted workers than to other displaced workers.
Clearly these workers suffer large income losses as a result of their job loss, but so do some other workers
who lose their jobs for other reasons.


TABLE V.

12

JOBS CERTIFIED BY CROP OR ACTIVITY AND

COUNTRY OF ORIGIN OF FOREIGN WORKERS, 1992 (Continued)

—State No. Jobs Crop or Activity orfain of Foreian Workers

Texas

Utah

Vermont

Virginia

Washington

Wyoning

‘custom Combining (Cotton)
Custom Combining (Grain)

Fruit (Harvest)
Livestock (Cattle)
Sheep & Goat Ranch Hand
Sheepshearing
Vegetable (Harvest)

sheepherding
Sheepshearing

Apple (Harvest)
Diversified Crops (Gen)

Apple (Harvest)
Cabbage (Harvest)
Tobacco (Harvest)

Mexico 4/
canada 2/, England,
Mexico 4/

Mexico 4/
Mexico 4/
australia
Mexico 4/

chile, Mexico 4/, Peru 2/
Australia, New Zealand

BHI 3/, Mexico 4/
BHI 3/

BWI 3/, Mexico 4/
Mexico’ 4/
Mexico 4/

Tobacco/Vegetable/Hay (Har) Mexico 4/
Tobacco/Vegetable/Sod(Har) Mexico 4/

Vegetable/Berry (Harvest)

Sheepherding

Livestock
Sheep (Lambing)
Sheepherding
Sheepshearing

ALL STATES = 18,939

Mexico 4/
Chile, Mexico 4/, Peru 2/

Mexico 4/
Mexico 4/

Chile, Mexico 4/, Peru 2/
Australia, New Zealand


54

Mr. Brown. I think you always need to be concerned, but I do
not think it is that great of a concern. Again, the position that I
ended up with, in view of the fact that this is not in the budget
resolution, is that if you are going to enact any tax cuts, this is one
that ought to be considered because of the commitment that Con-
gress has to the employer community.

Mr. Forp. I am not really an advocate of the FUTA tax but the
sunset is in 1998. The reserves in the trust fund are going to be
built over that period of time to address an increase in unemploy-
ment.

Mr. Brown. That is the present law. However, under the original
law, of course, it would have sunset in 1987.

Mr. Forp. I know, but there was an extension——

Mr. Brown. It has been extended ever since, and, quite frankly,
we are afraid that when 1998 comes, it will be extended again.

Mr. Forp. What organization are you with again? I remember
you testifying.

Mr. BROWN. You remember me testifying years ago for the Coun-
cil of State Chambers of Commerce. I was president of the Council
of State Chambers of Commerce until about 5 years ago. I am testi-
fying for them today, but a number of other organizations, too. I
retired about 5 years ago and still do a little consulting for them.

Mr. Forp. You are a consultant to the council, as an advisor to
the council’s employers task force?

Mr. Brown. Yes, unemployment compensation task force, right.

Mr. Forp. You are a consultant for that particular task force of
the State chambers?

Mr. Brown. For that particular task force, and that does not pay
me enough that I have any problem with the earnings test under
Social Security, I assure you. [Laughter.]

Mr. Forb. I was not looking for that. I was trying to see exactly
what task force you represent and what businesses, because we——

Mr. Brown. I represent a long list of companies and organiza-
tions that are appended to my statement. There are almost 100
there. Actually, the U.S. Chamber is also a member of the coalition.
However, they are going to file their own statement, which they
prefer to do.

Mr. Forp. Employers in the past have supported the 0.2 percent
FUTA tax.

Mr. BRown. We supported its original enactment, but with the
understanding that the provision in the original law would be hon-
ored, and that is that it would expire once the debt it was enacted
to repay was repaid. Of course, we were quite upset when that did
not happen, and we continue to be upset. So we have been upset
about the 0.2 percent ever since 1987, when the original provision
was not honored on repeal upon repayment of the debt.

Mr. Forp. It is not an area that I hear from a lot of my employ-
ers, and I certainly want to be responsive to my employers.

Mr. Brown. I doubt that most of them even know that it is
there, to tell you the truth, but that does not mean that they would
not mind saving $14 per employee, if the tax were cut.

Chairman SHaw. Mr. Levin.

Mr. LEVIN. Just briefly. I did not have a chance to ask the Labor
Department about their testimony on page 5, which, apparently,


96

Chairman SHaw. Mr. McCrery.

Mr. McCrery. Thank you, Mr. Chairman.

First of all, let me just make a clarification, Mr. Cunningham.
Your testimony kept referring to the Kasich budget zeroes this and
zeroes that. The Kasich budget does not zero anything. That is left
up to the authorizing committees and committees of jurisdiction, so
those are assumptions and recommendations by the Budget Com-
mittee, but they do not have the power to zero anything.

Mr. CUNNINGHAM. Right, I understand.

Mr. McCrery. So all those things are still alive, even if the
budget passes.

Mr. CUNNINGHAM. We are breathing heavy, but we are still alive.

Mr. McCrery, I would like for you, Mr. Cunningham, to tell us
where you get the data that indicates the trust fund will be broke
in 2002 if we do away with the surcharge.

Mr. CUNNINGHAM. I thought I had, but people from the Labor
Department shared with me some data, and I just remember the
chart where they had the 0.2 percent tax and they basically showed
that when it goes out after 1998 that it dips below the preferred
level of funding.

There is one other point I forgot to make on the Extended Bene-
fits Program.

Mr. McCrery. So you think this information comes from the De-
partment of Labor?

Mr. CUNNINGHAM. Yes, and I will try and get it for you.

(The information was unavailable at the time of printing.]

Mr. McCrery. Thank you.

Mr. CUNNINGHAM. On the Extended Benefits Program, I forgot to
mention a very important issue. In the Kasich budget, which I un-
derstand is an illustration, the utilization of extended benefits in
the years 2000, 2001, and 2002 jumps threefold. So in his budget,
it is assumed that the Extended Benefits Program would have been
used much more than it will be used in the first 5 years, and the
reason for our concern here is that if this program is not in place
and the budgets go through, that you will have to put a new pro-
gram in place or these people will not be served. I am sorry to
switch subjects.

Mr. McCrery. Thank you, Mr. Chairman.

Chairman SHAW. Mr. Rangel.

Mr. RANGEL. Ms. Bowland, you have a national responsibility in
sharing what administrators do throughout the country. Have you
noticed as a result of the treaties and the need for high-tech train-
ing that it is more difficult to place people in jobs? Are higher
training and education required?

Ms. BOWLAND. No. What we are finding is a greater need for us
to ensure that people have skills or ensure that qualified workers
are referred to employers, and part of the secret of that is matching
appropriately. In Ohio, we are experimenting with matching people
and their skills with actual skills that they need in the job.

Mr. RANGEL. I guess my question is regarding high school drop-
outs and those with very little skills, are you able to place them
into jobs?


x)

If the decision is made to repeal the Wagner-Peyser Act as part of legislation
consolidating job training programs into a block grant, these critical labor exchange
and reemployment services-which are financed from dedicated federal
unemployment taxes--could be maintained by making public employment offices an
integral part of state unemployment compensation systems, thus ensuring continued
teemployment services for unemployment benefit recipients.

The following draft amendment would authorize continuation of public employment
offices under the unemployment compensation law of each state

Proposed Amendment to the IRS Code of 1986, Chapter 23, The Federal
Unemployment Tax Act:

Section 3304. Approval of State Laws

{a) Requirements.--The Secretary of Labor shall approve any State law
submitted to him, within 30 days of such submission, which he finds provides
that--
(1) all compensation is to be paid through public employment offices
established under the state law which provide job search and
placement services to job seekers including counseling, testing, occupational
and labor market information, assessment, and referral to employers.

The identical language should be used to amend the Social Security Act, Title
Nl--Grants to States for Unemployment Compensation Administration, Section
303--Provisions of State Law--subsection (a) (2)

Each state's unemployment compensation law must be certified by the Secretary of
Labor to the Secretary of the Treasury as meeting the requirements of Section 3304
of the IRS Code to permit employers doing business in the state to receive a credit
of up to 90% of the total Federal Unemployment Tax (6.0 percent), reducing the net
permanent tax to 0.6 percent of taxable wages (plus the temporary 0.2% still in
effect).

By making state employment services a part of each state’s unemployment
compensation law, federal appropriations could be made from the Unemployment
Trust Fund for state employment services under Title Ill of the Social Security Act
(Grants to States for Unemployment Compensation Administration).

Fourth, the Employment Security System provides universal access to labor
exchange services--providing access to any individual or employer requesting
and in need of its services.

The Employment Service is designed to serve all jobseekers and employers. At its
most basic, it is a labor exchange: workers seeking jobs and employers seeking
workers are introduced to each other. We are told that every industrialized country
in the world has a public labor exchange to promote the efficient functioning of its
labor markets.

Employment Service funds support development of state and focal labor market
information which is used by jobseekers but is also relied upon by public policy
makers for a variety of purposes including economic development and by
businesses for essential decision making activities. This information, like the labor
exchange function, is important to labor market efficiency throughout the nation.

We believe that the universal public labor exchange and the unemployment
insurance system provide a basic infrastructure to promote the efficient functioning
of labor markets throughout the country. Devoting resources now committed to


36

Closing

‘The President has called for re-engineering the American
workforce development system to empower individuals with
purchasing power and information -- a system that creates
opportunities not bureaucracies and is market-driven, customer~
responsive, and accountable. Fashioning a bipartisan approach
along the lines set forth in the G.I. Bill for America's Workers
would be a big step toward achieving this goal.

But as we develop this new system, we need to assure that we
do not undermine those parts of the system that sustain workers
who have paid the price for more open trade policies and assure
that we will have sufficient revenues in the case of economic
downturns. The Trade Adjustment Act and the NAFTA-TAA programs
need to remain. Continuing the surtax until 1998 is necessary
for sound financial management. We further need to assure that
the taxes employers pay to help workers make transitions in our
economy will be dedicated toward funding the public labor
exchange services that helps both jobseekers and employers alike.

This concludes my remarks. I will be glad to answer any
questions you may have. Thank you.


48

Economic studies have shown that job placement services are the most cost
effective means to get the unemployed back to work. Retraining programs fare
very poorly by comparison.

The State labor exchange and reemployment services (ES) are financed by the
dedicated Federal unemployment taxes (FUTA). The best way to assure continued
reemployment services for unemployment benefit recipients is to require the close
integration of the State UI and ES services.

We believe this can best be done by the Ways and Means Committee approving
an amendment to IRS Code Chapter 23 -- The Federal Unemployment Tax Act,
which has been suggested by the Interstate Conference of Employment Security
Agencies (ICESA). This proposal would amend Section 3304 on approval of State
laws by the Secretary of Labor that the Secretary shall approve State submissions
that make provision for payment of unemployment compensation through public
employment offices "established under state law which provides job search and
placement services to job seekers including counseling, testing, occupational and
labor market information, assessment, and referral to employers.”

Conclusion

We appreciate the opportunity to appear before your Subcommittee and your
consideration for our proposals to repeal the "temporary" 0.2% payroll tax and
require an integrated State UI/ES programs to best serve the needs of both the
employer and the unemployed.

If I or any member of our Coalition can be of service in your deliberations we
stand ready to assist in any way we can.


117

Written Statement of the

International Union, UAW

Introduction

This statement is submitted for the record on behalf of the International Union,
UAW and its 1.5 million active and retired members. Because unemployment
compensation plays a key role in assisting unemployed workers and stabilizing our
economy, the UAW welcomes this opportunity to submit its views to the Committee.

Advisory Council on Unemployment Compensation

The union has taken an active role in unemployment compensation matters for
decades, most recently through the participation of UAW President Owen Bieber on the
Advisory Council on Unemployment Compensation (ACUC). To date, the ACUC has
issued two of its expected three reports. The UAW wishes to point out a number of the
most important findings and recommendations of the Advisory Council.

First, the Advisory Council has recommended a return to forward funding of the
unemployment compensation system. That is, states should be encouraged and
rewarded for accumulating funds during economic recoveries in order to pay benefits
during recessions. This advances the national interest by preserving the living
standards of the unemployed and giving the economy a boost. Forward funding also
has the admirable result of avoiding UI tax increases and benefit cuts during
recessions. The use of forward funding would also reduce state borrowing from the
FUTA trust funds, and the accompanying interest charges and solvency taxes which
are passed on to employers in debtor states. The ACUC report clearly found a positive
relationship between adequate reserves and avoiding borrowing during a recession.
For this reason, the Advisory Council advocated the use of interest premiums on
reserves above adequate levels and adjustments in interest rates on other states to
encourage states to forward fund their U! trust funds.

The UAW believes that the inclusion of both state and federal UI trust funds in
the federal unified budget undercuts forward funding in significant ways. For example,
employers rightfully complain about the use of FUTA trust funds to offset the federal
deficit, especially when budget rules require further offsets when these dedicated funds
are used for their intended uses. States are likewise right to complain when
administrative FUTA funds are inadequate to support state agency activities at levels
sufficient to serve claimants and employers. Claimant advocates also properly object
to viewing UI benefits simply as budget “costs” without regard to their important income
maintenance and economic stabilization features.

More perniciously, the inclusion of the UI trust funds within the federal budget
leads to efforts to impose federal restrictions on benefit “costs” without regard to the
wisdom of the particular proposal for UI policy. Two examples are the federal income
taxation of Ul benefits, imposed in 1986, and current proposals to add a two-week
“waiting period” as a budget measure. The UAW supports the Advisory Council's
recommendations of removal of all U! trust funds from the federal budget and the
repeal of income taxation of UI benefits.

The Advisory Council's reports document the serious erosion in the number of
unemployed workers getting U! benefits in the last decade or so. A widely used
measure of Ul benefit recipiency is the ratio of insured unemployed workers to total
unemployed workers. In 1993, twelve states had an IU/TU ratio of less than 25


53

Mr. Brown. We are concerned primarily that it not go to gen-
erally finance the block grants for training. It presently finances
the Employment Service, so to the extent the Employment Service
participates in those block grants, as would be anticipated by Mr.
McKeon’s bill, I do not think we would have any objection to that,
because that is still directly related to the type of activity that the
employer pays the tax to do, and that is to administer the Unem-
ployment Compensation Program and to attempt to find a job for
unemployment claimants and other unemployed persons.

Mr. McCrery. I see, and that is a reasonable request.

Mr. BROwN. Other purposes may be quite worthy, but they are
not in accord with what the employer community has been paying
a payroll tax for.

Mr. McCrery. Sure.

Mr. Brown. A payroll tax, I think, is something that you need
to approach with caution, because, after all, this is a tax on jobs,
and that is the reason decreasing the payroll tax could be helpful
from a job creation point. On the other hand, if you do things that
increase the payroll tax, you are making it more difficult for an em-
ployer to add employees, to add additional employees or maybe
even keep the employees he has.

Mr. McCrery. That is right. I just wanted to make sure you did
not think that the trust fand Moneys were stocked away some-
where in a vault.

Mr. Brown. Oh, no.

Mr. McCrery. They are, in fact, used for the purposes they
are——

Mr. Brown. I have been working on this issue since 1950. I am
under no delusions in that regard, Mr. McCrery.

Mr. McCrery. To the extent that we can keep our Nation’s fi-
nances in better shape, then we make all trust funds, including the
UI Trust Fund, more able to meet its obligations.

Mr. Brown. That is right, absolutely. I am retired and I am
drawing Social Security. I am all for that.

Mr. McCrery. Thank you.

Chairman Suaw. Mr. Ford.

Mr. Forb. Thank you, Mr. Chairman.

Mr. Brown, you talked about the solvency of the unemployment
compensation system. You made reference to something that Mrs.
Kennelly mentioned earlier. The 0.2 percent FUTA tax sunsets in
1998. Do you nct see a real need to build up those reserve funds
in the Unemployment Compensation Program?

Mr. Brown. Looking at the projections that were made in the
Department of Labor that are published in the UI Outlook for Jan-
uary 1995, and that was the $16.6 billion that Mary Ann Wyrsch
referred to in the standard benefit account, even though they take
into consideration that 0.2 percent produces about $1.4 billion a
year. So if you subtract a couple of years of that $1.4 billion, these
projections will still be quite ample as to the accounts that are fi-
nanced by FUTA, the Federal Unemployment Tax Act.

Mr. Forp. We saw a jump in last month’s unemployment rate.
You do not see a decline in the economy as being something that
we should be concerned with, and since it is to sunset--——.


49

COALITION TO REPEAL THE 0.2% FUTA SURCHARGE

American Automobile Manufacturers Association
American Iron and Steel Institute
American Payroll Association
Armco, Inc.

Associated Builders and Contractors, Inc.
Associated Industries of Florida
Associated Industries of Kentucky
Associated Industries of Massachusetts
AT&T
Bank of America
Barnett Associates, Inc.

Barry Trucking, Inc.

Betz Laboratories, Inc.

The BF Goodrich Company
Business and Industry Association of New Hampshire
California Association of Hospitals & Health Systems
Caterpillar, Inc.

CBI Industries, Inc.

Clorox
Connecticut Business & Industry Association
Council of State Chambers of Commerce
Delaware State Manufacturing Assn./State Chamber
Digital Equipment Corporation
Eastman Kodak Company
E.I. duPont DeNemours
The Employer's Group
Employers Service Corporation
Employer's Unemployment Compensation Task Force
Employers Unity, Inc.

Federated Department Stores
Food Marketing Institute
The Frick Company
Georgia-Pacific
Grainger Manufacturing, Inc.

Gulf Copper Manufacturing Corporation
M. A. Hanna Company
Hair Works
Harrington Services
Heiss, Gibbons & Company, Inc.

Heat Transfer Equipment Company
Illinois Manufacturers Association
Illinois State Chamber of Commerce
Indiana Manufacturers Association
Iowa Association of Business and Industry
gcPenney
Jon Jay Associates, Inc
Laurdan Associates, Inc.

Liberty Mutual Group
Louisiana Association of Business and Industry
Management Association of Illinois
Marriott Corporation
Martin Boyer Company, Inc.

Maryland Chamber of Commerce
Masco Corporation
The May Department Stores
Melville Corporation
Meredith Corporation
Met Life
Michigan Manufacturers Association


78

Chairman SHaw [presiding]. Thank you, Ms. Bowland.
Mr. Corson.

STATEMENT OF WALTER CORSON, VICE PRESIDENT,
MATHEMATICA POLICY RESEARCH, PRINCETON, N.J.

Mr. Corson. Thank you. I am pleased to have the opportunity
to appear here today. I have been asked by the subcommittee to
describe the Trade Adjustment Assistance Program and discuss
findings from a recent evaluation of the program and to comment.
on the policy implications of these findings.

The Trade Adjustment Assistance Program is intended to pro-
mote trade liberalization by compensating workers for trade-related
income losses. It offers ixtended unemployment compensation,
called trade readjustment allowances, and also provides eligible
workers with reemployment services.

In 1962, when the program was initially established, and in
1974, when the eligibility criteria were liberalized and benefits ex-
panded, the compensation goal was emphasized and relatively few
participants received any adjustment services.

In 1981, major changes were made in the program that restricted
benefits to the long-term unemployed. More funds were also made
available for training, shifting the emphasis of the program toward
providing adjustment services.

A further shift toward adjustment occurred in 1988, when train-
ing was made an entitlement for eligible workers and when TRA
recipients were required to participate in an approved training pro-
gram unless they received a waiver.

The program serves a small number of workers. In the eighties,
an average of 30,000 individuals began receiving financial assist-
ance each year. Currently, about 18,000 to 19,000 individuals enter
training each year.

A recent evaluation of the program found that the program is
well targeted. It serves workers who are permanently displaced
from their jobs and who have great difficulty in becoming reem-
ployed. In most cases, TRA recipients are permanently separated
from their prelayoff employers, and in the majority of cases, the
layoffs are due to plant closings.

TRA recipients also experience substantial earnings losses due to
their layoffs. These earnings losses averaged about $46,000 over
the 3 years of followup included in the stud . The jobs that recipi-
ents find generally pay lower wages than the wages they received
on their prelayoff jobs.

The most recent changes in the program added the requirement
that recipients participate in an approved training program.
Whether training should be required of TRA recipients should de-
pend on how successful it is at increasing employment and earn-
ings. Our findings, which are consistent with the findings of other
studies of training for displaced workers, suggest that the training
did not have a substantial positive effect on earnings, at least in
the 8 years after the initial layoff.

Given this uncertainty about the payoff of training, I believe that
the training participation requirement should be dropped and that
the participation in training should be voluntary.


88

Three out of every five jobless workers do not get any unemployment
compensation. Those lucky enough to get Ul payments get only one-third of their
previous earnings. And one out of three UI recipients exhausts UI benefits before
finding a job.

Thus, the Ul system is failing in its basic humanitarian safety net income
maintenance purpose -- and it is also failing in its countercyclical economic purpose
of maintaining consumer buying power in time of recession.

As the Committee is aware, there is a Commission under Dr. Janet Norwood,
that is developing proposals for significant changes in the Ul system. The AFL-CIO
believes all wage and salary workers should be covered by the UI system and should
be eligible for Ul benefits. Benefits should be at least 50 percent of a worker's
previous earnings, up to a maximum of two-thirds of the state's average weekly
wage. Harsh and excessive eligibility and disqualification provisions should be
eliminated.

For periods of high unemployment, extended or supplemental benefits should
be available up to 39 weeks beyond the regular 26 weeks of state benefits, so that
the maximum duration of benefits is 65 weeks when the unemployment level is high.

The continued operation of the nation’s U! system depends upon a fully
functioning Employment Service providing critical labor market information, job
development and job search assistance, assessment and counseling services for Ul
recipients. A revitalized Job Service can help shorten spells of unemployment, and
thus relieve the cost burden to employers and minimize long-term job loss of many
workers.

Keep Extended Benefits
For Long-Term Unemployed

We are very seriously concerned about the recent proposal of the House Budget
Committee to kill the existing permanent program of Extended Benefits (EB) for long-
term jobless workers in states with high unemployment. (A seven year savings of over
$31 billion.) We urge you to resist efforts to kill the Extended Benefits program.

This 50-50 federal-state program was enacted in 1970 after various
unsatisfactory experiments with temporary extensions of unemployment
compensation in times of recession and persistent high unemployment,

It is very interesting to note that the budget assumptions used for the EB
program -- even with the flawed triggers in present law -- show a dramatic increase
in the utilization of this program by FY 2002.

To kill this program would be a serious blow to long-term unemployed workers
and their families in the hardest hit states with the highest rates of unemployment.
It would also be a serious blow to the countercyciical purpose of the nation’s
unemployment compensation system,

At present, only Alaska, Puerto Rico, and Rhode Island are triggered on to the
EB program, but in times of recession many more states become eligible. Without the
EB program in effect, high unemployment states will be forced to come back to
Congress again and again to get the resources needed to help their long-term
unemployed workers.

This Extended Benefits issue has important humanitarian aspects and
important countercyclical economic aspects. We ask you to make sure that the
Extended Benefits program continues as a basic protection for workers and for state
economies.


43

impacts. So while we did not have a job saturation component to
it, I think there is some merit to looking at that.

Mr. RANGEL. Thank you.

Thank you, Mr. Chairman.

Chairman SHAW. Mr. Levin, do you have any questions?

Mr. LEvIN. I have just a brief comment, Mr. Chairman.

Mr. Rangel has said that maybe this is not a very glitzy subject,
but, I think in this respect, the public may be ahead of us. If you
ask, and surveys have, public opinion about training and retrain-
ing, it rates rather high on their list of desirable programs. That
does not mean all the programs come from here or anywhere else.
But with the changing economy, the public is aware of the need for
training and retraining, and when it comes to welfare reform, I
think, also, the public is aware of the need for training. Indeed, the
survey of just yesterday on welfare reform, I think, underlines that.

I think, Mr. Chairman, this has been an important hearing. It
may not have all the instant glamour, but it has beneath the sur-
face, I think, some sustaining power. It is vital that the committees
keep working together on a bipartisan basis, if at all possible, and
with the administration to make sure that the consolidation gets
done, the resources are adequate, and they are effectively imple-
mented. So, Mr. Chairman, thank you very much.

Chairman SHaw. I would just like to briefly say, and welfare re-
form has been mentioned several times, there is no question but
that some intensive study is going to have to be done by this com-
mittee to try to stay ahead of the problem, because the welfare re-
form bill itself is not enough. We have to look at the need for addi-
tional training. We have to look at the need for legislation to en-
courage business to go into some of the areas where there are not
any jobs now.

I have already started a dialog with Mr. Rangel about that and
this is going to be something that we are going to have to work on
in a very cooperative spirit without partisan consideration. We look
forward to working with you and the Secretary as we go about that
business.

Thank you, Mr. Secretary, for being with us today. We appreciate
it.

Mr. UHALDE. Thank you, Mr. Chairman.

Chairman SHAW. On the next panel of witnesses, we have Wil-
liam R. Brown, formerly a member of the Council of State Cham-
bers of Commerce, on behalf of the Coalition to Repeal the FUTA
Surcharge; and Bryan Little, Director of Governmental Relations
for the American Farm Bureau Federation.

I realize, Mr. Brown, that you have a plane to catch. I would say
that even if any of the members are unable to question you, feel
free to leave when you can start smelling the jet fuel. If any of the
members have questions to ask that they have not had an oppor-
tunity to ask, we would ask that you submit the answers in writ-
ing.

Str. Brown. Thank you, Mr. Chairman. However, if necessary, I
will catch a later plane.

Chairman SHAW. I just do not want to hold you here unneces-
sarily.


129

MILITARY SPOUSES AND UNEMPLOYMENT COMPENSATION

Miliary members, not unlike their civilian counterparts, have come to rely on the second
incomes of working spouses in order to maintain acceptable or desired quality-of-life
conditions. However, working spouses who must voluntarily give-up their jobs based on the
ordered reassignment of the military member. They quickly find that they are at a severe
disadvantage when attempting to qualify for unemployment compensation benefits for income
balance purposes. The majority of states will deny unemployment compensation benefits to
the working military spouse who voluntarily quits his or her civilian job in order to follow the
tnllitary member to another location. Such a situation imposes severe financial hardships on
the milary family who have made financial decisions based on the availability of two
incomes. The consistent payment of unemployment compensation among the states would
significantly reduce the financial strain on a military family who accompanies the military

member, whenever possible, to a new area of assignment.

In order to assist the financial condition and the quality-of-life of military families when the
‘working spouse must voluntarity resign a position of employment because of the reassignment
of the military member, NCOA recommends this subcommittee consider legislation that
would permit the payment of unemployment compensation to military spouses who face such
a situation.

ISSUE #4
VETERANS EMPLOYMENT AND TRAINING PROGRAMS,

Mr. Chairman, several pieces of legislation have been introduced in both Chambers of
‘Congress that would significantly change, in some cases eliminate altogether, federal programs
that were designed for and have served the Nation’s veterans for as long as half a century.
NCOA has no quarrel with the goals and general direction that Congressional leaders are

taking, namely: (1) eliminate duplication in federal programs; (2) consolidate for cost


REGION II

Darlene Carver, President
Merlin & Associates

3501 Big Woods Road
Ijamsville, MD 21754

V: 301/831-9151

F: 301/831-9151

REGION IV

Jan Cavanaugh, Assistant Vice President
Nations Bank

600 Peachtree Street N.E.

Atlanta, GA 30308

104/607-2535

+: 404/607-3662

REGION V

Gerald Cameron, Personnel Manager
ITT Automotive Fulton Plan

P.O. Box 215

Archbold, OH 43502

V: 419/445-8010

F: 419/446-2112

REGION X
Rhett Van Paepeghem, President
Miley Insurance Assoc.

218 S. Main Street, P.O. Box 190
Hailey, ID 83333

V: 208/788-9506

F: 208/788-4988

118

REGION VII

Kay Kramer, Dir. Corporate Relations
Towa Foundation of Medical Care
6000Westown Parkway, Suite 350-E.
West Des Moines, IA

V: 515/222-2946

F: $15/222-2047

REGION VII
Jan Hobbs, President
Iron Parke Corporation
P.O. Box 371

Cedar City, UT 84721
V: 801/586-1128

F; 801/586-8978

REGION IX
Gloria Carpenter

5308 Golden Gate Avenue
Oakland, CA 94618

V: 510/547-3158

F: 510/547-6169


122

Unemployment Compensation
and the FUTA Tax

Unemployment compensation serves numerous purposes in the economy: (1) the employer-funded system
provides an income safety net for workers who lose their jobs through no fault of their own; (2) weekly UI
benefits for up to six months give workers the financial ability to wait out layoffs and cushion the process
of finding a new job; (3) due to the countercyclical nature of the unemployment compensation payouts—larger
benefits paid when there is high unemployment in recessions—the UI fund acts as a fiscal policy “automatic
stabilizer” to dampen the volatility and possibly the duration of the business cycle; and (4) unemployment
compensation also has been used by the Congress to deliver emergency aid to the unemployed during severe
economic crisis.

It was following an economic crisis that the “temporary” FUTA 0.2 percent surtax was enacted in 1976.
‘The tax was enacted to pay off a debt the Congress incurred by repeated extension of unemployment benefits
during the early 1970s. “The employer surtax is 0.2 percent of the first $7,000 of each worker's earnings (a
maximum S14 per employee a year). The debt was fully paid in 1987, but the Congress extended the 0.2
percent tax for three years—until January 1991—to enhance the federal budget. Since that initial extension,
the temporary tax has been extended several times. The unemployment aftermath of the 1990-1991 recession
again led policymakers to offer extended benefits to the fong-term unemployed, thus draining the accumulated
surplus in the account. The surtax is currently scheduled to expire at the end of 1998.

To put spending in these programs into perepetive, states paid out $26.5 blion in 1992, $23 billion in
1993, and $22 billion in 1994 for regular UI benefits, and federal spending on administrative costs for regular
UL was between $2 billion and $3 billion per year. Despite these huge outlays, the predicament of the long-
term unemployed led to enactment and repeated extension of federal emergency Ul during the 1992-1993
time frame, costing an additional $13.4 billion in 1992 and $12 billion in 1993.

UI Needs a Reemployment Focus

It is imperative that government reexamine the practices in a program that pays large sums of employer-
paid tax funds each year, particularly when the original goals of the program appear to have changed. As
discussed above in this statement, the nature of unemployment in the United States has changed dramatically.
‘Most workers who lose their jobs now are laid off permanently. Rather than encourage those UI recipients
to wait for callback that may never materialize and consequently postpone job hunting, the UI system needs
to be refocused to encourage workers to act quickly in seeking reemployment.

‘The Manufacturers Alliance urges the Congress to give states greater flexibility in the use of UT funds to
implement several inovatve approaches so a8 give those insured unemplayeds an incentive to find new jobs
before they exhaust their benefits. For example, experiments in Illinois, Pennsylvania, and Washington show
that offering reemployment bonuses cut the average length of unemployment among the eligible population by
‘one-half week to one week—even though only 10 percent to 15 percent of eligible clients actually made use
of the bonuses. The Alliance suggests Congress alow all states to pay a ump-sum reemployment bonus 9
individuals who obtain full-time employment within 12 weeks of filing a benefit claim,

In demonstration projects in Washington and Massachusetts, UL claimants interested in starting their own
businesses, if ven taining and jncome support, were twice as likely to launch successfully a new business
as a comparable nonparticipant. Subsequently, they also were found to have higher average employment rates
and earnings than the control group. "While there is a provision in the North American Free Trade Agreement
(NAFTA) legislation that allows all states the option of creating self-employment programs within UI, this
authority is only temporary under current law; the Manufacturers Alliance advocates making it permanent,

‘About one-third of the states now operate short-term compensation programs. Under this incentive system,
partial unemployment benefits ate paid to employees who work reduced hours because their employers are
trying to lower costs and thus avert a shutdown, or are reducing work throughout the labor force as they attempt
to avoid layoffs. The Alliance believes that the Congress should provide incentives for nonparticipating states
to offer this option.

Another problem with the UI system is that dislocated workers who are in training cannot take part-time
jobs without losing their UI benefits and training support. To make the system more job-oriented,, workers
in federally sponsored educational and training programs should be permitted to receive income support and
at the same time retain wages earned of up to one-half of their weekly UI benefit amount,

FUTA Surtax Should Remain
Dedicated to the Trust Fund

‘The 0.2 percent FUTA surtax js being used as a budget offset device; but the actual proceeds are confined
to trust funds dedicated to unemployment compensation—largely the extended unemployment account. The
Manufacturers Alliance recommends that the 0.2 percent FUTA surtax remain the funding vehicle for the
extended unemployment compensation account and not be diverted to any other special account.

‘The subcommittee is aware that the Clinton Administration's proposed Reemployment Act of 1994 (REA)
would have established a trust fund from the 0.2 percent FUTA surtax to pay income support to dislocated
workers who are in REA training programs. The Alliance is convinced that establishing an employer-funded
Jink between income support and worker training would set @ precedent that in the future could be used to


127

© Military members are required to fulfil the service agreement even though
they may prematurely decide to return to civilian fife at the end of their
contracts,

(© The nature of military assignments to overseas areas, isolated areas, military
bases and installations and world-wide sea duty, far removed from hometown
locales, provide little to no opportunity to seek potential employment prior to
separation from military duty.

© Many military members retum to hometown locations after acquiring a
spouse or family during period of military service, posing obvious financial
hardships if civiian employment is not immediately available or is slow to
develop.

NCOA would very much like to report to this subcommittee that every enlisted member who
makes a decision to retum to the civilian community would be able to secure immediate
‘employment. In fact, NCOA sponsors job seekers workshops, and Job Fairs in an effort to
give separating men and women assistance in finding employment following military service.
Many do, but many do not. Since UCX is for the most part an enlisted program that
benefits those who cannot secure employment in a timely manner, the minimal benefits
associated with the Unemployment Compensation Program can be extremely valuable and
most helpful during the transition and readjustment period of ex-servicemembers. Congress
tried this only a few years ago and determined that based on the conditions of military
service, servicemembers should be treated no differently than any citizen who finds

themselves in the unfortunate situation of unemployment.

Mr. Chairman, NCOA recommends to the members of this subcommittee that ex-
servicemembers be protected in law and continue to be entitled to the same Unemployment
‘Compensation Benefit protection as is made available to every unemployed civilian.


CONTENTS

Page
Advisory of May 4, 1995, announcing the hearing . 2
WITNESSES
USS. Department of Labor, Raymond J. Uhalde, Deputy Assistant Secretary,
waeeyment and Trainin Administration; accompanied by Mary Ann
Director, Unemployment Insurance Service, Employment and
Training Administration ... . 27
American Farm Bureau Federation, Bryan Little ... BL
American Federation of Labor and Congress of Industrial Organizations, Bill
Cunningham 85
Coalition to Repeal the 0.2% FUTA Surcharge, William R. Brown 44
Crapo, Hon. Michael D., a Representative in Congress from the State of
10. 5
Interstate Conference of Employment Security Agencies, Debra Bowland 69
Mathematica Policy Research, Walter Corson . 78
McKeon, Hon. Howard P. “Buck,” a Representative in Congress from the
State of California . 14
Ohio Bureau of Employment Services, Debra Bowland 69
Westat, Inc., Louis Jacobson ... 60
SUBMISSIONS FOR THE RECORD
Advisory Council on Unemployment Compensation, statement 100
Employer National Job Service Council, Mark Jones, statement and attach-
ment 110
International Association of Personnel in Employment Security, Bill Patton, 14
letter
International Union, United Automobile, Aerospace, and Agricultural Impie-
ment Workers of America, statement .. 117
Manufacturers Alliance, Kenneth McLen: statement 121
Non Commissioned Officers Association of the United
Michael F, Ouellette and Larry D. Rhea, statement 125
US. Chamber of Commerce, Jeffrey H. Joseph, stateme: 132

a


106

3508 of the Internal Revenue Code, which caps the employment tax liability of those businesses not
covered by Section 530.

‘The greatest revenue loss results from businesses that do not file information retums on independent
contractors. These are circumstances under which businesses are most likely to misclassify workers, as
well as the circumstances under which independent contractors are least likely to report their entire
income. Increasing the penalty for failing to file information retums would increase the incentive to file,
increase the percentage of independent contractor income reported, and provide the information needed
to identify employers that misclassify workers—thereby creating an incentive to classify workers correctly.

While the Councit recognizes that correcting these problems would have ramifications that reach far
beyond the Unemployment Insurance system, the Council finds that the problems are sufficiently serious
to merit action at both the state and federal levels.

1995-11. Recommendation

specifying employer liability for payroll taxes; licensing, bonding, or regulating the employee leasing
industry; and strategic targeting of audits,

1995-12. Recommendation
Federal law should be amended to eliminate the "prior audit" safe harbor provision of Section 530 of the
Revenue Act of 1978.

1995-13. Recommendation
Federal law should be amended to eliminate the provision of Sect
bars the IRS from issuing guidelines to define the employment rel

530 of the Revenue Act of 1978 that,
ship.

1995-14, Recommendation
Federal law should bbe amended to repeal Section 3509 of the Infernal Revenue Code and to require
businesses to pay all taxes owed for workers that are misclassified after the enactment of the repeal.

1995-15. Recommendation
“The $50 penalty for businesses that {ail to file information returns with the 1RS or with the independent
contractor they have hired should be increased.

‘The Council notes that available statistics do not accurately measure the level of Unemployment
Insurance receipt among the unemployed (that is,“recipiency"). The measure ofthe "insured unemployed"
(WU) and the ratio of insured unemployed to the covered labor force (that is, the insured unemployment
rate~the IUR) are frequently used for a number of purposes. When used as measures of recipiency,
however, they are misleading. Both statistics consistently overstate the number of individuals who actually
receive Unemployment Insurance benefits in a given week. In addition to counting recipients, the two
‘measures both include individuals who file a claim for, but do not receive, benefits in a given week (these
include individuals on a waiting week, individuals whose claims are ultimately denied for nonmonetary
reasons, and individuals who are disqualified for a given week). At the national evel, this inclusion has
the effect of overstating the number of the unemployed who actually receive Unemployment Insurance
benefits by approximately 10 percent (although there is considerable variation among the states in the
extent to which currently reported statistics overstate the actual receipt of benefits).

1995-16. Recommendation
‘The U.S. Department of Labor should report a measure of Unemployment Insurance recipiency. Th
‘measure should be a ratio, with the numerator defined as the number of individuals who are actually paid
‘Unemployment Insurance benefits, and the denominator defined as the total number of unemployed
individuals.

ELIGIBILITY FOR UNEMPLOYMENT INSURANCE BENEFITS

Five percent of all workers in 1993 reported that they were unable to find full-time employment, and 16
percent of the work force held parttime jobs. ‘The Councit finds that in some states, these individuals are
unable to qualify for Unemployment Insurance benefits, even when they have substantial labor force
attachment, ‘This problem is especially pronounced for low-wage individuals, many of whom must work
in temporary or part-time jobs. Welfare reform could result in an inerease in the number of low-wage
workers who find themselves in this situation.

‘Some unemployed workers are unable to qualify for Unemployment Insurance benefits because oftheir
state’s definition of the "base period.” The base period is the period of time that is used for calculating
‘whether or not unemployed individuals’ earnings are sufficient to qualify them for Unemployment
Insurance. Many states define the base period as the first four of the past five completed calendar
quarters. In these states, therefore, between three and six months of an individual's most recent work
‘experience is excluded from consideration in calculating eligibility for benefits. This may have the effect
of disqualifying some workers who have worked continuously, but who need the most recently completed
‘quarter of earnings to be included in the base period in order to qualify for Unemployment Insurance
benefits. To solve this problem, some states now use a "moveable base period,” which allows the


66

penalties for those failures-- loss of benefits for the period of non-compliance with no loss of
entitlement.

The proper balance between "carrots" in terms of job search assistance, and "sticks" in
terms of penalizing failures to adequately search for work is a controversial issue. Employers
for instance, generally want the ES to send out the best qualified registrants who are most
willing to accept the posted vacancy. However, because employers also gain from work-test
enforcement, they appear willing to bear the cost of agreeing to interview individuals who may
not show up for interviews or accept job offers. Similarly, workers recognize that UI should
cover only non-volitional jobless periods. Thus, work-test provisions are usually accepted by
claimants as long as those who are likely to be recalled are not unduly burdened by
unreasonable requirements to search for a new job?

Other Responsibilities of the ES

In addition to labor exchange and UI work-test enforcement activities, the ES is
responsible for executing major labor market information programs largely under the direction
of the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor. These information
gathering activities rely heavily on use of records required for the normal operations of the UI
system, as well as conducting special employer-based surveys. The UI/ES system is in an
excellent position to monitor unemployment through its payment of UI benefits, as well as
monitor employment because it requires firms to make payroll tax computations based on the
earnings of each employee.

‘The UI wage reporting system also is used to quickly establish eligibility for UI and has
proven of great value for determining eligibility for Food Stamps which is another ES
responsibility, as well as verifying eligibility for AFDC and other forms of welfare.

Many states have experimented with use of wage records for monitoring STPA activities,
and the U.S. Department of Labor has made extensive use of wage records as an adjunct or
alternative to much more costly surveys. All of the research that I discussed today was largely
based on use of UI wage, claim, and firm records. Use of those data is growing, and in my view
has not come close to reaching its full potential.

Future Directions for the ES

A key potential use of UI/ES data is to establish a uniform system to monitor th
performance of all programs that primarily are aimed at improving the earnings of our
Indeed, one of the major failings of the current array of ‘workforce investment" programs
pointed to by the GAO js the lack of an ability to accurately compare the performance of
different programs, or provide the type of feedback operators of individual programs need to
improve their performance.

tizens.

In short, no private firm could possibly run its operations effectively without solid
information about its performance. Why should we expect operators of government programs to
be able to do an effective job without solid information about their performance?

Of particular importance, there is little reason to believe that merging programs with
similar goals and giving states more discretion to structure those programs will lead to better
monitoring of their performance. The returns from providing accurate feedback concerning
program effectiveness could easily be over 100 times greater than the cost; but the technical
complexity of the project suggests that a prototype should be developed at the federal level for
use by the states.

> Pennsylvania is the only state that does not routinely screen claimants for satisfying the able and
available conditions, but this lack of enforeement activity appears to have no effect on UI outlays. Verifying
those conditions are satisfied in other states may take away resources from the UI system that might be
‘more productively used elsewhere, and even more importantly, often burdens claimants by forcing them to
"go through the motions" of seeking work in ways that are unproductive.



52

employment and cannot remain unless they have secured addi-
tional employment with an H-2A certified employer.

Second, to force employers of H-2A workers to pay into the un-
employment insurance system would only serve to undermine the
insurance feature of the program. In effect, employers would be
forced to pay for insurance protection for their employees against
financial loss associated with unemployment, despite the fact that
no such loss can occur.

Third, there is little in the way of additional revenue to the Fed-
eral Unemployment Trust Fund to be realized if FUTA taxation is
extended to the wages of H-2A workers. Employers are required to
pay a FUTA tax of 0.8 percent on the first $7,000 an employee
earns, which is the Federal taxable wage base. If 15,000 H-2A
workers in any given year—and in 1993, the U.S. Department of
Labor certified 17,000 H-2A slots—earn as much as the taxable
wage base of $7,000, their employers’ tax liability to the Federal
Government under FUTA would be approximately $56 per worker.

Therefore, the total collected from the H-2A FUTA tax at the
Federal level would be approximately $840,000, I just learned a lit-
tle earlier of the estimate that you have from CBO, and I look for-
ward to reviewing that a little more closely. Extension of FUTA to
H-2A workers does not result in a tax windfall for the Federal
Government but it does entail additional compliance requirements
for farmers.

Fourth, employers would be responsible for a significantly higher
tax liability to State unemployment security agencies. Employers
pay up to 6.2 percent of payroll for FUTA, based on their experi-
ence rating: 5.4 percent of that amount is paid to the States for the
payment of benefits. Thus, employers would be subject to a signifi-
cant State tax liability for unemployment insurance, which would
vary somewhat by jurisdiction, should Congress fail to correct the
law to exempt the H-2A wages from FUTA.

Fifth, imposition of the FUTA tax for H-2A workers would result
in another regulatory burden for farmers. Not only is there the di-
rect cost of the FUTA tax to consider, but also the indirect costs
of additional recordkeeping and reporting responsibilities. These
added costs for farmers, unlike most other business operations,
cannot be readily recouped in the form of higher prices for farm
commodities. Unfortunately, farmers do not set commodity prices;
the marketplace does. If farmers are unable to recoup the added
cost of FUTA taxes, they suffer a dollar-for-dollar loss of net farm
income.

For these reasons, Congress should make the H-2A FUTA tax
exemption permanent and retroactive to the beginning of this year.
H-2A workers will never be able to meet the ready, willing, and
available test to receive benefits, even if taxes are paid for them.

Thank you for the opportunity to testify. I look forward to an-
swering any questions you may have.

Chairman SHaw. Mr. McCrery.

Mr. McCrery. Thank you, Mr. Chairman.

I do not really have any questions, but I want to try to clear up
one thing Mr. Brown said about not allowing any of the trust fund
moneys to be spent for other purposes. What do you mean by that?


101

solvency of their trust funds by restricting eligibility for Unemployment Insurance benefits and/or
increasing employers’ tax rates, as well as independent state efforts to improve their trust fund solvency.

‘The utilization of the Unemployment Insurance system is measured by the Insured Unemployment Rate
(IUR), The IUR is the number of Unemployment Insurance recipients, relative to the number of
individuals in Ul-covered employment. Since the inception of the Extended Benefits program in 1970,
states have been required to use the state IUR as a “rigyer” that determines whether or not individuals,
who have exhausted their regular Ul benefits are eligible for Extended Benefits.

Research has shown that the decline in the utilization of the Unemployment Insurance system has
caused the TUR to become a less reliable indicator of evonomic conditions, reducing the likelihood that
Extended Benefits will trigger on in states with high unemployment, In addition, just as the IUR| was
experiencing a marked decline during the recession of the 1980s, the "trigger" level required to become
cligibte for Extended Benefits was raised,

“The combination ofthe reduction inthe IUR and the increase inthe trigger levet resulted inthe failure
of the Extended Benefits program to trigger on as unemployment continued to rise during this most recent
recession. As a result, Congress found it necessary to pass a series of emergency extensions of
‘Unemployment Insurance benefits. The Council finds that emergency extensions of Unemployment
Insurance benefits are extremely inefficient since they are neither well-timed nor well-targeted. Therefore,
itis necessary to reform the Extended Benefits program prior to the onset of the next recession, in order
to minimize the need for future emergency legislation

‘The Council has considered a variety of measures that could be used to trigger the Extended Benefits
program. While no perfect measures exist, the best available evidence about the condition of the overall
labor market within a state is the Total Unemployment Rate (TUR), which indicates the supply of
individuals who are unable to find work. It should be noted, however, that the TUR rates for January
1994 will be affected by the redesign of the Current Population Survey. An alternative measure of the
labor market conditions that are faced by Unemployment Insurance recipients is the Adjusted Insured
‘Unemployment Rate (AIUR), which is the UR adjusted to include those individuals who have exhausted
‘their regular Unemployment Insurance benefits.

“The Couneil finds that while substate (or regional) data are available on some measures of local Iabor
market conditions, these data are extremely unreliable measures of the true conditions thatthe unemployed
face, Furthermore, there would be substantial administrative difficulties in using either substate or regional
data for triggering Extended Benefits

‘The Counil finds that, in addition to problems with the triggers that have been used to determine
whether or not Extended Benefits are available within a state, the thresholds built into the triggers have
been problematic. These thresholds require that a state's unemployment rate (whether measured by the
TUR or the TUR) exceed the level that prevailed over the previous two-year period (by a factor of 120
percent for the IUR or 110 percent for the TUR).

“The threshold requirements do not significantly affect the number of states in which Extended Benefits
trigger on during a recession, However, the thresholds have the effect of delaying the point at which
[Extended Benefits trigger on in some states withthe highest unemployment, as well as hastening the point
at which such states trigger off the Extended Benefits program, As a result, the thresholds have caused
dissatisfaction among some with the operation of the program since those states suffering the most
‘economic hardship are triggered on for the shortest period of time. This problem could be addressed by
eliminating the thresholds and setting the triggers at a slightly higher level.

1994-2, Recommendation

‘The Council is unanimous in the view that there is a pressing need to reform the Extended
Benefits program.

The majority of the Council recommends that the Extended Benefits program should trigger
‘on when a state’s seasonally adjusted total unemployment rate (STUR) exceeds 6.5 percent as
measured before the Current Population Survey redesign.* Two members of the Council
recommend that each state should have the choice of using either the STUR trigger of 6.5
percent with a threshold requirement of 110 percent above either of the two previous years,
‘or an IUR or AIUR trigger set at 4 percent with a threshold requirement of 120 percent over
the previous two year period.

The Council hopes Congress can implement these reforms promptly. Although the Council
has reservations about the inefficient targeting of emergency benefits, Congress should extend
the existing Emergency Unemployment Compensation for a six month period to provide a
bridge program until these Extended Benefits reforms can be implemented.**

1994-3. Recommendation
‘Neither substate nor regional data should be used for the purpose of determining whether or
not Extended Benefits are available within a given area.

+ Two members ofthe Council recommen that the tigger should be set t 6.$ percent regardless of any changes
in the measured unemployment rate that result from the redesign of the Current Population Survey.

** Two members do not agree to the recommendation that Emergency Unemployment Compensation should be
extended.


26

find economic depression and the high school dropouts and all of
these things, and then pick another six areas that are similar that
will not be given this type of special treatment, and let’s see wheth-
er these theories work.

And so we immediately went to draw up a bill which was intro-
duced, which is H.R. 1414, which I think came before your commit-
tee after you started marking up. And what this does is to attempt
to reduce crime and poverty in poor neighborhoods by providing
employment opportunities to disadvantaged young adults.

do not know whether your—he was suggesting that we track
the empowerment zones by allowing this to go into areas which
have already been designated for some type of treatment, just to
see whether it works, to see whether it is a model. At this point,
is your bill flexible enough to consider this type of idea?

ir. MCKEON. I think it is, and if it is not, we can change it to
make sure it does.

I met, as I said, with a lot of people, and I am new at this proc-
ess. But it seems to me that what we come out with through mark-
up this week and next week will not be perfect. And even if fin-
ished at the floor, it will not be perfect. And after we get together
with the Senate, it will not be perfect. And when it is signed by
the President, it will not be perfect. But it will be something that
we need to continue to work with and go back and check it and fine
tune it as we find programs that are working and not working.

During the hearing process, we heard some tremendous things
that are being done around the country, and hopefully what we
have tried to do is make it flexible so those will continue and ex-
pand. I think some real good things will come out of it, but I think
we need to keep working together.

This will not be something that we pass that is final and finished
and will solve all the problems of the world and, you know, then
we can go on to something else. I think it will be an ongoing proc-
ess that we continue to work with.

Mr. RANGEL. I look forward to working with you. The only im-
pediment I see is that if we are picking six zones with the special
program and six others, there may be a problem with the block
grant and who picks the areas if it is not in one State. But I reall
appreciate the fact that you are open for suggestions, and I Took
forward to working with you.

Mr. McKeon. I would ike to talk to you about that.

Mr. RANGEL. Thank you, Mr. Chairman.

Mr. McKeon. Thank you.

Chairman SHaw. Thank you, Charlie.

Buck, thank you for very fine testimony and the good work that
you are doing over at Economic and Educational Opportunities.

Mr. McKeon. Thank you very much.

Chairman SHAW. There is a vote that has been called, so before
I call on the administration witness, I will give the Members an op-
portunity to vote. We will reconvene at 5 minutes after the hour.

{Recess.]

Chairman Suaw. If everybody will take their seat, we will con-
tinue.

Mr. Uhalde, welcome to the hearing, and you may proceed as you
see fit.


22

Mr. ENGLISH. Well, my own observation is that you are shifting
those resources back to the local level and providing an enormous
degree of flexibility. That is really the strength of the approach you
are taking, and I salute you for it.

Mr. Chairman, thank you for the opportunity, and I have no fur-
ther questions.

Mr. McKEon. Thank you.

Chairman SHaw. Mrs. Kennelly.

Mrs. KENNELLY. Thank you, Mr. Chairman.

Mr. McKeon, block grants, we have been dealing with them in
welfare reform and some other areas, and what we see is the pro-
grams sent back to the State in the form of block grants and then
the overall funding reduced. Then the argument is, well, you are
getting increases, but the increase is a reduction from current law.

Have you done any work on how much your bill, CAREERS,
would differ in how much is being spent on the multinumber of
training programs that we have right now?

Mr. McKEon. Right now these programs, the 151 that we are
looking at, are costing about $9.6 billion a year. We have not ad-
dressed the issue yet. We are going to subcommittee markup to-
morrow and full committee the next week, and so we are still work-
ing on that. And I think that we will address the issue in full com-
mittee, but we have not resolved that issue yet.

Mrs. KENNELLY. Do you foresee there probably will be a reduc-
tion in the funding for these programs?

Mr. McKeon. It seems to me that if you eliminate the bureauc-
racy, the top management of 150 programs down to 4 that we
should be able to eliminate and save at the Federal level. And then
if we structure this correctly so that the States do not build up an
offsetting bureaucracy, then we will and should achieve some sav-
ings along with Increasing the real delivery of service.

Mrs. KENNELLY. One of the programs I have seen that has really
addressed—in fact, the only program—the dislocation of jobs
through the trade situation is the TAA. I notice you do not have
that here, and you say——

Mr. McKEoNn. That is yours.

Mrs. KENNELLY. But with tomorrow, what are the chances that
TAA will be included in this?

Mr. MCKEoNn. None, unless you come and tell us you want us to
take that over.

Mrs. KENNELLY. That is what I was going to tell you. I think that
is one that does work, and I hope you leave that one be. If it is
not broken, why fix it?

Thank you, Mr. McKeon.

Mr. MCKEON. Our purpose is to make things better, not worse.

Mrs. KENNELLY. Thank you.

Chairman SHaw. Ms. Dunn.

Ms. Dunn, Thank you very much, Mr. Chairman. And thank you
for coming to testify, Mr. McKeon. This is a very interesting pro-
posal.

Have you given any thought to the relationship that this type of
block grant will have to what we did in our welfare proposal,
where, for example, we allowed 20 percent of the funds for school
lunches to be transferred to the WIC Program and so forth? Will


105

‘The Council has not yet reached a consensus on how to address these interrelated issues most
effectively. AS it considers the issues of administrative funding and efficiency over the course of the next
year, however, the issue of the FUTA taxable wage base and tax rate will once again be addressed.

The Council does note, however, that the Unemployment Insurance system was intended as a self-
‘contained system of social insurance. Inherent in this design is the principe that funds are accumulated
‘and held in trust solely for their intended purpose: namely, the payment of benefits to eligible unemployed
workers, economic stimulus, and the costs of administering the system.

Inclusion of FUTA accounts and state Unemployment Insurance trust fund accounts within the unified
federal budget undermines the integrity of the Unemployment Insurance system. Since federal budget
offsets must be identified before additional FUTA funds (which are earmarked for program administration)
can be appropriated, some states have found it necessary to divert their trust funds to pay for
administrative expenses-expenses that should be paid out of the FUTA trust fund. This diversion, white
perhaps necessary, tends to erode the integrity of the system's financing. Employer willingness to
contribute to the system, state capacity to develop and maintain adequate trust funds, and worker
‘confidence in the system are all undermined.

Furthermore, when Unemployment Insurance trust fund balances that have been explicitly accumulated
for countercyclical purposes are used to balance the annual federal budget, the system loses its capacity
to increase spending automatically during recessions. Consequently, unlike other trust funds held by the
federal government, the Unemployment Insurance trust funds are rendered fundamentally incapable of
achieving one of their major objectives—economic stablization—through their inclusion in the unified
federal budget.

1995-7. Recommendation
‘All Unemployment Insurance trust funds should be removed from the unified federal budget.

UNEMPLOYMENT INSURANCE COVERAGE AND TAXATION

Virtually all wage and salaried workers are covered by Unemployment Insurance, and their employers pay
taxes into the system accordingly. There are, however, two important exceptions. The first exception is
that nonprofit employers do not pay FUTA taxes, despite the fact that their employees are eligible for
‘Unemployment Insurance, use the system, and generate administrative costs for the system. In calendar
year 1992, this exemption cost the federal trust funds approximately $300 million, ‘The second exception
is that agricultural workers on small farms are not covered by Unemployment Insurance. The Council
finds no justification for either of these exceptions.

1995-8. Recommendation
‘The FUTA exemption for nonprofit employers should be eliminated.

1995-9. Recommendation
‘The exemption of agricultural workers on small farms {rom Unemployment insurance coverage should
be eliminated.*

‘The Council also finds that Unemployment Insurance taxes owed by farm labor contractors ("erew
leaders") often are not paid. Federal law specifies that, under most circumstances, these farm labor
‘contractors are the designated employers of their workers and that they are responsible for the payment
‘of Unemployment Insurance taxes. Iti difficult, however, to enforce this provision because of the many
‘obstacles that prevent locating crew leaders who have outstanding tax obligations.

1995-10. Recommendation
‘Federal law should be amended so that farm owners or operators are assigned responsibility for unpaid
Unemployment Insurance taxes owed by the crew leaders with whom they contract for workers on their
farms.

‘The Council finds that some employers improperly avoid paying Unemployment Insurance taxes by
risclassifying their employees as independent contractors. Clear definitions that delineate the conditions
under which an individual would legitimately be qualified as an independent contractor would help to
alleviate this problem

‘Section 530 of the Revenue Act of 1978 protects businesses that have “reasonable basis" for
isclassifying employees as independent contractors. Businesses that fall under the Section 530 "safe
harbor" are not required to correct the classification of employees and cannot be assessed back taxes or
penalties based on the misclasification of workers. Section 530 also prohibits the Intemal Revenue
Service (IRS) from clarifying the guidelines for determining whether a worker is an employee or an
independent contractor. ‘The ambiguity of these guidelines is the comerstone of the misclassification
problem and the tax revenue losses associated with it. In addition, revenue collection is limited by Section

‘+Two members of the Council abject to this recommendation
‘**0ne member of the Council objects to this recommendation.


34

employment in different occupations and industries, opportunities
which are badly needed when whole industries have been wiped out
or have survived only to retool over many years.

We have a deal to keep with American workers who were asked
to bear the uncertainties of freer trade with Mexico and the rest
of the world. As the President said in December 1993 when NAFTA
was passed, "We have an obligation to protect those workers
who...bear the brunt of competition by giving them a chance to be
retrained and to go on to a new and different and, ultimately,
more secure and more rewarding way of work." To repeal TAA and
the NAFTA-TAA would be to betray a pledge made by the President
and the Congress to live up to this obligation. A repeal will
increase many workers' fears about economic change.

Unemployment Compensation and the FUTA surtax

Let me now turn to two unemployment insurance program (UI)
issues that you asked to be addressed in this hearing -- repeal
of the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax and
reinstatement of the exemption of wages for H-2A workers from
FUTA taxes.

Under FUTA, a Federal tax is levied on covered employers at
an effective rate of 0.8 percent on wages up to $7,000 a year per
employee. The 0.8 percent includes: a basic tax of 0.6 percent
and a surtax of 0.2 percent. The total federal tax works out to
be a maximum of $56 per employee. Revenues from FUTA go into the
Unemployment Trust Fund.

The FUTA tax is used to fund a number of different
expenditures, including

+ All State and Federal administrative costs associated with
the unemployment insurance program,

+ _BLS~administered grants to States for cooperative labor
market statistical programs,

+ Employment and training services for veterans and disabled
veterans,

+ Labor exchange services under the Wagner-Peyser Act,
+ Alien labor certification,

+ The loan fund from which an individual state may borrow
whenever it lacks funds to pay benefits,

+ The Federal share of benefits paid under the Federal-state
extended benefit program, and

+ Benefits under some of the Federal supplemental and
emergency programs.

The President's Budget recommends the continuation of the
surtax through its currently authorized expiration date of
December 31, 1998. This view is based on the need for adequate
balances in the Unemployment Trust Fund, taking into account
current economic conditions as well as the history of
unemployment during recessions. One of the key ways in which the
Federal governnent helps individuals adjust to sudden economic
change is through temporary income support provided through our
unemployment insurance system. Countercyclical financing is the
hallmark of this system; taxes build up the trust fund when
unemployment is low to pay for benefits that will be demanded
during periods of high unemployment.

The 0.2 percent surtax was added to the then 0.5 percent
basic FUTA tax in 1977. The revenue generated by the surtax was


115

© Unemployment Compensation and Employment Security are not “corporate welfare;” they
promise made with America’s private sector.

‘Much recent discussion has been raised about “corporate welfare,” or government programs that
subsidize Amencan business. Unemployment Compensation and Employment Security programs,
including the Disabled Veteran Outreach Program and Local Veterans Employment
Representatives, are no such thing, Businesses are assessed two taxes, one state (SUI, state
unemployment insurance) and one federal (FUTA, the Federal Unemployment Tax Act). SUI pays
for the benefits, and FUTA pays for the administration of the program. Only in Alaska, New
Jersey and Pennsylvania do employees contribute to benefit funding. Administrative dollars are
wholly employer paid. This represents a promise to America’s business community, which
‘supports the Unemployment Compensation program because ofits economic stabilization effects
‘and the ability to have a highly skilled workforce available through hard economic times.
Although times are different from when the program started, various reports show that there will
bbe more job turnover. That increases the need for a comprehensive Employment Security
program and for support of those citizens who are the working backbone of the nation. (APES.
Urges the Committee to consider that the administration of the system preserves the integrity of
the benefit program, which isan actuarially based insurance system, not welfare,

© Unemployment Compensation and Employment Security funding is unique among employment.
and taining programs.

While IAPES also supports a serious review of all employment and training or workforce
development programs — and understands that more consolidation and collaboration are
needed in a locally responsive and empowered system — it must point out that Employment
Security funding, including veterans programs, are paid by a tax on employers and not funded
from general revenues 2s other employment and training programs. The association has long
held that this unique funding source should be recognized. The association long has urged
removal from the Federal Unified Budget of the unemployment trust funds for both benefits and
administration. all are running at surpluses, yet the funding is pinched as the surplus dollars are
Used through accounting measures to heip offset the deficit being accrued in general-revenue-
supported programs. By identifying the funding source and recipient, government can bring a
greater accountability to the programs. That accountability will fulfill the promise government
hhas made with the private sector in creating the Employment Security System. Apart from
removal of unemployment trust funds from the Federal Unified Budget, unemployment trust
fund moneys should not be commingled in a comprehensive block grant that would confuse
funding streams and accountability to the private sector. As the congressional debate over
possible block granting of administrative dollars continues, WAPES urges the Committee to
Consider an alternative of an “Employment Security” block grant that also would serve the
purpose of separating the funding sources. That would bring a clear funding steam and @ more
‘easily trackable accountability to the programs. Even devolution of all trust funds to the states
‘would be superior toa commingled, all-encompassing block grant.

‘© The0.2 percent“temporary” FUTA surtax should be repealed.

The promise made with America’s business in the mid-70s, when the 0.2 percent “temporary”
FUTA surtax was added to repay the cost of benefits and administration arising from the
‘economic recession of that era, was that when the debt was repaid the tax would end. The debt
was repaid in the mid.'80s, but itis the mid-'90s and the tax still is being collected. Worse, the
‘moneys are not being used to support the system. Rather, through the Federal Unified Budget
‘the funds are accruing as surplus and are being used to offset deficits in other areas of the
budget. Many in the private sector call this a misuse and abuse the tax and an unneeded and
expensive donation to the federal government. IAPES agrees. Private-sector employers are not
even seeing an increased benefit through additional administrative spending. Factoring in
inflation, less is being spent on Employment Security administration than in the 1970s. The
federal government needs to honor its promise and repeal the 0.2 percent “temporary” FUTA
surtax

‘© Employment Security programs are not training programs.

Programs supported by the unemployment trust funds — Unemployment Compensation,
Employment Service, Labor Market Information, Disabled Veteran Outreach Program, Local
Veteran Employment Representative — are third-party labor force intermediaries. As such, they
represent job seekers and employers equally. In any emerging system, an objective third-party
will be needed to provide an assessment of effective training programs.” In any emerging system,
there will be a critical need for current, accurate job information. in any emerging system, there
will be a need for some type of income support. The Employment Security System is the only
program with the proven track record of success in all these areas — and it is the only one that
private-sector employers directly support with their tax dollars. (APES urges the Committee to
‘recognize these factors when considering job training consolidation legislation.



58

Mr. RANGEL. So when you get down to the wage, forgetting the
minimum wage, what is the average hourly wage, when you in-
clude everything?

Mr. LITTLE. It would be difficult to figure out exactly what a na-
tional average wage is. The Department of Agriculture conducts
surveys of agricultural employers across the country. They are
charged in that survey with figuring out what the appropriate
wage and benefit level would be in order to prevent displacement
of any available domestic labor in that area.

Mr. RANGEL. Let me tell you why I ask the question. It seems
to me that, I do not know about perishable vegetables, but you
have a whole lot of sheepherding here and horse training and
things that really, it would seem to me, that if you added what you
are paying to the foreign worker for room and board and transpor-
tation, that you might get a pretty decent salary for some Amer-
ican workers.

Mr. LITTLE. I suppose that is a possibility. However, sheepherd-
ing is a highly specialized skill, and up until now, American em-
ployers have not been very successful in attracting domestic work-
ers into doing that sort of work.

Mr. RANGEL. That is why I am asking. You tell me what hourly
wage you get up to by bringing in these people from New Zealand,
and we may open up a school so we can put some of our people
back to work.

Mr. LitTLe. As I was saying previously, the Department of Agri-
culture’s job is to figure out what the appropriate wage and benefit
level is to prevent any displacement of domestic workers. They
then pass that information along to the Department of Labor and
the Department of Labor issues, by regulation, what are known as
the——

Mr. RANGEL. I know all of that. I need some help as to actually
what the employer is actually paying so that I can have a better
understanding why Americans would not make themselves avail-
able for that kind of work. I mean, horse training, to get a guy
from New Zealand to train a horse, I do not know——

Mr. LITTLE. Depending on where you are, the agricultural em-
ployment wage rate is something on the order of $5.60 an hour in
Virginia, something in that general range in other parts of the east
coast—

Mr. RANGEL. No, wait a minute, sir. I am trying to see what it
is when you include transportation costs, room and board—do they
take out any taxes at all from their pay, any taxes? No. So you
start adding up, without taxes, what their salary is, and I would
be interested, not that I know anybody that would want to replace
the sheepshearers and the goatherding and all of that, but we have
to be satisfied that we are not taking American jobs, and that is
the only reason I am asking. If you get up to $20 an hour with the
other costs and it is tax free, I can work out something with you.

Mr. LITTLE. One of the most common usages of H~2A workers is
moving plastic irrigation pipe for flood irrigation in southern Idaho,
and I have done that kind of work, and it is hard work.

Mr. RANGEL. I cannot deal with the irrigation, but I can surely
deal with the horse training and the shepherding and the chicken
farming. They just sound so American.


112

ENJSC BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

Mark Jones, President
Oak Table Restaurants, Inc,
1801 North Coast Highway
Newport, OR 97365

V: 503/268-5114

F: 503/265-6886

Dan Spencer, Vice President
Sierra Energy and Consulting

4300 Ashe Road, #11, P.O. Box 41864
Bakersfield, CA 93304

V: 805/836-1439

F; 805/832-9698

William "Bi
Zagar, Inc.
24000 Lakeland Blvd.
Cleveland, OH 44132

V: 216/731-0500, ext. 3025
F: 216/731-8591

Hanigan, Secretary

Kathleen Mahoney, Treasurer
43 Palm Street

Bangor, ME 04401

V: 207/945-9360

F: 207/945-9360

Gary Johnson, Past President
Corporate Programs Manager
Towa Health Coalition

P.O, Box 371

Forest City, IA 50436

V: 515/582-2523

F: 515/582-5581

REGIONAL REPRESENTATIVES

REGION I REGION V
Kathleen Mahoney Richard Roesler
43 Palm Street Peoples National Bank
Bangor, ME 04401 45 North Union
'V:207/945-9360 Mora, MN 55051
F:207/945-9360 V: 612/679-3100

F: 612/679-3109
REGION I
Patrick Sullivan, Recruitment Director REGION VI
EGW Associate Chuck Yarbrough
1700 Clinton Street Tyson Foods, Inc.
Buffalo, NY 14206 P.O, Box 20020
V: 716/826-4233 Springdale, AR 72765
F: 716/826-4788 V: 501/290-4686

F: 501/290-4844


16

those activities to other initiatives that serve special groups could damage the
overall economic environment in which special groups are seeking to participate.

Urging you to keep funding for the Employment Service linked with funding for
administration of unemployment benefits in no way indicates that | or [CESA stand
opposed to better coordinating the delivery of all of the components of the broader
workforce development system. ICESA has worked, and continues to work, with the
several congressional committees of jurisdiction and the Administration to develop
such a coordinated system

Budget Deficit Reduction Proposals Related to Unemployment Insurance

Although this hearing does not address unemployment benefits directly, | would like
to speak briefly to several proposals that have been made during development of
the FY 1996 budget resolution. We have heard that the House Budget Committee
proposes to repeal the Federal-State Extended Unemployment Compensation Act.
We have also read that another balanced budget plan from Congressman Solomon
proposes to means test state unemployment benefits and impose a two-week
waiting period for benefits.

Elimination of Extended Benefits: The federal-state extended benefits program
was enacted in 1970. The rationale for the program was to have legislation in place
that would automatically trigger on when unemployment was high in a particular
state-targeting the benefits--or throughout the country during a nationwide
recession, rather than Congress having to enact a program for additional weeks of
benefits on an ad hoc basis during each recession. The legislation required states
to pay half the cost of the benefits from their Unemployment Trust Funds deposited
in the U.S. Treasury. During the 1975-77 period, even though the extended benefits
program triggered on, Congress enacted the Federal Unemployment Benefits
program for those who exhausted federal-state extended benefits. Changes were
made in the 1980s which eliminated the national trigger and required higher levels
of unemployment for states to trigger on. During subsequent recessions, the
Congress has enacted temporary programs for additional weeks of benefits whether
or not extended benefits have been available: most recently, the Federal
Supplemental Compensation (FSC) program in 1982-85 and the Emergency
Unemployment Compensation (EUC) program in 1991-94

Repealing the extended benefits program may appear to make sense since
Congress has deemed it necessary to add a special program in each of the
recessions since the program was enacted, but it would raise several questions. If
the program is repealed, would the portion of the federal unemployment tax
allocated to fund those benefits also be repealed? Twenty percent of federal
unemployment tax collections go to the Extended Unemployment Compensation
Account in the Unemployment Trust Fund--about $5.4 billion over the next five

years. The federal share of extended benefit payments for the next five years is
estimated by the Department of Labor at about $600 million. If the extended
benefits portion of the federal unemployment tax is repealed concurrently with the
program, there would be a net increase in the federal deficit rather than a reduction
in addition, elimination of the state share of extended benefits would have no long
term impact on the federal budget even though state trust funds are included in
federal budget deficit calculations. Reductions in state trust fund outlays result in
tax/contribution rate adjustments to lower stale unemployment tax/contribution
collections, Should the extended benefits program and the taxes that fund it both be
repealed, what source of funding would be available to the Congress should some
program of additional benefits be developed in response to a fulure recession?

Although it appears to us that repealing the extended benefits program for budget
deficit reduction purposes does not make sense, we believe that there are


28

The President’s proposal is also designed not only to consolidate
but also to make our job training system more market driven. And
in this, the President’s proposal would attempt to empower individ-
ual workers to put purchasing power into their hands to have them
make informed and wise decisions as to where they should get
their employment and training services.

While the President’s proposal seeks to streamline our employ-
ment and training programs, the President has also chosen in his
budget to invest additional resources and proposed an overall fund-
ing increase of $1 billion. In contrast, the recently proposed House
and Senate budget resolutions contain dramatic cuts in the funding
for these same systems. As my boss, Secretary Reich, noted last
week, we ought to be investing more in people and not less.

The key component, as I mentioned, of the President’s proposal
has been to increase purchasing power of individuals by providin;
adults with what we call skill grants or vouchers to enable individ-
uals with good information to choose among training and education
providers in their communities in the occupations for which they
want to train.

Another key part of the President’s proposed adult system is to
build a comprehensive system of one-stop career centers. States
working in cooperation with mayors and local communities, with
the private sector and business, the local schools and community
colleges, will be able to integrate the services of job training as well
as the Employment Service and other local programs into a coher-
ent system that people can actually access and receive services
from on a seamless basis.

We have started this. States and local communities have been
doing it in spite of the Federal Government's restrictions and ob-
stacles, up until now, and now we are in a position to be able to
help States move along and build these one-stop systems.

Last, the President’s proposal calls for helping build a new elec-
tronically based labor market information system, a system that
provides ready access to job vacancies around the country, ready
access to resume banks, and talent banks, where employers can ac-
tually access electronically resumes of individuals. They also can
obtain consumer information on the quality of education and train-
ing institutions through consumer reports so that when individuals
empowered with vouchers or skill grants choose where they are
going to get the training, they can have information on the per-

formance of those institutions so they can make wise choices.

The funding for the present system of job training, employment,
and employment services is a mixture of general revenues and
FUTA taxes, the latter paid by employers. These two fundin:
sources should be maintained, and it is our position that the FUT,
funds from business should be earmarked for the public labor ex-
change services. These services have been a specialty of the exist-
ing Employment Service. They have been run by States, and they
should be integrated as part of the services of a one-stop system.

With regard to the Trade Adjustment Assistance Program and
the NAFTA trade programs that were mentioned—and the Chair-
man _asked our position—Trade Adjustment Assistance and the
NAFTA Program really exist_as a social contract with workers.
Workers have been asked, really back in the early sixties and again


94

A restructured training system should ensure that Federal investments in
training not substitute for investments employers would have made anyway. We
must guard against abuses that have in the past led to destructive competition and
business relocations, pitting one community against another. An effective complaint
and grievance procedure at the local, state, and federal level should be established so
abuses can be discovered and handled at an early stage.

In order to help workers know what to be trained for and where to apply for
jobs when they complete their training, atl employers should be required to list their
job openings with the Employment Service.

A system of accountability will require a national framework of skill standards
and program performance standards. State-of-the art information systems must be
broadened at the federal, state and local level to provide sound monitoring, labor
market information as well as outcome measures of performance.

Standards for learning gains, educational achievements, job placement and
earnings increases must be made a part of the credential process for all training
institutions. The voluntary industry skills standards initiative established by Goals
2000 is a critical element of this new system.

Comprehensiveness

There must be sufficient funding to meet the needs of all segments of the
workforce. At a minimum, any proposal to give individual grants to unemployed and
dislocated workers should provide training and education benefits equal to what
veterans and national service participants currently receive.

A ‘restructured training system should coordinate a diversity of training
approaches. Besides serving employed workers as well as the long-term unemployed,
the system should pay close attention to special needs of dislocated workers and
young people in school.

The public schoo! system must play an integral role in a coordinated work force
preparation system. A redesigned school-based component of the system should tie
vocational education to other reform efforts and focus on raising the academic,
technical and employability skills for students. This system should offer career
awareness and improved counseling to students beginning in the early grades.

States should be supported to establish clear academic and occupational
standards based in part on industry-oriented standards. Standards should be tied to
assessment and credentialing systems, curricula and instruction aligned to these
standards and professional development provided so that school staff can deliver
integrated academic and vocational instruction.

States and local school districts should be given the flexibility to develop the
kinds of systems, programs and course offerings that meet high standards.

Schoo!-to-Work

‘The AFL-CIO supports the planning and implementation efforts now under way
in the states to help students develop a sound foundation of academic skills and
prepared for the world of work. We believe the larger education reforms embraced
in 1990 by the reauthorized vocational education act should be continued and
expanded. Many AFL-CIO affiliates are already involved in such programs.

As the Schoo!-to-Work Opportunities Act now provides, labor consultation and
input are essential in planning and implementing these programs. Employer


9

Mr, Crapo. We are going to relieve the employer, if this exemp-
tion is granted, from a tax liability to provide a benefit that—to
provide taxes for a benefit that does not exist.

Mr. RANGEL. And so this is to encourage him to continue to use
non-American workers.

Mr. Crapo. It allows them to do so where it is appropriate.

Mr. RANGEL. OK. And I am just wondering, what is the average
salary of these people? Since we cannot get Americans to do this
work, how much are they paid?

Mr. Crapo. Mr. Chairman and Mr. Rangel, I do not have that
information.

Mr. RANGEL. So if I was to say that, you know, it looks like they
may be depriving Americans out of work by bringing in foreigners,
you could not argue that since we do not know what the salary is.

Mr. Crapo. I bet that I could, but I do not have the information
in front of me right now, Mr. Rangel.

Mr. RANGEL. What about the Department of Labor? Have they
looked at this? Is it supported by the Department of Labor? That
is the U.S. Department of Labor.

Mr. Crapo. I have not checked with the Department of Labor.

Mr. RANGEL. None of these people come from Cuba, do they?

Mr. Crapo. I could not tell you that, Mr. Rangel.

Mr. RANGEL. Well, I do not want any controversy in front of this
committee. If we are dealing with foreigners, I want to know who
they are. I want to make certain that they are not competitive with
Americans, and I want to make certain that they do not receive
any benefits if they are not American, to make it consistent with
this committee.

Thank you for presenting what you have, and I hope that Mr.
Little willbe able to—who is the sponsor of this bill?

Mr. Crapo. Mr. Chairman and Mr. Rangel, it is my understand-
ing that this is not an independent bill. It is an effort to be at this
committee to provide for this exemption. If there is an independent
sponsor, I am not aware of who it is.

Mr. RANGEL. Someone has to introduce this darn thing. The
farmers cannot introduce the bill.

Mr. Chairman, whose bill is this?

Chairman SHaw. We are not on a bill.

Mr. RANGEL. We do not have a bill?

Chairman Suaw. This is just a—

Mr. RANGEL. Oh, this is just dialog.

Chairman SHAW. Just a earing.

Mr. RANGEL. Oh, I have enjoyed it. Thank you. [Laughter.]

Mr. Crapo. It has been my pleasure, Mr. Rangel.

Chairman SHAW. There are some 20,000 workers that are in-
volved in this program. We have the listing of the States. I think
there are 2,800 in New York. I will have it copied and put on each
member’s desk.

[This table was given out to the members at the hearing:]


7

numerous problems with the current program and would be open to discussions
about replacing the program with a better approach.

Means Testing of Unemployment Benefits: | would also like to touch on our
concerns about means testing of unemployment benefits. As | mentioned in the
discussion about extended benefits, imposing restrictions on state unemployment
benefits has no fong-term impact on the federal budget because reductions in
outlays eventually result in automatic adjustments to lower state unemployment
revenues. In addition, there are significant policy considerations that argue against
means testing unemployment benefits:

<The unemployment insurance system is structured to provide higher wage
replacement to lower income workers. Each state caps benefits at a set
“maximum weekly benefit amount" regardless of the individual's wages. This
means that the higher an individual's base period wages (over a minimum
amount), the lower his/her wage replacement rate.

sLiving expenses, such as renUmortgage payments, tend to vary with income
levels. Two income families usually have expenses that require two incomes
and need partial wage replacement when one wage earner is unemployed.
Loss of a job tends to have a major impact on the living standard of most
people regardless of their former earnings or other family income.

Eliminating middle and higher income workers from unemployment
beneficiaries will reduce the economic stimulus/stabilization effect of U! during
recessions. The decline in insured unemployment as a percent of total
unemployment over the past 15 years has already lessened this impact.

-Employers may well object to paying taxesicontributions on behalf of those
workers whose economic circumstance will exclude them from eligibility for
benefits should they become unemployed.

“Benefits are available for a limited period of time--26 weeks in most states.
The average beneficiary receives benefits for about 15 weeks.

“There is no crisis in funding for unemployment benefits. There is a net
balance of over $30 billion in state accounts in the federal Unemployment
Trust Fund. Revenues are projected to exceed outlays as far into the future
as projections go.

«In relation to the potential cost savings, the administrative cost of applying a
means test, depending on how it is designed (whether assets are included),
would be very high.

Two-Week Waiting Period: As | have said earlier, restricting state unemployment
benefits has no long term impact on the federal deficit because reduced benefit pay-
outs result in reduced pay-in from empioyers. Most states have a one-week waiting
period; no state has a two-week wailing period. State legislatures, balancing many
aspects of benefits such as the weekly benefit amount structure, number of weeks
of benefits available, qualifying criteria, and eligibility requirements, have made a
number of interlocking choices about benefit levels and the conditions under which
they are available, keeping in mind the level of taxes required to support those
benefits, We believe Congress should leave decisions about the terms and
conditions of benefit payments to the states where the responsibility for financing the
benefits is placed

Mr. Chairman, thank you for your invitation to present our views. | would be happy
to respond to any questions you may have.


83

‘or occupation on their new job, our estimates show that the average wages of trainees were
slightly higher than those of nontrainees, other things being equal. Although these estimates

‘are not statistically significant, they provide some indication that TAA training may have had
a positive effect on the wage rates of TRA recipients who switched to a new industry or
occupation

‘The Costs of Worker Dislocation and TAA Expenditures

+ The costs of displacement among TRA recipients, as measured by eamings losses, equal
approximately $46,000 during the first three years after the initial UI claim, Quarterly
‘earings losses tended to fall towards zero over time, but the losses were stil large even three
years after the intial claim. In quarter 12, the earnings losses averaged nearly $3,000 dollars.

Because TRA recipients must exhaust UI benefits before they can collect TRA benefits, these
‘earnings losses are higher than those found for more general populations of displaced
workers, some of whom will become reemployed prior to exhaustion. But TRA recipients
had even higher average losses than UI exhaustees--about $10,000 higher than during the
three years after the initial claim. The differences were highest near the end of the first year
after the initial UI claim, after which they declined gradually.

TRA recipients receive assistance from the federal government in the form of UI benefits,
TRA payments, TAA job-search allowances, TAA relocation allowances, and TAA training,
‘The total value of these benefits was about $10,603 per TRA recipient in our post-88 sample,
which falls far short of the average earings losses, or total costs of displacement, among.
TRA recipients. However, the TAA program provided more than half the assistance received
by TRA recipients, demonstrating the importance of TAA benefits for those who qualify.

These findings demonstrate that the TAA program is currently well-targeted--the TAA program
serves workers who are permanently displaced from their jobs and who have greater difficulty in becoming
reemployed than do similar Ul exhaustees. Both before and after the 1988 legislative changes, TRA
recipients experienced significant earnings losses due to their layoff. Even the TRA recipients who found
‘a job after their initial UI claim experienced significant wage losses relative to their pre-layoff wages.

The most recent changes in the TAA program made training an entitlement and also required that
‘TRA recipients participate in an approved training program unless they received a waiver exempting them
under certain circumstances. A training requirement might affect TRA recipients in at least two ways
First, it might increase the training participation rate among TRA recipients. The findings show that, while
there was substantial participation in training prior to the requirement, the requirement increased training,
participation even further, to approximately half of all TRA recipients. A training requirement can also
affect TRA recipients by targeting TRA payments at those who need training and by discouraging long
spells of TRA receipt among those recipients who have no need or desire to participate in training, The
findings are consistent with tis interpretation. They suggest that the training requirement reduced weeks
of TRA receipt among the average recipient, despite the fact tha the average duration of training increased.
In addition, the training requirement led to a decline in the duration of the intial jobless spell and to an
increase in eamings due to more rapid reemployment.

‘Whether training is required of TRA recipients should depend primarily on how successful itis at
increasing employment and earings. Our findings, which are consistent with the findings of other studies
of training for displaced workers, suggest that TAA training did not have substantial positive effect on
camings of TAA trainees, at least inthe first three years after the intial UI claim. Given this uncertainty
about the retums to training, I believe that training participation should be voluntary rather than mandatory
for TRA recipients. Even if training were made voluntary, a relatively large proportion of TRA recipients
‘would still probably participate in training; more than a third of the members of the pre-88 sample of TRA
recipients, for whom training was voluntary, participated in training. At the same time, the training,
requirement could be replaced with a requirement to participate ina job search program. This strategy was
attempted in the TAA program between 1986 and 1988, but the job-search services were never fully
implemented due to a lack of adequate finding. Recent research suggests that requirements to participate
ina job-search program can increase employment and reduce the receipt of unemployment benefits among
recipients


5

reforms that are undertaken in the training and retraining unem-
ployment compensation area are on the target.

‘e in this country have shown we know how to train when we
put our mind to it. I do think consolidation is in order. I do think
reforms are necessary. I do think the programs can become still
more productive. I think the Department of Labor and the Sec-
retary and the administration should be lauded for their initiatives.
And I for one want to be sure that as we make changes, they will
build on the experience we have had in this country in retraining
and training workers.

I look forward to the testimony of our colleagues and then the
Department of Labor, as well as the other two panels.

Chairman SHaw. Mr. Rangel.

Mr. RANGEL. Mr. Chairman, I will be brief.

I want to thank yu for having these hearings, especially bring-
ing in people who have jurisdiction as relates to job opportunities
and employment opportunities for young people in economically
disadvantaged areas.

The Contract With America went a long way in reform, and I
know I sound like a broken record when I say that we have to do
something for our schools and for our communities so that young
Reople will have hope that they, too, can be part of the American

ream,

I spoke with the Speaker at length in our hearings, and he
agreed with me that at least it should be tested and asked me to
work with the committee of jurisdiction to see whether or not—that
is the Subcommittee on Postsecondary Education, Training we
could come up with some pilot type of project.

I understand that to a large extent it has been adopted and we
will be hearing more about it, except that it is not targeted. And
I do hope as the hearings go on that the members of this commit-
tee, if they agree that we want to hit the areas—if it is going to
be pilot, we ought to hit the areas that are crippled the most and
where there is the least amount of reason to have hope rather than
take the few dollars and spread nationally and have the Governors
make the decision.

So I just welcome the hearing, and then we will have to see
where it goes. Thank you so much.

Chairman SHAW. Do any other members have any opening state-
ment they wish to make?

[No response.]

Chairman SHAW. Without objection, I will allow any opening
statement any members might want to make to be placed in the
record at the appropriate part.

Michael, if you would take a seat at the table, we look forward
to your testimony.

STATEMENT OF HON. MICHAEL D. CRAPO, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF IDAHO

Mr. Crapo. Thank you, Mr. Chairman and members of the com-
mittee.

I appreciate the opportunity to testify before you today concern-
ing the need to renew the Federal unemployment tax exemption for
H-2A agricultural workers.


ll

Fourth, it is important to us in our hiring process to find the
best person available to fill a vacancy. Therefore, we want the
one-stop career centers or employment centers to be available to
any job seeker and not limited to recipients of public assistance
programs.

Thank you for the opportunity to share our views with the
Committee


81

Evaluation Findings

A recent evaluation that I helped conduct describes the pre-layoff characteristics and post-layoff labor-
market experience of TRA recipients,’ based on data on nationally representative samples of TRA

‘who participated in the program either just before or just after the 1988 program changes. It also
describes the training provided under the program, based on data on separate nationally representative
samples of TAA trainees. Data on Ul exhaustees from manufacturing industries who did not receive TRA

are used for comparison purposes.

‘The Characteristics of TRA Recipients

+ The workers served by the TAA program (that is, TRA recipients) clearly exhibit the
characteristics associated with displaced workers. In most cases, they were permanently
‘separated from their pre-layoff employers, and in the majority of cases (70 percent) the layoffs
‘were due to plant closings. This finding contrasts with the situation in the 1970s, when the
majority of workers served by the TAA program were jab attached.

‘More than 85 percent of TRA recipients come from the manufacturing sector, with major
‘concentrations in the textile and apparel, rubber and leather, primary and fabricated metals,
‘machinery, and transportation equipment industries. In contrast, most workers in the general
population of displaced workers identified by the Bureau of Labor Statistics had not
previously been employed in manufacturing.

The average pre-layoff wages of TRA recipients were higher than those of the general
population of displaced workers and the population of displaced workers served under Title
lof SIPA. The average pre-layoff wages of TRA recipients were also higher than those of
Ul exhaustees from the same manufacturing industries. This difference may be due to the
fact that the job tenures of TRA recipients were considerably longer and their rates of
unionization higher than those of UI exhaustees and, indeed, the general population of
displaced workers. TRA recipients also received more fringe benefits than did UI exhaustees.

Participation in Reemployment Services,

+ Both prior to and after the 1988 amendments, a substantial proportion of TRA recipients
received reemployment services from the TAA program: prior to the 1988 amendments, 37
percent participated in TAA training; this proportion rose significantly (to 47 percent) after
the 1988 amendments. In addition, most TRA recipients received other reemployment
services from the ES, and their rates of receipt were higher than those of UI exhaustees for
most services. However, very few TRA recipients received job-search payments for out-of-
area job searches or moving expenses to take an out-of-area job, primarily because most
recipients were not interested in moving.

+ TRA recipients who received TAA training differed from nontrainees, On average, TAA
trainees were younger and better educated than nontrainees. Among pre-88 recipients, the
pre-layoff wages of trainees were higher than those of nontrainees, but, controlling for other
factors, the reverse was true among post-88 recipients,

+ The training provided to TAA participants generally sought to develop specific job-related
skill in new occupations. Much of the training was long-term (longer than a year), and much
of it was provided at vocational training centers or at local community colleges. About half
of the pre-88 trainees entered training prior to receiving TRA benefits; this percentage rose
to about 60 percent among trainees after the 1988 amendments. Seventy-two (72) percent
of pre-88 trainees and 67 percent of post-88 trainees completed training. The majority of
trainees felt that their training both helped them find a job and gave them useful experience
for the job when they became reemployed.

‘Corson, Walter et al. “Intemational Trade and Worker Dislocation: Evaluation of the Trade
Adjustment Assistance Program.” Princeton, NJ: Mathematica Policy Research, April 1993,


107

minimum earnings requirement to be met on the basis of the four most recently completed quarters of
work if itis not met using the standard definition

‘The Council finds that advances in technology have made it feasible for all states to use the most
recently completed quarter when determining benefit eligibility, and that using this quarter is consistent
With the legislative requirement that states ensure full payment of Unemployment Insurance when due.
While the Council has been unable to develop sound estimates ofthe cost of implementing such a change,
there are reasons to believe that the cost may not be prohibitive. First, many of the individuals who are
determined to be eligible using @ moveable base period would become eligible eventually (as soon as an
additional quarter of earnings information becomes available). Second, some of the increase in the cost
of Unemployment Insurance benefits would be offset by a reduction in benefits paid under means-tested
programs, such as Aid to Families with Dependent Children (AFDC) and Food Stamps

In some cases, unemployed individuals cannot qualify for Unemployment Insurance benefits because
‘their eligibility is contingent upon their earnings in the calendar quarter in which they became
unemployed. Information about their most recent earings is typically not available until after the quarter
has been completed. These individuals often do not realize that they can reapply (and often qualify) for
benefits when information about their most recent quarter of earings becomes available, This problem
could be corrected if these individuals were told when they should reapply for benefits, as well as what
additonal earnings they would need to qualify for benefits.

1995-17. Recommendation
All states should use a moveable base period in cases in which its use would qualify an Unemployment
Insurance claimant to meet the state's monetary ei requirements. When a claimant
‘the monetary eligibility requirement for Unemployment Insurance, the state should inform the individual
‘writing of what additional earnings would be needed to qualify for benefits, as well as the date when
the individual shoutd reapply for benefits.

In some states, low-wage workers face an additional impediment in qualifying for Unemployment
Insurance benefits. In order to meet their state's base period and/or high-quarter earings requirements,
low-wage individuals must work more hours than workers who eam higher wages. For example, an
individual who works half-time for a full year (i.e, 1,040 hours) at the federal minimum wage level would
rot meet minimum eamings requirements in 9 states. At an hourly wage of $8.00, however, a halftime,
full-year worker would be eligible in all states. Similarly, en individual who works two days per week
for a full year (approximately 800 hours) at the minimum wage would not meet the minimum earnings
requirements in 29 states, At a wage of $8.00 per hour, however, that individual would be eligible in all
but 2 states.

‘The Council finds that any individual who works at feast 800 hours per year should be eligible for
Unemployment Insurance benefits and that states’ minimum eamings requirements should be set
accordingly. If all states set their earnings requirements at this level, the number of individuals eligible
for Unemployment insurance benefits would increase by approximately 5.3 percent, and the amount of
benefits paid would inerease by approximately 3.6 percent. Some of the increase in the cost to the system,
however, would be offset by a reduction in receipt of means-tested benefits such as AFDC and Food
Stamps (see Appendix B).

1995-18. Recommendation
Each state should set its law so that its base period earnings requirements do not exceed 800 times the
state's minimum hourly wage, and so that its high quarter earnings requirements do not exceed one-
‘quarter of that amount.

Fourteen states preclude workers in seasonal industries from collecting Unemployment Insurance except
during the season in which work is normally done within the industry. In addition, twelve of these states
disallow seasonal workers’ earnings from being counted toward their minimum earnings quirement, even
if the individual subsequently works in a nonseasonal job. The Council finds these exclusions to be
problematic.

1995-19. Recommendation
‘States should eliminate seasonal exclusions; claimants who have worked in seasonal jobs should be subject
to the same eligibility requirements as all other unemployed workers.

In addition to the monetary requirements for qualifying for Unemployment Insurance, each state has
‘a variety of nonmonetary requirements that unemployed individuals must satisfy in order to qué
benefits. These requirements include stipulations about availability for suitable work, ability to work,
work search requirements, voluntary separation for good cause, discharges due to misconduct, refusal of
suitable work, and unemployment as a result of a labor dispute. In some cases, part-time workers (who
meet monetary eligibility requirements) are explicitly precluded from receiving Unemployment Insurance.

1995-20. Recommendation
‘Workers who meet a state's monetary eligibility requirements should not be precluded from receiving
Unemployment Insurance benefits merely because they are seeking part-time, rather than full-time,
‘employment.



92

‘Support FUTA Tax on Alien Farm Workers

The Advisory Council on Unemployment Compensation, chaired by Janet
Norwood, has already made two reports and will make its final report by February 1,
1996. We commend to your attention the 1994 and 1995 recommendations of this
Advisory Council.

| call your attention particularly to the recommendation on page 14 of the 1994
report which supports the view that the wages of alien H2-A agricultural workers
should be subject to FUTA taxes. In line with the recommendation of the Advisory
Council, we urge that you do not continue the expired exemption of these wages.
The exemption created an unfortunate incentive for substitution of foreign workers
for U.S. workers. Furthermore, the cost of certifying these workers is charged to the
FUTA tax.

Continue 0.2 Percent FUTA Surtax

In regard to proposed repeal of the so-called temporary 0.2 percent FUTA
surtax now extended to the end of 1998, we believe this tax should not be repealed.
This tax should be continued pending the final report of the Advisory Council on
Unemployment Compensation and full consideration and action by the United States
Congress on comprehensive reform of the Ul financing system.

Many problems of the UI system relate to inadequate financing, and the
Advisory Council is making a variety of recommendations to improve the financial
soundness of the system. The AFL-CIO has long urged raising and indexing the Ut
taxable wage base to 65 percent of the nation’s average annual wage -- as
recommended in 1980 by the National Commission on Unemployment Compensation.

The present 0.2 percent temporary surtax is needed to help maintain financial
soundness in the U! system until more systematic and more comprehensive proposals
can be considered by this Committee and by the Congress. We urge you not to repeal
this tax at this time. Projections by the U.S. Department of Labor show that without
this tax extension, the Ul system could go broke at the same time as the Medicare
system. (FY 2002)

Proposals for Employment & Training Block Grants

As this Committee and the Congress consider consolidation of job training
programs and proposais for employment and training block grants, we urge you to
give careful attention to the appropriate roles for federal, state, and local
governments, and for labor and business in the training-education arena. It will take
the combined resources of the public and private sectors and business and labor to
make our training system the best in the world.

‘Support Labor Participation

We urge this Committee to make labor participation a key part of any
restructuring of job training programs.

Unions have provided increased leverage through collective bargaining that now
results in hundreds of millions of dollars being spent on training and education for
front-line workers as well as new apprentices.

In many cases these funds have been coordinated with public resources to bring
young people and disadvantaged adults into the workplace through skill training. We
can show you outstanding examples where the collaboration between unions and
companies even in economically distressed areas has brought about good training and
good jobs.

Labor participation in our nation’s training system is more important now than
ever. The expertise unions have gained from directly providing training, negotiating


60

fact that you recognize Mr. Cunningham has his son with him
today.
Chairman SHaw. Go right ahead and do that.

Mr. RANGEL. There is Mr. Cunningham there, so be kind to the
old man. [Laughter.]}

Chairman SHAW. With that word of caution, we shall proceed.
Dr. Jacobson.

TESTIMONY OF LOUIS JACOBSON, PH.D., SENIOR ECONOMIST,
WESTAT, INC., ROCKVILLE, MD.

Mr. Jacosson. Thank you, Mr. Chairman.

I am Lou Jacobson, a researcher with Westat, Inc., and have
been studying Labor Department programs for over 20 years as a
private consultant. I am extremely happy to have an opportunity
to discuss the Employment Service, particularly under the current
conditions, where employment programs are in flux and people are
looking at ways to make programs more effective.

The Employment Service is unusual among the set of positive ad-
justment mechanisms because it is, by far, the oldest of all the pro-
grams, having played a major role in helping workers adjust to the
problems of the Great Depression, mobilizing the work force during
World War II, and demobilizing the work force following the war.
Most people regard those as the halcyon days of the Employment

ervice,

More recently, the Employment Service has taken a back seat to
other Programs that are generally perceived, but not necessarily ac-
curately perceived, to be more effective. The image that I think
would be worth keeping in mind is Cinderella, in which the Em-
ployment Service often is treated_as the stepchild of the Depart-
ment of Labor and maybe of the Federal employment programs in
general. But recently, there has been a resurgence of interest in
the Employment Service, which, in my view, is very well placed.

Essentially, the problem that the Employment ervice has come
up against is a widespread view that training is the “best” way to
aid most workers who need help in today’s environment. Now
training is important, but training turns out to be very expensive,
and in many cases, trainees never apply the training that they re-
ceive.

So the Employment Service offers a reasonable alternative that
is extremely inexpensive. It only costs about $80 per registrant for
Employment Service services. It turns out that studies uniformly
indicate that the Employment Service services are about as effec-
tive as training but about 10 to 30 times less expensive.

One of the characteristics of the Employment Service which is
extremely unusual is that it may provide something close to a “free
lunch.” That is, by moving programs away from more expensive
treatments to less expensive treatments such as job search assist-
ance through a public labor exchange, not only are taxpayers made
better off, but the people who receive the treatment most fre-

uently also are made better off. This is a kind of tradeoff that, I
think, Congress always is looking for but rarely can find.

The shift toward expensive treatments reached a high point in
1988, when Congress mandated that JTPA programs for dislocated
workers spend half their money on retraining and also established


56

from Social Security or unemployment compensation is related to
the amount of wages you were paid. It is a wage-related benefit.

Mr. Levin. I understand what you are saying.

Mr. Brown. In other words, if you want to make a parallel with
insurance and say this is social insurance, it is related to the pre-
mium that was paid.

Chairman SHAW. Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

Mr. Little, on the issue of the H-2A workers, at this point, I be-
lieve I am correct in saying that in order to qualify for this particu-
lar provision, as it is now, it has to be demonstrated that there is
no displacement of American workers, is that correct?

Mr. LirrLe. The Department of Labor is responsible for certifying
that no displacement of domestic workers will occur if H-2A work-
ers are used.

Mr. ENGLISH. How well does that process work?

Mr. Lrrvte. In our view, we believe that in many areas of the
country, it is very difficult to get an adequate agricultural work
force in certain remote areas.

For example, one user of H-2A workers in Southern Nevada has
about 12,000 acres of onions under cultivation. Onion harvesting is
a very labor-intensive process and there just are not a whole lot of
people living in Southern Nevada. So in his particular case, it be-
comes necessary to turn to the H-2A Program in order to have an
adequate work force in order for him to be able to get his harvest

in,

Mr. ENGLISH. Would you say that the H-2A Program is most
common in situations where you have a low population, or are
there other labor market factors that kick in that would require
guest workers to be used?

Mr. Lirrte. What typically seems to happen is that the high sea-
sonal demand in harvest, planting, and cultivation that is unique
to agriculture will tend to, if you will, overstress the availability of
labor in a geographical area. That is, there simply will not be
enough people there in order to perform the work that needs to be
performed in a very short period of time in order to harvest a high-
ly perishable commodity, typically fruits, vegetables, things of that
nature, which are where most H-2A workers are used.

Mr. ENGLISH. Can you identify those areas in the agricultural
economy, generally, again, what sorts of agricultural products re-
quire most of the H-2A Program?

Mr. LITTLE. It tends to be related to both the type of commodity
and the region in which the commodity is grown. You tend to have
a fair number of H-2A employees used in tobacco in North Caro-
lina, South Carolina, Kentucky, and Tennessee, in part because the
normal migrant stream does not seem to move that far to the west
in order to hit those crops so that there is adequate labor in that
area. They also tend to be used at the far northern extremes of the
migrant labor stream, in New England and in the Pacific North-
west.

It also tends to be used in agricultural commodities where a sig-
nificant amount of hand labor is required, either for cultivation,
harvest, or planting at the beginning of the season. There are cer-
tain agricultural commodities that simply cannot be harvested by


18

Specifically, Title I of CAREERS; is designed to build an
infrastructure in States and local communities for development

implementation of a comprehensive workforce development
syetens jl; Governors are asked to pull together
key State agency heada and leaders from business and education to
develop a single State Plan and performance measurement system
for the entire workforce development system. Governors are also
asked to designate Workforce Development Areas throughout the
State, for the distribution of funds and service delivery under
much of the system.

To ensure the involvement of the private sector in the
design and implementation of local systems, CAREERS requires the
establishment of local, employer-led, workforce development
boards. These boards would provide policy guidance and oversight
over local systems, and would be responsible for the
establishment of local one-stop delivery systems -- easily
accessible single points of entry into the local workforce
preparation eystem.

The youth workforce development program pulls school systems
and postsecondary institutions together with local busine:
leaders to develop a "echool-to-work system* for both in-school
and out-of-school youth in the community. This system is
designed to result in challenging academic and occupational
competency gains for all youth in the community, as well as
completion of high school, or its equivalent, and other positive
outcomes such as placement and retention in employment, or
continuation into postsecondary education or training. State:
would also be required to show how special population studente
meet the performance standards.

Under the adult and the vocational rehabilitation programa,
supfront" or "core* services -- such as information on jobs,
asseesment of skills, counseling, job search assistance,
information on education, training, and vocational rehabilitation
programs in the local community, assessment of eligibility for
such programs (including eligibility for student financial aid),
and referral to appropriate programs would be available to all
individuals through a network of one-stop career centers and
affiliated satellite centers throughout each community. For
individuals with severe disabilities and determined to be in need
of more intensive services, such services would be available
through vouchers and other means to be used with approved
providers of vocational rehabilitation services

Under the adult training system, for individuals who are
yRable co obtain employment through the core services, more
intensive services such as specialized assessment and counseling,
and development of employability plans, would be available --
also through the one-stops. For those unable to obtain
employment through these services and determined to be in need of
education or training, such services would be provided -- through
the use of vouchers or other means that offer maximum customer
choice in the selection of training providers. States would be
required to establish a certification system for the
identification of legitimate providers of education and training
for receipt of vouchers taking into account the recommendations
ef local workforce boards.

Finally, beyond the specific area of job training, the

ERS Act includes privatization proposals for 2 existin:
government sponsored enterprises -- again focusing on the
streamlining of federal programs. Sallie Mae and Connie Lee were
created by the Higher Education Act and are examples of for-
profit, stockholder owned GSEs which have successfully fulfilled
their intended purposes tization cuts the ties to the
federal government and establishes a willingness on the part of
the government to take a successful public-private partnership
and turn it into a completely private venture when government
support is no longer necessary.

Now that I have provided a general overview of the CAREERS
Act, I want to highlight some of the issues which are likely to
be of most interest to members of this Committee.



47

Last year, the Administration proposed making the tax permanent and dedicating
it to providing funding for long-term allowances (up to 1 1/2 years) in the
Reemployment Act of 1994. Secretary of Labor, Robert B. Reich argued that the
proceeds of the surtax were being used as a budget offset for expenditures
unrelated to unemployment and the tax was not needed to support the
unemployment compensation program. Despite hearings in both the House and
Senate, Congress showed little interest in establishing a costly new entitlement
program for trainees. There was more interest in consolidating existing programs.

Worldwide Competitive Position

Keeping the Congressional commitment to end this "temporary" 0.2% surtax would
be a strong signal to the business community that Congress is serious about
encouraging job creation and improving the world market competitiveness of US
companies. Relieving employers of a tax that amounts to $14.00 per employee may
not seem like much, but when multiplied by the number of employees involved,
it is significant and the symbolism would be great!

The "temporary" 0.2% surtax, which currently cost employers $1.4 billion, annually,
had the support of employers when it was enacted almost two decades ago.
Employers are committed to adequate funding of the Nation's unemployment
compensation system, but this tax has served its purpose. It is no longer needed
and should be given back to the Nation’s employers, as Congress originally
promised.

Use of FUTA Funds Only for Intended Purposes
EUTA Should Not Be Used for Block Grant Training P

The primary purpose of Federal Unemployment Tax Act (FUTA) was to finance
the administrative costs of Unemployment Insurance and the Employment Service
programs. These funds should not be raided to pay for other programs no matter
how worthy. Specifically any block training programs that are enacted by Congress
should not permit the use of these funds for such programs. Use of these
employer tax funds for such purposes would contribute to undermining continued
employer support for UI/ES programs.

er-Peyser Act is Repealed. i
th i E

Pending proposals to consolidate job training programs into block grants would
repeal the Wagner-Peyser Act which established the Employment Service (ES). If
this is done specific provision should be made to assure the close integration of
the State Unemployment Insurance Services and the State Employment Services.

From the employer perspective this close integration makes effective application
of the so-called "work test" more likely. The "work test" is applied when the
Employment Service refers an unemployment compensation claimant to suitable
work. A basic requirement of all State UI laws is that for a person to draw UI
benefits he must be able and available for suitable work.


51

Chairman SHaw. Thank you, Mr. Brown.
Mr. Little.

STATEMENT OF BRYAN LITTLE, DIRECTOR, GOVERNMENTAL
RELATIONS, AMERICAN FARM BUREAU FEDERATION

Mr. Lrrrte. Mr. Chairman and members of the Human Re-
sources Subcommittee, I want to thank you for the opportunity to
appear before you today representing the American Farm Bureau
Federation. I am Bryan Little and I serve as a director of govern-
mental relations for the American Farm Bureau.

I am here to present the views of the American Farm Bureau
Federation on the Federal Unemployment Tax Act and unemploy-
ment insurance coverage of temporary alien agricultural workers
admitted to the United States under the H-2A Program.

The American Farm Bureau is the Nation’s largest general farm
organization. Farm bureaus in all 50 States and Puerto Rico rep-
resent some 4.4 million member families nationwide. Farm bu-
reaus’ farm and ranch members are engaged in the production of
virtually every agricultural commodity grown commercially in the
United States.

When the Unemployment Insurance Program was created, agri-
cultural employers were exempt. In 1976, the Federal law was
changed to extend eligibility to employees of certain agricultural
employers. When unemployment insurance coverage was extended
to agricultural workers and FUTA payroll taxes were likewise ex-
tended to their employers, temporary alien workers were exempted
from FUTA taxes.

H-2A workers are admitted to the United States under section
101(a)(15)(H)Gi'a) of the Immigration and Nationality Act to per-
form agricultural labor tasks, generally for limited periods of time.
H-2A workers are employed across the United States. They work
in tobacco, apples, and vegetables in Virginia, Kentucky, and Ten-
nessee; they work in tobacco and vegetables in North Carolina;
they work in fruit, vegetables, and nursery crops in New England
and New York; and they are employed in sheepherding in 12 West-
ern States, including Nevada, Oregon, and California.

The policy resolutions adopted by the voting delegates of the
member State farm bureaus at the annual meeting of the American
Farm Bureau Federation in January 1995 specifically addressed
the issue of FUTA coverage for H-2A workers and opposed the im-
position of Federal unemployment insurance payroll taxes on H~2A
employers.

Farm bureau policy is clear in its opposition to extending unem-
pig ment insurance to H-2A workers and requests that the H-2A

‘A exemption be granted retroactively to January 1, 1995, and
be made permanent. The H-2A FUTA exemption has been granted
for specified periods of time, usually only a few years. The most re-
cent exemption expired on January 1, 1995.

There are several reasons why unemployment insurance should
not be extended to H-2A workers. First, due to their immigration
status as nonimmigrant temporary alien agricultural workers, H—
2A workers are unable to meet the statutory unemployment eligi-
bility test of being willing, able, and available to work. H-2A work-
ers must return to their home countries at the conclusion of their


80

STATEMENT ON TRADE ADJUSTMENT ASSISTANCE
FOR THE SUBCOMMITTEE ON HUMAN RESOURCES
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES,

MAY 16, 1995

Walter Corson
Vice President
Mathematica Policy Research

Mr. Chairman and members of the subcommittee, I am pleased to have the opportunity to appear here
today. I have been asked by the subcommittee to describe the Trade Adjustment Assistance (TAA)
Program, to discuss findings from a recent evaluation of the program, and to comment on the policy
implications of these findings.

‘The Trade Adjustment Assistance Program

The Trade Adjustment Assistance (TAA) program is intended to promote trade liberalization by
‘compensating workers for trade-telated income losses by offering extended unemployment compensation—-
Trade Readjustment Allowances (TRAs)~o workers who lose their jobs in the face of increased import
‘competition. It also provides eligible workers with reemployment services to help them adjust to changes
in labor market circumstances

In 1962, when the program was initially established and, in 1974, when eligibility criteria were
liberalized and benefits expanded, the compensation goal was emphasized and relatively few participants
received any adjustment services. In 1981 major changes were made in the program that restricted benefits
and targeted them on the long-term unemployed. More funds were also made available for training,
shifting the emphasis of the program toward providing adjustment services, particularly training, A further
shift toward adjustment occurred in 1988 when training was made an entitlement for eligible workers and
‘when TRA recipients were required to participate in an approved training program, unless they received
‘a waiver exempting them under certain circumstances.

Workers become eligible for TAA by filing a petition with the U.S. Department of Labor (USDOL)
asa group of workers from a plant or firm. If USDOL determines that international trade contributed to
these workers’ unemployment, they are certified to apply, as individuals, for TRA benefits and

‘services. Individual workers are then eligible for reemployment services if they were laid-
off from the certified firm within the time period specified by the certification. They are eligible, in
addition, for TRA benefits if (1) they worked for 26 weeks in the year before the layoff, (2) they exhausted
all UI benefits, and (3) they fulfilled the training requirement (for workers applying for TRA benefits after
November 1988).

‘Typically, a worker who has been laid off begins collecting Ul benefits. Then, if the worker's group
is certified for TAA, the worker will be notified that he or she might be eligible to receive benefits under
the TAA program. Ideally, the worker is notified while still collecting UI benefits, although the timing
depends on when the petition was filed after the layoff. After notification, the worker applies for TRA
benefits. Ifthe worker has satisfied the training requirement, he or she begins receiving TRA benefits after
exhausting UL. These benefits equal the UI weekly benefit amount and extend the duration to 52 weeks
from the initial 26 weeks that is typically provided by UI, An additional 26 weeks is available for
individuals in training.

‘The program serves a small number of displaced workers. Between FY1982 and FY 1991, an average
of 30,000 individuals began receiving financial assistance from TAA each year, This number dropped to
about 10,000 in FY1992 and FY1993 because extended UI benefits took the place of TRA benefits, In
the 1980's prior to the 1988 amendments about 1 1,000 individuals entered training each year, Since that
time, about 18,000-19,000 individuals have entered training each year. In FY1993 program outlays were
about $130 million,


18

TABLE V. JOBS CERTIFIED BY CROP OR ACTIVITY AND
COUNTRY OF ORIGIN OF FOREIGN WORKERS, 1992 (Continued)

FOOTNOTES:

1/ Work pattern for majority of custom combine crew members is to start
Work in Oklahoma, Texas, or Arizona and move north into other Central
States.

2/ Majority of sheepherders work in ten (10) Western States, and are
Primarily from Mexico Peru. Some workers are from Chile and Spain,
with a few from China, Mongolia and Portugal.

3/ BHI = British West Indies. In New England States only Jamaican workers
are employed, although in 1992 some workers from the Dominican Republic
were reported. Elsewhere, the majority of BWI workers are from Janaica.
Also included in the BHI category are workers from most of the other
countries in the British West Indies island chain.

4/ Mexico = Primarily workers from Mexico, but may also include workers
from Guatemala, El Salvador and other Central American countries.


55

you disagree with, Mr. Brown. “Continuing the surtax through
1998 will allow for sound financial management and accumulation
of additional reserves to cushion an economic downturn.”

Mr. Brown. I do not question that; I think it would. It is a ques-
tion of which is more important, I guess, and whether to keep the
commitment to the employer or be super conservative in your fiscal
management.

Mr. LEvIN. Just one quick point. Is it really wise for us to draw
such a rigid line between the unemployment compensation system
and retraining and training in a day and age when, now, half of
the Beople, more than that, who are laid off are permanently sepa-
rated?

Mr. Brown. I do not think you can draw a rigid line. The bill
that Mr. McKeon is working on with the administration does not
draw a rigid line, and I do not think it should.

Mr. Levin. Then why should it be completely out of bounds to
consider using FUTA for training and retraining?

Mr. Brown. Because I think you need to be careful about what
you use payroll taxes for, basically. A payroll tax is a very regres-
sive tax. It is a tax that any liberal Democrat like you should not
like very well, because it is a tax on employment. Therefore, you
should not be using the payroll tax for anything——

Mr. LEVIN. How about you, since you are a liberal Democrat. I
do not know about myself.

Mr. Brown. Actually, I think it is justified to use to finance
wage-related benefit programs. Therefore, I strongly favor the use
of the payroll tax for Social Security and unemployment compensa-
tion, where the benefits are related to the wage that you were paid.
That is the primary justification for a payroll tax, in my mind.

TI think Congress has gotten in trouble and overused the payroll
tax when they use it, for example, for Medicare and health care
where the benefits are not related to wages. It is most easily justi-
fied when it is related to wages, so then it is in complete keeping
with social insurance concepts, as envisioned by Franklin Delano
Roosevelt.

Mr. LEVIN. I am not sure about labels for you or me, but let me
ask you, I do not disagree about some regressivity in the payroll
tax, but is not retraining related to wages when half of the people
who are terminated now are terminated permanently?

Mr. BRowN. It is related to employment, there is no question
about that, but it is not a wage-related benefit. That is the point
I was making.

Mr. LEVIN. But is adequate retraining not more related to wage
level than almost anything else these days?

Mr. Brown. Adequate training is related to wage level, but that
does not mean that it is desirable to use a regressive payroll tax
to finance it.

Mr. Levin. I just do not quite understand why you say that
training and retraining is not related to wage levels, when——

Mr. Brown. I am not saying it is not related to wage levels. I
am saying it is not a wage-related benefit. In other words, the
amount of training you may need does not have anything to do
with the amount of wages you earn, whereas the benefit you get


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HUMAN RESOURCES

FOR IMMEDIATE RELEASE CONTACT: (202) 225-1025
May 4, 1995
No. HR-6
SHAW _ ANNI ES IG ON FE)
UNEMPLOYMENT COMPENSATION SYSTEM AND
INS VATION OF JO! 01

Congressman E. Clay Shaw, Jr. (R-FL), Chairman of the Subcommittee on Human
Resources of the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on the federal unemployment compensation system and consolidation of
job training programs. The hearing will take place on Tuesday, May 16, 1995, in room
B-318 of the Rayburn House Office Building, beginning at 1:00 p.m.

Oral testimony at this hearing will be heard from invited witnesses only. Witnesses
will include business leaders, economists, and scholars familiar with the operation of the
current unemployment compensation system and related issues. However, any individual or
organization not scheduled for an oral appearance may submit a written statement for
consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUN!

One of the dominant themes of the 104th Congress has been the ongoing effort to
simplify federal programs, save taxpayer money, and return program authority and flexibility
to the state and local level. The logic is simple--individual Americans or their local elected
officials can best decide how to provide for their families and others in their communities.
This focus will continue as the Subcommittee considers the current unemployment
compensation system, including taxes collected to support it, and related programs designed to
get unemployed Americans back to work.

Several particular issues -- repeal of the so-called “temporary” 0.2 percent Federal
Unemployment Tax Act (FUTA) surtax, extending the expired exemption of certain temporary
agricultural workers from paying unemployment taxes, and a proposed employment and
training block grant -- will be reviewed. In announcing the hearing, Chairman Shaw stated:
“Almost every worker pays unemployment taxes. It is our job to assure that the system works
and that taxes supporting unemployment benefits aren’t unnecessarily punishing business and
job creation. Also, we will consider ways to improve employment and training programs, so
‘Americans can get back to work sooner and qualify for good jobs.”

First, the subcommittee will review taxes that support the current unemployment
compensation system, especially the 0.2 percent FUTA surtax. The Social Security Act of
1935 created the Federal-State unemployment compensation system, which along with the
Federal Unemployment Tax Act of 1939 (FUTA) form the framework of the system. In
general, FUTA imposes a 0.8 percent tax rate on the first $7,000 annually paid by covered
employers to each employee. In 1976, Congress passed a "temporary" surtax of 0.2 percent
of taxable wages to be added to the permanent FUTA tax rate, so that the current 0.8 percent
sate is actually composed of a permanent rate of 0.6 percent and a temporary rate of 0.2
percent. This temporary surtax has been repeatedly extended, and is now authorized through
December 31, 1998.

(MORE)


12

‘STATEMENT OF DEBRA BOWLAND
ADMINISTRATOR, OHIO BUREAU OF EMPLOYMENT SERVICES AND
TREASURER, INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY AGENCIES

Mr. Chairman, members of the Subcommittee, my name is Debra Bowland. | am
Administrator of the Ohio Bureau of Employment Services, and am here today
Tepresenting the Interstate Conference of Employment Security Agencies (ICESA)
ICESA is the national organization of state officials who administer the nation’s
public Employment Service, unemployment insurance laws, labor market information
Programs and, in most states, job training programs

| would like to thank Chairman Shaw for the invitation to present ICESA’s views
about the Employment Service in the context of discussions about consolidating and
reforming employment and training programs. The membership of (CESA appiauds
the Subcommittee's initiative to seek input on this important issue.

In addition to representing ICESA, my remarks today are based on my experience--
and my experience comes from having spent almost twenty years in the
employment and training arena.

Most recently, ! have had the tremendous opportunity to serve as a member of the
cabinet in Governor George V. Voinovich's administration as the Administrator of
Ohio's Bureau of Employment Services. in that capacity | am responsible for
administration of unemployment insurance, employment service, programs of the
Job Training Partnership Act, and fabor market information. The Ohio Bureau of
Employment Services also is the agency which coordinates and staffs the
Governor's Human Resources Investment Council.

ICESA recognizes that the myriad of employment and training programs operated
through a variety of federal, state and local agencies has created a fragmented
system of workforce preparation and second-chance education/training assistance
which can be bewildering to those who seek training and, at times, to those who
operate the programs

Reform is necessary. However, as Congress pursues streamlining, consolidating,
and even eliminating some programs, we believe it is important to keep in mind the
distinctions among programs that are being considered for consolidation in an
employment and training block grant.

First, employment and training consolidation and reform efforts must
recognize the difference between the programs that are funded from the
employer-paid, dedicated revenue Unemployment Trust Fund and those
programs funded from general revenues.

Merging Unemployment insurance (UI) and employment service (ES) monies, which
come from dedicated-revenue trust funds, with general revenue funds for education
and training programs, should involve renegotiation with employers of the purpose of
the Federal Unemployment Tax (FUT) and the appropriate allocation of costs for
these programs between the private/business sector and government general funds.
No public policy decision to use FUTA revenues for training programs should be
made without full understanding of the implications of this decision and debate
which includes the views of the employer community

The Unemployment Trust Fund (UTF) is financed entirely by state and federal
payroll taxes. By law, state Unemployment Trust Fund monies can be used only for
payment of unemployment benefits and federal Unemployment Trust Fund monies
can be used only for unemployment benefits and administration of employment
services and unemployment insurance laws. Including these program monies as
part of a block grant with other general revenue program monies violates the
“contract” with the employer community that these funds will be used only for
unemployment or reemployment services.


27

STATEMENT OF RAYMOND J. UHALDE, DEPUTY ASSISTANT
SECRETARY, EMPLOYMENT AND TRAINING ADMINISTRA-
TION, U.S. DEPARTMENT OF LABOR; ACCOMPANIED BY
MARY WYRSCH, DIRECTOR, UNEMPLOYMENT
INSURANCE SERVICE, EMPLOYMENT AND TRAINING
ADMINISTRATION, U.S. DEPARTMENT OF LABOR

Mr. UHALDE. Chairman Shaw and members of the committee,
thank you very much for this opportunity to testify. I am _accom-
panied today by Mary Ann Wyrsch, who is the Director of the U.S.
Unemployment Insurance Service in the Department of Labor. I
would like to take a moment to highlight some portions of our testi-
mony, particularly to talk about the President’s approach to con-
solidating and streamlining our employment and job training sys-
tem and to address some of the specific issues that you raised in
your invitation.

Because of the dramatic changes in the economy that we are un-
dergoing, we know that the links between learning and earning are
increasing over time. We have recognized that the return to edu-
cation on annual earnings can be from 6 to 12 percent per year.

We have recently recognized and been able to document in a just-
released study that business also benefits directly, as many of us
had assumed. In a recent study, it was found that with a 10-per-
cent increase in the educational attainment of the work force of a
company, on average that can lead to an 8.5-percent increase in
productivity for the company. So increasing knowledge and skills
benefit both workers and the companies in terms of their productiv-
ity.

We need to invest not only in our adults in the workplace but,
obviously, in our youth, and particularly for young people who have
less skills. We have seen since the late seventies that their earning

ower has been reduced by 25 percent, at least in real terms, for
By th school dropouts.

ur employment and training systems need to be designed to
help people navigate this kind of turbulent economy, and the gov-
ernment, and particularly the Federal Government, can play a
strategic role in helping do that, in providing the resources and in-
vestment capital for individuals to help move in that economy and
the information they need to make wise choices.

The President, as part of his proposal called the GI Bill for
America’s Workers, developed and Proposed a strategy to help
working people to adapt to this changing labor market. Many of the
elements of the President’s proposal are evident in other proposals
that have been discussed here today. And we are, indeed, as Chair-
man McKeon mentioned, working with Congressman McKeon, his
staff and the staff of the full committee, and Chairman Goodling
to help in the fashioning of this new legislation.

The President’s approach that has been presented is to consoli-
date programs and consolidate programs around population or tar-
get groups, much as in the proposal of Congressman McKeon—to
consolidate around adult job training, adult and family literacy,
and to consolidate around. youth, around a school-to-work frame-
work for in-school youth and for at-risk youth who have dropped
out of school, and to be able to invest our resources in that school-
to-work framework.



70

Second, as we look at employment and training consolidation, I
hope we recognize the difference between job training and job
placement services provided through Wagner-Peyser dollars and
FUTA. I think it is important to understand that the Employment.
Service, which is included in the list of programs considered for
consolidation, is simply not a training program. We provide jobs for
people in ES and qualified workers for employers.

In Ohio, we serve job-seeking customers by matching 14,000
workers with employers just last week. For our employer cus-
tomers, that week, we matched 200 job orders every single day of
the week, and we referred 6,000 workers directly to employers
seeking to hire them. We helped last year 117,000 Ohioans find
jobs.

Economic studies have shown that the most cost-effective use of
scarce resources to get unemployed people back to work is job
placement. Nationally, it costs per placement $249 a year. You can-
not find any other bang for the buck like that.

Third, if you include Employment Service funding in any job
training block grant legislation and you sever its linkage with UI,
there is no way for us to do the very, very critical work test and
it could result in much higher outlays for unemployment insurance
benefits.

I really think that we have to remember that that contract with
employers is first to help UI beneficiaries return to work quickly
and reduce employer taxes, and then to ensure that claimants are
actively seeking work. I think the Employment Service is abso-
lutely critical to ensure the integrity of the unemployment insur-
ance system.

If Congress should decide to repeal Wagner-Peyser, we urge you

to consider an amendment to FUTA contained in my written state-
ment which would continue to link unemployment insurance and
Employment Services. I hope you will look carefully at that amend-
ment.
Fourth, the Employment Service and the employment security
system provide universal access to every single person to labor ex-
change services, to any person who is requesting and in need of
service and to employers who are looking for qualified employees.
I do not think that should change. I think everyone should have
a real opportunity to go to work.

We also have included in my testimony some comments about
the Extended Benefits Program, whether or not UI should be
means tested, and some of the other issues addressed by the budg-
et resolution.

This testimony does not indicate that I or ICESA is in any way
opposed to consolidation of all of the employment and training pro-
grams. We are working as hard as we can to ensure that commit-
tees of the House and the Senate help us develop a really well co-
ordinated system.

I certainly hope that in this process we do not take an integrated
system like unemployment insurance and employment services,
tear those programs asunder, and create huge problems for employ-
ers who are paying those taxes. I am not convinced, and I hope
that you are not, either, as the jurisdictional committee over the
FUTA taxes, to sever this linkage and break the contract with the


63

TESTIMONY ON THE EFFECTIVENESS OF THE U.S. EMPLOYMENT SERVICE AND
SUGGESTIONS FOR INCREASING ITS EFFECTIVENESS
before the Subcommittee on Human Resources of the Committee on Ways and Means,
US. House of Representatives
May 16, 1996
Dr. Louis Jacobson, Westat Inc. 301 251-8229

This testimony focuses on describing:

© the mission of the U.S. Employment Service (ES),
© how effective the ES is in accomplishing its mission, and
o how its mission has evolved over time.

Evolution of the ES’s Mission

The state-federal Employment Service (ES) was established in 1933 by the Wagner-
Peyser Act in the midst of the Great Depression to serve as a public labor exchange to assist
unemployed workers find private jobs, and when those jobs were unavailable, facilitate
participation in public employment programs. During World War II the Employment Service
played a vital role in recruiting workers for defense industries. In particular, the ES assisted
Southern workers to find jobs in Northern defense plants. At the end of the war it played a
major role in helping Gls find civilian jobs.

Since the mid-1950’s the need for ES services declined as swings in the number, type,
and location of jobs greatly diminished. In the 1960's it played a major role in the "War on
Poverty” helping place economically disadvantaged individuals at jobs or in government
programs, This role was controversial in some quarters, however, because it was felt that the
aid given economicially disadvantaged individuals distorted the traditional balance between
serving the needs of employers as well as the needs of workers.

In the 1970's and 1980's the ES languished as government aid to economically
disadvantaged and dislocated workers primarily was channeled through MDTA, CETA, and
JIPA programs. A major reason for this shift was the perception that the ES’s core service~
direct job placement-- as well as other forms of job search assistance (JSA) were ineffective. It
was felt that much more expensive help in the form of counseling and training was required to
effectively deal with poverty and economic dislocation.

Gradually, however, the pendulum has swung back to a view that finding a job wit
growth potential is the primary mechanism to boost earnings and achieve employment stability.
‘Today, inexpensive direct job placement and other forms of JSA are widely recognized as the
most effective means to assist workers. Much more expensive interventions such as retraining
should be offered only after JSA has failed or when there appears to be a particularly good
match between workers’ skills and talents and those required to do well in an educational
rogram, as well as between the skills developed in the program and employers’ demand for
workers with those skills.

Clear evidence of this shift is the central position of JSA provided through one-stop
career centers in recent Administration proposals to revamp dislocated worker programs. In
‘contrast, the last previous major changes to dislocated worker programs in 1988 required JTPA
to spend half its resources on retraining, made retraining mandatory in order to receive Trade
Readjustment Allowances and provided generous vouchers to pay for that training.

In the absence of research documenting that ISA is at least as effective as retraining,
‘one might conclude that the much more obvious fact that JSA’s cost to taxpayers is only about
one-tenth the cost of retraining was the key factor behind the change in focus. The desire to
save money in the face of the budget deficit probably is a factor, but this is one case where the
recipients of the government service and the taxpayer can both be made better off by electing
less expensive services.

In short, the ES showed exceptional resiliency in responding to changes in economic
need. In periods with exceptionally high levels of unemployment when private sector jobs were


20

‘Sch-to- Work Opportmcs Ac Vocstonl Edacaton Batic Ste Grate: Basic Sse Crate Tecl St ide Commun tase Orpaistions Commas sad
Momenating Econ ech ep Eni Bag Vrain Tring Br Bos chon Prop Dp een Se Ey Se Ep Se
Basins Ba

CAREERS ACT

Consolidated and Reformed Education, Employment and
Rehabilitation Systems A

Adult Youth Vocational Adult
Consolidation § Consolidation 9 Rehabilitation Education
Grant Grant Consolidation @ Consolidation
Grant Grant



37

Chairman SuHaw. On the certification fee, if I could just ask one
uestion because that is where your testimony left off. Is that a set
fee or is it a fee that is based upon the number of employees re-

quested? Or how is that certification fee now set?

Mr. UHALDE. As I understand it, Mr. Chairman, the employers
are charged a $100 application fee and $10 per worker, and the
maximum any one employer would pay is $1,000. So they would
bring in maybe several workers on one certification.

Chairman SHAW. $100 per application fee and $10 per worker.

Mr. UHALDE. And $10 per worker.

Chairman SHAW. Up to?

Mr. UHALDE. A cap of $1,000.

Chairman SHaw. Mr. McCrery.

Mr. McCrery. Frankly, it sounds as if the administration and
the work done by the Opportunities Committee have a lot in com-
mon. You both want to consolidate a number of programs, block
grants and programs, and that is encouraging.

Let’s talk about trade adjustment assistance. You defended that
program, and I think rightly so, in that we all think that workers
who are put out of work because of the volatile marketplace due
to changing trade rules and conditions should receive some help.

However, hasn’t the administration in the past talked about
doing away with trade adjustment assistance as it currently exists
and perhaps combining it with other assistance programs? And
why couldn’t we do that? Why couldn’t we, for example, roll trade
adjustment assistance into one of the block grants and just have
that as one of the criterion that would qualify someone for assist-
ance through those block grants?

Mr. UHALDE. Yes, the administration in the last Congress did
propose to consolidate the Trade Adjustment Assistance Program
into a block grant—rather a consolidated program for dislocated
workers. That was generally applicable to workers, regardless of
the reason that they were laid off.

But the reason the administration felt that it could propose to do
that is it had constructed a more general dislocated worker pro-
gram that was virtually equivalent to the benefits and services that
are built into the Trade Adjustment Assistance Program now, that
being that all trade workers, when they are laid off, can receive
benefits for some period of time, and that training is guaranteed.
If they want training, they can get extended training and the in-
come support to go along with that training up to a time limit.

We designed last year and proposed under the Reemployment
Act a general program that sort of was the equivalent of that for
all workers. And then it makes sense that we ought not distinguish
for the reason for dislocation but get about the business of serving
the workers.

Under block grant designs that are now being considered there
is no way that that equivalent level of services and benefits are
going to be able to be provided to all trade impacted, and NAFTA
impacted workers. So we set that program aside and have a more
general program for all unemployed workers, either disadvantaged
or dislocated,

Mr. McCrery. So you are willing to at least look at some other
mechanism for providing that assistance?


57

machine. You cannot harvest a peach by machine and in general,
many varieties of apples.

The quality of the produce is not going to be acceptable for mar-
ket quality if you try and develop machinery to do those things.
They still require the human touch to do that, and that is one of
the reasons why, in certain rural areas, you have shortages of agri-
cultural workers, necessitating the use of the H-2A Program.

Mr. ENGLISH. Is the H-2A Program utilized primarily by family
farms or is it utilized by larger agribusiness?

Mr. LITTLE. There are some large agricultural employers that use
the H-2A Program. However, in 1993, approximately 3,000 employ-
ers were certified to use H-2A employees, and approximately
17,000 job opportunities were certified under H~2A. So you do the
math in that and you can see that the average is somewhere be-
tween five and six or maybe six and seven for that.

My sense of it—I do not know that anyone has ever conducted
a nationwide survey with respect to exactly how many H~2A work-
ers are used on average, but my sense of it is that a great many
H-2A employees are used by small family farmers.

Mr. ENGLISH. Mr. Brown, with regard to the 0.2 percent FUTA
surcharge, would repealing this surtax have any effect on the avail-
ability of UC benefits?

Mr. Brown. No, it would not. It has no effect whatsoever.

And while we are back on that issue, I would like to make a little
addition to my response to Mr. Ford. I think one reason you have
not heard from many employers lately on this is they long ago gave
up on Congress ever repealing it, because it was supposed to have
been gone in 1987 and has been extended so many times. I think
the employer community has pretty well given up hope, is the
truth of the matter.

Mr. ENGLISH. Let me get back to that. With regard to your last
comment, I, also, have not gotten a lot of feedback from my employ-
ers on this tax provision, but I have received a lot of feedback on
other, much more targeted tax provisions. It seems to me that this
is a light tax applied very, very broadly across the economy, and
under our PAY-GO provisions, we would have to come up with a
way of financing the repeal of this surtax. Can you suggest any
other program cuts or tax savings?

Mr. Brown. Our suggestion would be the same as is in H.R.
1120 that Mr. Zeliff has, that would use savings from consolidation
and a block grant approach on the training programs.

Mr. ENGLISH. Thank you very much, Mr. Chairman.

Chairman SHAW. Mr. Rangel.

Mr. RANGEL. Thank you.

Do the farmers prefer foreign workers?

Mr. LITTLE. No, they do not, because they cost substantially more
to use than domestic workers do, to the degree that domestic work-
ers are available.

Mr. RANGEL. Do the farmers pay the travel back and forth?

Mr. LiTTLeE. They do.

Mr. RANGEL. And board?

Mr. LittLe. They do.


23

funds be transferable, or will it be considered as one single block
grant as States are able to access the money?

Mr. McKeon. It will be four block grants, and they will not be
able to transfer from one to the other because they are targeted
specifically to the youth or to the elderly—I mean the elderly like
myself, to the adults or to youth or to vocational rehabilitation or
to adult literacy. So we figure that that money should stay within
those block grants.

Now, within the individual block grant, there is flexibility, and
that would be determined by the Governor, and he has to work in
association with people that are working in this area throughout
the State.

For instance, in the youth training, a percentage of it goes to the
schools and a percentage goes to those working with dropouts,
those who have fallen out of school, and then a percentage is left
for the Governor, much like was done in those programs. There is
flexibility, but we want to get the maximum amount of resources
down to the local community.

Ms. DuNN. So you are going to have some Federal strings at-
tached, I assume, because you have to account for the way that
money is spent, that you are having the same tug of war that we
had with the Governors as we went through our welfare block
grant?

Mr. McKeown. Yes, I think we are not going as far as they would
like, but I think that as long as we have the responsibility of col-
lecting the taxes, we should have some accountability and respon-
sibility for how they are spent.

Ms. DunN. I agree. In your discussions with the Governors and
with other people who have been involved in putting this proposal
together, did they ever discuss the possibility of returning the fund-
ing sources to the States?

Mr. McKEON. I think that that probably is down the road, but
I think, you know, you have to look at what is possible and what
is not right now. We have to learn to crawl before we can run, and
I think taking 150 programs down to 4 will be a good step.

My goal, what I would like to see eventually, is not run the
money back through the siphon back here. I would like to leave it,
but I do not think we are ready for that at this point.

Ms. Dunn. I think you have made a monumental step. I certainly
support your proposal, and I, too, look forward to the time when
we can avoid entirely the bureaucracy and the buffer that is so ex-

ensive at the Federal level by leaving those funding sources at the
Btate level for them to decide whether they want to use those or
not for their own programs where they will have the very best an-
swers to local problems.

Thank you, Mr. Chairman.

Mr. McKEON. Thank you.

Chairman SHAW. Mr. Levin.

Mr. LeEvIN. Thank you. Welcome. I congratulate you on your
work, and I would like to talk a bit about it so that we all as fully
as possible understand it.

Your proposal and the administration’s proposal, how similar are
they in terms of block grants?


90

negative impact on the processing of unemployment benefits. Some local offices
would have to close.

- The ES is the nation’s only universal labor exchange, serving any
individual or employer in need of its services.

Job training programs serve targeted populations while the ES does not have
specific income or other eligibility requirements. A block grant or voucher program is
likely to have to ration resources by established eligibility criteria. If the ES is folded
into either approach, the United States will become the only industrialized nation
without a national public labor exchange.

Continue Trade Adjustment Assistance and NAFTA-TAA

We urge you to continue TAA and NAFTA-TAA as separate worker assistance
programs. The TAA benefit cost $2.2 billion annually and the NAFTA and TAA
training money cost $101 million annually.

The AFL-CIO strongly opposes elimination of TAA and NAFTA-Transitional
Adjustment Assistance (NAFTA-TAA), which is precisely what would happen to them
if they are folded in to a block grant program.

The harm sustained by workers who lose their jobs because of increased
imports or trade agreements such as NAFTA is substantial and has been well
documented. Long spells of unemployment and loss of medical insurance, homes and
a lifetime of savings are not uncommon, Middle class lifestyles are wiped out for
many who are forced by low wages and insecure jobs into near poverty. Beyond the
human tragedy, the national economy sustains a substantial loss of skills and
productive capacity.

Advocates of freer trade and agreements such as NAFTA base their advocacy
on the belief that benefits from these policies will accrue to society as a whole. While
the universal validity of this belief can be questioned, the fact that with freer trade of
agreements such as NAFTA there will be losers as well as winners.

The TAA program represents a long-standing commitment by the federal
government to assist and compensate workers who are harmed by trade policy and
increased imports. What these workers need most are trade and industrial policies
that will stop the disappearance of their jobs, and will instead create and re
‘good jobs in the United States.

As presently constituted, the TAA program falls very far short of meeting this
need. Yet nearly two million trade-injured workers have received important assistance
under this program over the last 20 years. At a time when the nation’s trade deficit
is massive and rising, and the implementation of trade agreements such as NAFTA
and GATT are causing the loss of many thousands of jobs, it would be a grave
injustice to working people to terminate the modest but necessary assistance that
TAA and NAFTA-TAA provide.

The rationale for these programs is even stronger today than when President
Kennedy first proposed TAA more than thirty years ago. According to his message
to Congress accompanying the trade bill that gave birth to TAA in 1962:

“| am ... recommending as an essential part of the new trade program that
companies, farmers and workers who suffer damage from increased foreign import
competition be assisted in their efforts to adjust to that competition. When
considerations of national policy make it desirable to avoid higher tariffs, those injured
by that competition should not be required to bear the full brunt of the impact.
Rather, the burden of economic adjustment should be borne in part by the Federal


44

Mr. Brown. If there are questions that members want to ask, I
hope they will be free to ask. I appear here today on behalf of
about 100 organizations and businesses.

Chairman SHAW. Let me ask you to suspend at this point. There
is a vote on the floor and we will recess at this point to go down
and take care of that vote and then we will return as rapidly as
possible. I will say that we will reconvene at approximately 5 min-
utes after the hour.

Mr. Brown. I may go call Delta Airlines and see if I can get on
the next flight.

Chairman SHAW. You will have an opportunity to testify and
make your plane, if you feel comfortable in answering questions by
mail.

Mr. Brown. I might feel more comfortable if I could get on the
next flight.

Chairman SHAw. The committee will recess.

(Recess.]

Chairman SHAw. Mr. Brown, I understand you have changed
your flight, so you can proceed just as casually as you wish.

Mr. BROWN. There is no problem now, Mr. Chairman.

STATEMENT OF WILLIAM R. BROWN, FORMER PRESIDENT OF
THE COUNCIL OF STATE CHAMBERS OF COMMERCE, ON
BEHALF OF THE COALITION TO REPEAL THE 0.2% FUTA
SURCHARGE .

Mr. Brown. As I indicated, the primary objective of our coalition
is to repeal the so-called temporary FUTA surcharge, as you indi-
cated, that is to ask Congress to keep its commitment to the em-
ployer community to finally end it. We supported it as a temporary
tax, at the time it was enacted, accepting the assurance, in fact,
not only the assurance, but the provision that was in the law that
it would expire when the debt was repaid. The debt was fully re-
paid in 1987, but Congress has extended it numerous times since
then because it makes the bottom line work better.

Keeping congressional commitment to end the temporary 0.2 per-
cent surtax would be a strong signal to the business community
that Congress is serious about encouraging job creation and im-

roving the world market competitiveness of U.S. companies. Re-
lieving employers of a tax that amounts to $14 per employee may
not seem like much, but when multiplied by the number of employ-
ees, it is significant, and the symbolism would be great.

The temporary 0.2 percent surtax, which currently costs employ-
ers $1.4 billion annually, had the support of employers when it was
enacted almost two decades ago. Employers are committed to ade-
quate funding of the Nation’s nnemployment compensation system
but this tax has served its purpose. It is no longer needed an
should be given back to the Nation’s employers, as Congress origi-
nally intended.

e recognize the difficulty that the Ways and Means Committee
has in acting to end this tax before its expiration date in 1998, in
view of the fact that it is not included in the budget resolution, but
we feel that if Congress is going to consider cutting any taxes, this
is a tax cut that should be seriously considered in view of the con-
gressional commitment,


85

Chairman SHAW. Thank you, Mr. Corson.
Mr. Cunningham.

STATEMENT OF BILL CUNNINGHAM, LEGISLATIVE
REPRESENTATIVE, AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS

Mr. CUNNINGHAM. Thank you, Mr. Chairman, members of the
subcommittee.

Let me comment briefly on the need for sound financing of the
Nation’s unemployment compensation system. As this subcommit-
tee knows, the unemployment compensation system not only pro-
vides the minimum benefits for workers who are out of work, but
it also is a key economic stabilizer.

However, it is a flawed system. Three out of five jobless workers
do not get any unemployment compensation. Those lucky enough
to get UI benefits only get one-third of their prior salary. One out
of three UI recipients exhaust their benefits before finding work.

Let me just turn to the issues at hand. As this committee is
aware, the Kasich budget repeals the Extended Benefits Program.
We respectfully suggest that you keep this program in place. For
members who have been here during recent recessions, the Ex-
tended Benefits Program was one of the key economic stabilizers
that each of you on a bipartisan basis worked to retain and get for
your States. However, we know it has a flawed trigger. It comes
in too late, and that should be changed.

Let me just point out to you that the Kasich budget does zero out
the Extended Benefits Program, but perversely, it does not reduce
the UI tax that funds this program, so I think that that is a factor
that will have to be considered. It is our position, however, that the
Extended Benefits Program should remain in place.

We also support retaining Wagner-Peyser. I know that Chairman
McKeon was here earlier. He assured this committee that he would
not be using any of the money in the Employment Service for re-
training. You also know, however, that the Kasich budget zeroes
out the Employment Service, so that money will not be available.
As with the Extended Benefits Program in the prior bill, there is
no reduction in the UI tax in the Kasich budget for repealing the
Employment Service.

We believe the Employment Service should stay in place and it
should continue to be funded. The Employment Service is not a job
retraining program. It is to help with the unemployment compensa-
tion system and is funded by unemployment compensation taxes.

During the last recession, I know that some of you had individual
experience where people who were in the Employment Service were
drafted to just walk across the aisle to process unemployment.
claims. In times of high recession, they will not have that work
force in place, and I think that is something to keep in mind. We
are now entering a period of more uncertainty than we have had
in the past, and if the Employment Service is gutted and these
funds are taken away, I think the unemployment compensation
system itself will suffer. That is a real problem.

The Employment Service is the Nation’s only universal labor ex-
change. It provides information to everybody, not just on a needs


62

we assume that government programs can be run without this kind
of information.

I think the Employment Service is very well positioned to provide
this kind of information, because it has the necessary data, and be-
cause it does not Provide expensive services, it can be an objective
honest broker. If I could wave a magic wand, my wish would be for
this committee to insist that the States put in Place a system that
accurately measures performance under a new block grant system,
and because the technical problems are so great, establish a com-
mission to develop a prototype for the States’ use.

Chairman Suaw. Dr. Jacobson, I am going to have to wave my
magic wand.

Mr. JACOBSON. Yes, I am finished.

{The prepared statement follows:]


86

basis but everybody in the work force. It costs about $810 million
a year of the trust fund.

e also urge the continuation of TAA and NAFTA-TAA. Mem-
bers who have been on the committee for a while remember that
TAA, when it was upgraded in 1988, was done as part of the GATT
agreement, to basically assure that people who lost their jobs be-
cause of trade agreements would have a benefit package that they
were entitled to. Of course, the Kasich budget eliminates that.

When the NAFTA passed, we were on the other side of the
NAFTA proposal, but one of the benefits of the NAFTA agreement
was supposed to be and is a NAFTA-TAA entitlement Bro am.
that already serves 28,000 workers who are getting this, who have
lost their jobs because of movement of jobs to Mexico.

We believe that both of these programs should remain as they
are. They represent a commitment not only of the Congress but
specifically of this committee in trade legislation.

We support continuation of the FUTA tax, the 0.2 percent tax,
because projections we have seen from the Department of Labor
suggest that the fund will go broke about the same time Medicare
does if there is not this continued infusion of funds. They have
some data there.

We support the continuation of the tax for alien farmworkers. We
are participants, through Tom Donahue, our secretary-treasurer,
on the advisory panel of unemployment compensation. They have
looked at this issue, this bipartisan commission, and have sug-
gested retaining this, not only for the fact of the $10 million that
is not collected to pay the fees, but because they have found some
data to suggest that there is a substitution of foreign workers for
U.S. workers because of this incentive.

Mr. Chairman, the rest of my testimony goes on to differences in
the job retraining program and what we would like to see, but I
think, in brief comment, we would like to see the Extended Bene-
fits Program continued because we think there will be recessions
down the road that require this additional 13 weeks. We want
Wagner-Peyser to continue, TAA and NAFTA-TAA, and the other
two provisions,

Thank you very much.

Chairman SHAw. Thank you, Mr. Cunningham. Your entire
statement, as you know, will become a part of the record.

[The prepared statement follows:]


121

Statement of
Kenneth McLennan
President
Manufacturers Alliance
on
The Federal Unemployment Compensation System and
Consolidation of Job Training Programs
to the
U.S. House of Representatives
‘Committee on Ways and Means
Subcommittee on Human Resources

May 30, 1995

The Manufacturers Alliance is pleased to submit to the Subcommittee on Human Resources a statement
of its views on reforming the unemployment insurance (UD) system, repealing the Federal Unemployment
Tax Act (FUTA) surtax, and consolidating federal job training programs.

The Manufacturers Aliance is a policy research and profesional development organization whose $00
member companies include leaders in almost every manufacturing industry. For more than 60 years, the
Alliance has served as a spokesperson for policies which promote technological advancement, workforce
‘development, and economic growth.

All our member companies pay UL taxes. In recent years, most have undergone restructuring that has had
the effect of displacing some workers, while at the same time searching for skilled new hires. These companies
have a vested interest ina more efficient labor force development program, and support the principle that
government programs that affect the marketplace should be able to satisfy certain tests in the market to remain
Viable. These ‘ests include providing services at lower cost, being accountable in the quality of the services
offered, a business-as-the-customer orientation, and efficient and effective planning and follow-up.

The business community welcomes a thorough review of the unemployment compensation program and
an examination of consolidating and redesigning federal employment and training programs. To summarize
the points made in this statement, the Manufacturers Alliance first explains how current changes in the labor
market have altered the goals for UT and worker training. Improving the effectiveness of Ul can be achieved,
the Alliance believes, by shifting the focus to reemployment. Also, the Alliance comments on the 0.2 percent
FUTA surtax. The Manufacturers Alliance concludes its remarks by recommending that the subcommittee
apply a number of basic points as it prepares to consolidate and reform the federal employment and training
program.

The Nature of Unemployment in the
United States Has Changed

Policies that mitigate the effects of unemployment by offering new skills to displaced workers and training
disadvantaged individuals should be reevaluated periodically in light of changing economic conditions. ‘The
UI system and the framework for most of the federally sponsored employment and training programs were
developed some 25-30 years ago when the prevailing thought was most unemployment is temporary and that,
in time, these workers will be recalled. Over the last 15 years, this view of the labor market has changed
as structural unemployment has become an important public poticy issue. The rapid growth of technological
progress, corporate festructuring, the inegration of the ‘workd economy, and defense downsizing, have
accelerated the pace of economic change, displacing many workers in the process. Structural change also has
altered the nature of unemployment in a number of crucial ways.

—~ Today a much higher proportion of the unemployed are laid off permanently—they cannot count on
returning to their old jobs. Those who have lost their jobs can be divided into two groups: those who
are laid off temporarily and will be recalled, and those who never return to their old jobs. In 1993, 77
percent of all job losers lost their jobs permanently—the largest proportion in the history of these statistics
that go back io 1967. Even though unemployment was low last year by historical standards, 74 percent
of job losers in 1994 lost their jobs permanently.

— Long-term unemployment continues to rise even during this period of economic expansion. The share of
persons unemployed six months or longer as a percent of total joblessness has risen over the last 25 years.
During the 1960s and 1970s, about 11 percent of the jobless were long-term unemployed. On average in
the 1980s, 16 percent were unemployed for six months or longer. In 1993 and 1994, however, over 20
percent of the unemployed had been without work for longer than 26 weeks,

— As the number of long-term unemployed has risen, so has the number of UI recipients who exhaust their
‘benefits without returning to work. In 1993, 39 percent of those who collected regular unemptoyment
benefits ended up exhausting their eligibility; only in 1983, when the unemployment rate averaged 9.6
percent, did a higher fraction of UI recipients fail to find work before their eligibility for benefits expired.
‘And despite widespread economic prosperity last year, 36 percent of regular UI recipients exhausted their
benefits in 1994,



124

~ Workforce development and educational grants should be allocated to the states based on need, using the
number of unemployed in the state to determine funding levels.

— In collaboration with members of the business and educational communities and elected officials, states
should be required to submit for federal review a statewide workforce development plan that contains clearly
defined program goals and an action plan,

— Guidance for local workforce development programs must come from boards of directors where the majority
of the directors are members of the business community. Only through business oversight and cooper
will training and development programs maintain a job orientation.

— The delivery mechanism for employment and training services should be local “one-stop” career centers.
‘The one-stop career center is a centralized repository for job search, counseling, and program information.

— The type and breadth of reemployment services provided clients should be based on need and not delivered
ona “first-come first-served” basis. Research has shown that the vast majority of unemployed workers
are in need of job search assistance, not retraining. Through its profile system, the career center can screen
for those unemployed and low-wage workers who have significant workforce experience, but who lack
marketable skills, and who are eligible to receive federally assisted training.

— Individuals should be empowered to make their own career choices by providing vouchers to eligible recipi-
ents who are then free to use them to purchase training from accredited suppliers.

— The career centers and other service suppliers must be held accountable for the quality of their services.
Outcome statistics such as placement rates and starting wages should become a part of a career center's
labor market information that is made available to clients, Also, outcome statistics should become a major
factor in maintaining the accreditation of training providers

—— Information on jobs in demand and skill requirements and performance statistics of service suppliers should
be available to ail individuals. Employers should be able also to rely on career center information systems
to refer qualified candidates for job openings.

Concluding Comments

‘The subcommittee will hear a great deal of testimony in support of training dislocated workers in new skills
so that they can compete for the high-paid jobs of the future. A common belief is that training is the answer
to helping unemployed workers find new jobs. Experiences with two large training programs, the EDWAA
and the TAA, have shown, however, that most dislocated workers have skills that can be transferred to new
jobs, and training is not always the key toa new job. According to findings in three studies,” workers who
‘were offered short-term training plus job search assistance did not experience a significant increase in earnings
or employment over workers who were offered only job search assistance.

Dislocated workers who are most likely to benefit from training are those who lack marketable skills or
whose present skills are no longer needed. For this reason, the Manufacturers Alliance recommends that
administrators of grant programs for disadvantaged adults and dislocated workers begin by profiling the
applicants. The career centers should identify eligible, dislocated workers who have skill deficiencies and move
them into training early, before their regular UI is exhausted. ‘The vast majority of unemployed workers,
though, are in need of job search assistance.

Finally, the Manufacturers Alliance asks the subcommittee to consider this critical point: much of the
‘expenditures that are earmarked for worker training and development would be unnecessary if the educational
system in the United States turned out better educated adults. This country needs sweeping educational reforms
such as national educational performance standards, school choice experiments, school-to-work programs, and
‘in cooperation with community colleges, a comprehensive system of technical and professional certificates and
associate's degrees. Only with a more highly educated and trained labor force will this country be able to
accelerate the growth in productivity and raise the general level of wages for the U.S. worker.

tong Satemment of Robert B. Reich, Secretary of Labor, before the Senate Committee on Finance, May 26,
+P.


31

STATEMENT OF RAYMOND J. UHALDE
DEPUTY ASSISTANT SECRETARY OF LABOR
EMPLOYMENT AND TRAINING ADMINISTRATION
BEFORE THE HUMAN RESOURCES SUBCOMMITTEE
WAYS AND MEANS COMMITTER

U.8. HOUSE OF REPRESENTATIVES

May 16, 1995

Chairman Shaw and members of the Subcommittee, thank you for
this opportunity to discuss the workforce preparation and re-
employment system this country requires if American workers are
to be globally competitive and prosper in a rapidly changing
economy. I am accompanied today by Mary Ann Wyrsch, the director
of the Unemployment Insurance Service in the Department of Labor.

As our Nation hurtles headlong into the Information Age, it
is not surprising that a national employment and training system
devised for the Industrial Age is no longer well-fitted to our
new needs. The knowledge economy in which we find ourselves
increasingly requires higher skills, formal learning, and the
ability and willingness to constantly learn new things. This
dramatic new demand for skills also has strengthened the links
between learning and earning: the ticket to "knowledge jobs" and
a middle-class wage is formal education and skill training.
Indeed, each year of education or training beyond high school
raises a person's annual earnings by 6 percent to 12 percent.

Businesses also benefit when they have better educated and
trained workers. A just released study by the National Center on
the Educational Quality of the Workforce (which was commissioned
by the Bush Administration) found that a 10 percent increase in
educational attainment of a company's workforce results in an 8.6
increase in productivity. This compared favorably to a
productivity increase of only 3.4 percent that results from a 10
Percent increase in the value of capital stock, such as tools,
buildings, and machinery.

This same imperative for learning and skills applies equally
to our youth. The labor market situation for young people with
low levels of education has changed dramatically -- in the wrong
direction. In the late 1970s, half of recent high school
dropouts held jobs; by 1992, only a little over a third did.

Real earnings of young high school dropouts have declined by
almost 25 percent over the same period. Therefore, any strategy
for reversing adverse earnings trends must include boosting the
learning achievements of our youth as well, especially the sons
and daughters of the poor.

The new economy not only places a premium on new skills, it
also forces both companies and employees to confront dynamic
change in the marketplace. Turbulence is becoming the norm in
the labor market and many more people will face the prospect of
having to move to new jobs or new careers -- both in their early
work life and at later stages.

our systems for helping Americans navigate their way through
the labor market must respond to the needs of many who once
thought their economic position secure, as well as to those who
are still trying to gain a foothold in the mainstream.
Government can play a strategic role in providing working people
with the resources they need to manage successfully the
transitions that will be inevitable in their work lives. These
resources include: high quality information on labor market
trends, job openings, new careers, and training or education
opportunities; individual investment capital to finance skill
acquisition; and the temporary income support needed to sustain
workers and their families when they are forced into
unemployment.

The G.I. Bill for America's Workers, point four of President
Clinton's Middle Class Bill of Rights, offers a strategy for


7

What this would do is simply add one more burden in several
ways. Not only is it a financial burden for the taxes that would
have to be paid for no good reason, but there is all the record-
keeping and the increased regulatory burden that would then be
placed upon them. And, in addition, there will be matching State
tax and recordkeeping requirements that are also put into place.

So it is an economic impact as well as what I would call the hid-
den regulatory tax impact as well.

Mr. ENGLISH. And a final question: In the labor market for this
sector of the agricultural economy, how vital are these temporary
farmworkers?

Mr. Crapo. They are very vital. We would certainly be glad to
hire people in our own communities who are residents of the coun-
try or the State if they were available and ready and willing to do
that work. But as I am sure you are aware, in agricultural commu-
nities often the situation is that these kinds of workers, with the
training and with the willingness to perform this kind of work, are
not available. And if they are not available in the market, then it
would make a difficult problem for their employers.

Mr. ENGLISH. Thank you.

Mr. Chairman, I think the same arguments could be made for
many other areas of our agricultural economy, and I find the gen-
tleman to be very persuasive. And I appreciate the opportunity to
question him here today.

Mr. Crapo. Thank you.

Chairman Suaw. Mr. Levin.

Mr. LevIN. I have no questions.

Chairman SHAW. Ms. Dunn.

Ms. Dunn. Thank you very much, Mr. Chairman.

I wanted to ask you the total cost that we are looking at if we
grant the extension.

Mr. Crapo, Yes, my understanding is that the impact on the
Federal budget if the exemption were granted—and I again point
out that this exemption has been in place until it just expired last
December 31. My understanding is that the total impact on the
Federal budget would be $840,000. So it is not a big Federal dollar
issue, but it is a really big issue to those industries and those agri-
cultural communities where it has its impact.

That is the Federal side of it. I] am sure that in terms of the im-
pact on the employers there is also the State side of it as well.

Ms. DuNN. Why, Mr. Crapo, has the exemption not been made
permanent before with your information that they are never receiv-
ing the benefits of this find they are paying into?

r. CRAPO. You know, I am not going to be able to give you a
complete answer to that, and I believe that Bryan Little, who is
oing to testify from the American Farm Bureau, might have more
information. But it is my understanding that it has been extended
on a year-to-year basis and that, for some reason that I am not
aware of, there just has been a reluctance to make it a permanent
exemption.

Ms. DuNN. Thank you. It sounds like it makes a lot of sense to
me. Thank you very much, Mr. Crapo.

Chairman SHAW. According to the CBO estimate, the 5-year esti-
mate is $17 million.


46

Statement by William R. Brown to the House
Ways and Means Committee Subcommittee on Human Resources

In Behalf of the Coalition to Repeal the 0.2% FUTA
Surcharge

May 16, 1995

I am William R. Brown. some five years ago I retired as
President of the Council of state Chambers of Commerce.
However, I still act as a consultant to the Council as an
advisor to the Council's Employers Task Force on Unemployment
Compensation.

I appear here today in behalf of the Coalition to Repeal the 0.2% FUTA
Surcharge. A list of the members of the Coalition are appended to my statement.

Introduction
This statement deals primarily with two major concerns of the business
community:

1 The need for Congress to finally keep its commitment to
employers by repealing the "temporary" 0.2% FUTA surcharge.

2. The need for Congress to assure that FUTA funds are used
only for their intended purposes of unemployment insurance
administration, State provided job placement services to job seekers
including counseling, testing, occupational and labor market
information, assessment, and referral to employers by a fully
integrated State UI/ES service,

There is certainly merit in consolidating the many uncoordinated and duplicating
job training programs. There may also be some merit using block grants to finance
State administered training programs. However,

Fl should _n«

Repeal of the "Temporary" Surcharge

ns ional i

Originally enacted in 1976, the 0.2% tax was sold to the employers and the
Congress as a "temporary" tax imposed solely to pay off a debt Congress incurred
by repeated extensions of unemployment benefits during the early 1970’s. The
“temporary” tax was scheduled, by law, to expire once the benefit debt was paid.

The debt was fully paid in 1987, but Congress extended the 0.2% tax for three
years -- through December 31, 1990 -- to “enhance the federal budget". Revenue
from the tax was needed to offset expenditures unrelated to unemployment
compensation even though the money cannot be used for any other purpose,

Since that initial extension, the "temporary" 0.2% tax has been extended several
times and is currently scheduled to expire at the end of 1998.


6

The H-2A Program, administered by the Immigration and Natu-
ralization Service, brings in foreign temporary workers under sec-
tion 101(a)(15)(H)(ii)(a) of the Immigration and Nationality Act to
perform specific jobs. Without this exemption, these workers would
be forced to return home to their own country since they are here
under contract to do one specific job. These workers can never col-
lect unemployment benefits. As of December 31, 1994, this exemp-
tion once again has been terminated and needs to be renewed
retroactively to January 1, 1995. Employers are concerned that
paying these Federal and State unemployment taxes for H-2A
workers would be an undue burden. I have previously submitted a
letter this year to the subcommittee on this matter and again ap-
preciate Chairman Shaw’s gracious response and the cooperation of
his staff on my requests. Last week, I submitted testimony for the
record on this exemption during the Ways and Means Oversight
Subcommittee hearing on this same issue.

It is my hope that the House Ways and Means Committee will
agree with my position and the position of many of the sheep-
herders in Idaho that we need to permanently extend the FUTA
exemption for H-2A for agricultural workers. That way we would
not have to address this issue on a yearly basis. I am pleased that
Bryan Little, director of governmental relations at the American
Farm Bureau Federation, is also here today on this same issue,
and I thank you for your consideration of this meritorious exten-
sion of the proposal. I look forward to working with you and the
other members of the committee in solving this problem.

Chairman SHaw. Thank you.

Do any of the members wish to inquire? Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

Congressman, within your district, what type of work do these
particular temporary farmworkers perform?

Mr. Crapo. Thank you, Mr. Chairman and Mr. English. The pri-
mary issue in my district, at least that has come to my attention
from those concerned about the issue, is in the sheep industry.
Temporary workers are brought over to work in the sheep industry,
and I do not know specifically—I assume they are sheepherders.
And when they then are required to have—if they are required to
pay unemployment tax, if their employers are required to pay un-
employment tax on their services, when these sheepherders then go
back to their own country, they are never going to be qualified to
receive the unemployment benefits. Therefore, it is an unreason-
able expense to expect the employer to bear.

Mr. ENGLISH. What kind of impact would not extending this tax
credit have on the competitiveness of that section of the agricul-
tural community?

Mr. Crapo. Thank you, Mr. Chairman and Mr. English. As you
know, we are already reducing some of the Federal programs deal-
ing with wool and mohair, and the sheep industry is facing serious
burdens in terms of our trade policy, adequately creating and
maintaining a balanced playingfield. So I just say that as back-
ground.

They are facing a tough economic environment right now, in sig-
nificant part because of Federal policies or failure to have a strong
Federal trade policy that protects them.


40

are a variety of job training and employment services that we can
provide.

_ Mr. Cottins. Are these duplicate programs of what already ex-
ists under the Department of Labor in Georgia? If I lost my job in
Georgia, could I not go to the Department of Labor and get this
same service without having to go to a table sitting there?

Mr. UHALDE. You could go get it from the Department of Labor
in Georgia, and they would be using the resources that we have
provided to the Department of or in Georgia—Federal re-
sources.

Mr. Co.uins. And you agree that through the block grant pro-
gram those funds would get to the Department of Labor in Georgia
that would be able to assist me because I am out of work because
my plant is closing and moving elsewhere, offshore?

Mr. UHALDE. You know, the programs we run under the Job
Training Partnership Act were originally designed very much as a
block grant; that is, their formula allocated to the State and the
State formula allocates down to the local communities. So in many
respects, they are very similar in that regard.

Mr. CoLuins, But other than the Georgia Department of Labor,
are you going to set up a table at my—you can set up or you may
set up a table at my place of employment, where I am losing my
employment, to assist me with an application or resume or possible
other job locations?

Mr. UHALDE. We work through the Georgia Department of Labor.
They are the agent, the recipient of funds, and they are the ones
that would help do that with your workers. It is not like a Federal
Government employee flies down to Georgia to do it. Our agents
are the State and local employees.

Mr. Couns. But after I fill out all of this paperwork at that
table, then it is up to me to get out and look for a job also.

Mr. UHALDE. Yes. Yes, as you are drawing unemployment com-
pensation, obviously there is a work requirement. You are required
to do a search, but also we help and assist. Many workers who
have worked at the same job for 25 and 30 years have never had
to look for a job, and the art of finding jobs in local economies or
statewide is something that can be taught. And these resources can
help in that regard as well.

Mr. CoL.ins. You say “we” but you really mean the State of
Georgia?

Mr. UHALDE. When I say “we,” we have Federal, State, and local
partnership, and “we” is the State and some locals that are provid-
ing the services on the ground. Yes, sir.

Mr. Couins. OK. Thank you, Mr. Chairman.

Chairman SHAW. Mrs. Kennelly.

Mrs. KENNELLY. Thank you, Mr. Chairman.

Mr. Uhalde, I am concerned about this possible canceling of the
temporary FUTA and Extended Benefits Frogram, I think for two
reasons. One is, as I look at the trust funds, I see any elimination
of funds going in before the expected date or the statute date of
1998, I see that the funds get very close to insolvency. And then
I think mainly the reason is because I am from Connecticut, a
State that has not come out of the recession, a State that has


120

programs developed in the federal-state Employment Service and work to develop
similar initiatives in all states, rather than throwing out the baby with the bathwater.

Federal administrative dollars for the Employment Service are already block
grants. if there are particular obstacles to better state administration of the
Employment Service block grants, those obstacles should be addressed by the
Congress or the Secretary of Labor. Including the Employment Service in a larger
block grant would increase the danger that the functions of the Employment Service
would be neglected or subject to political and proprietary pressures. These pressures
led to the establishment of the Employment Service in 1933, and they have not
disappeared to date. For these reasons, the UAW urges the Committee to strongly
defend the Employment Service against unwarranted and radical proposals, while
‘encouraging or permitting increased innovation and flexibility.

Conclusion

The employment security system in the United States has evolved over the last
sixty years. While improvements and increased efficiency are welcomed, the current
debate, at times, seems pointed more toward dismantling the system, rather than
reforming it. In assessing the wisdom of the current proposals, the Committee must
consider that the state employment security agencies and their federal counterpart
have built a largely successful partnership which serves hundreds of thousands of
workers: and thousands of employers. Dramatic changes in this partnership should
happen only when a compelling need is demonstrated, and only when a convincing
case is made that improvements will follow from the change. The UAW does not find
that either of these factors have been established by the advocates of the proposals
before this Committee today, and for this reason we urge their rejection. °

We thank the Committee for this opportunity to present our views.

BW:mgb
opeiu494


19

There are two major employment and job training ams
which our Comittee shares juriadiction ain the Mayer and Neans
Committee. are the Hagner-Peyser Act, authorizing the U.S.
Employment serv ce, and the Trade Adjustment Assistance Program
including the related NAFTA-TAA program. Currently, the
Programs would not be consolidated under the CARRERS Act

It was decided by our Committee members that given the fact
the Wagner-Peyser Act is financed almost exclusively by employers
through the Federal Unemployment Tax Act (PUTA), there is an
obligation to ensure that these funds are used for their intended
purpose which is to maintain a national system of employment
services. Our Conmittee‘s-juriediction is limited to tl
programmatic aspects of Wagner-Peyser, not the funding mechanism.

Nevertheless, the CAREERS Act does amend the current Wagner-
Peyser Act to ensure that it is fully integrated into the one-
stop delivery concept envisioned under this legislation.

Our amendments. retain the enphasis on the job placenent
functions of the Employmer vice, which are a central, cost-
effective component of the federal job training and empl
system. It also continues to assure that unemployment ciximants
are actively seeking work and are helped to reenter the workforce
as early as possible, thus reducing burden on employer taxes.

Another key amendment to Wagner-Peyser is a new labor market
information title which consolidates the current federal effort
in this area. Under this new title, the Department of Labor will
be in charge of establishing a system of labor market information
which is locally based, current, and widely accessible.

The second major program over which our Committee shares
jurisdiction ie the Trade Adjustment Assistance Act, authorized
by Title II of the Trade Act of 1974. As you are aware, the TAA
program provides a wide range of training and employment services
for workers whose jobs are impacted due to U.S. trade policy.
Although CAREERS does not currently consolidate this program or
the related NAFTA-TAA program, members of our Committee have not
ruled out the possibility of pursing such action on the floor of
the House. The whole philosophy behind the CAREERS Act is that
services should be provided to individuals who have lost their
job or who are out of work, or simply lack the skills needed to
be competitive in today’s labor force. Programs such ao TAA
spend too much time, money and effort in trying to determine
"why" or "how" somebody lost a job instead of focusing the
Limited fund available on ensuring that they are provided
adequate services to get back into the labor force as soon
possible.

I would be happy to discuss with members of this Committee
ways to bring these programs under the overall umbrella of the
CAREERS Act as this bill moves forward.

Again, I want to thank the Chairman for inviting me here
today to speak on this important topic, and I want to emphasize
that our legislation is still in the process of moving through
our Committee -- I would welcome any changes or ideas which you
may have to offer which you feel would further strengthen any
aspect of the CAREERS legislation.



14

Mr. RANGEL. Do we have the salary or how they are paid?

Chairman SHAw. This would be a good question for the Depart-
ment of Labor, but the law provides, as I understand it, that they
have to pay the prevailing wage for that type of work in the area
in which they are put, so that they cannot undercut the local mar-
ket. That is what 1 have been told, but that would be a good ques-
tion for the administration’s witness when he comes to the table.

Mr. RANGEL. Thank you.

Mr. Crapo. Thank you.

Chairman SHAW. Any other members wish to inquire?

[No response.]

airman SHAW. If not, thank you very much.

Mr. Crapo. Thank you, Mr. Chairman.

Chairman SHAW. Thank you for being with us this morning.

Our next witness is Mr. McKeon from California. We have your
written testimony, and you may proceed as you see fit.

If you wish, we will put your entire testimony into the record to-
gether with the—I guess you want the attachment, too.

Mr. McKEOoN. We put a lot of work into that drawing. We appre-
ciate that.

STATEMENT OF HON. HOWARD P. “BUCK” McKEON, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF
CALIFORNIA, AND CHAIRMAN, SUBCOMMITTEE ON
POSTSECONDARY EDUCATION, TRAINING AND LIFE-LONG
LEARNING, COMMITTEE ON ECONOMIC AND EDUCATIONAL
OPPORTUNITIES

Mr. McKEOoN. Thank you, Mr. Chairman, I appreciate the invita-
tion and opportunity to provide members of this committee an over-
view of the job training consolidation legislation currently moving
through the Committee on Economic and Educational Opportuni-
ties.

As a member from a district in California that has been hard hit
by defense and aerospace cutbacks, I understand that the skills of
this Nation’s work force are more important today than ever before
to U.S. competitiveness. However, our current patchwork of Fed-
eral programs is not the answer. The CAREERS Act addresses our
long-term work force preparation strategy by creating a seamless
system for youth and adults to meet the competitive needs of our
work force. This legislation transforms this Nation’s vast array of
career-related education, employment, and job training programs
into a true system of work force preparation and development.

CAREERS would consolidate and eliminate over 150 existing
education, training, and employment assistance programs into four
consolidation grants to the States. These grants would include: A
youth work force preparation grant; an adult employment and
training grant; a vocational rehabilitation grant; and an adult edu-
cation and literacy grant.

These four programs working together will form each State’s
work force preparation system. Our ill provides maximum author-
ity to States and localities in the design and operation of their
work force preparation systems. We significantly reduce adminis-
trative requirements, paperwork, planning, reporting, and data col-
lection requirements—eliminating bureaucracy within the system.


The Subcommittee will examine whether repealing the "temporary" 0.2 percent FUTA
surtax will spur job growth while also protecting the integrity of trust funds that support
unemployment benefits. The subcommittee will also hear testimony on extending the
‘exemption of employers’ paying FUTA taxes on certain temporary agricultural workers,
known as H2A workers. This exemption expired on December 31, 1994.

Second, the Subcommittee is interested in the various proposals for an employment
and training block grant that are now circulating in the House. For example, legislation has
been introduced (H.R. 1120) creating an employment and training block grant. The House
Committee on Economic and Educational Opportunities has already held several hearings and
in the near future may markup legislation creating one or more employment and training
block grants.

According to the Congressional Research Service and the U.S. General Accounting
Office, there are over 150 federal employment and training programs operating in 14
agencies, at a cost to taxpayers of $25 billion in FY 1995. Eliminating numerous federal
regulations and program requirements would permit states to better design and operate
programs to assist Americans in improving their job skills and finding work, and also save
taxpayers money. There are several programs under the jurisdiction of the Committee on
Ways and Means that may be considered for possible inclusion in an employment and training
block grant: the Trade Adjustment Assistance (TAA) program, the NAFTA Trade Adjustment
Assistance Program (NAFTA-TAAP), and the U.S. Employment Service.

DETAILS. i

‘Any person or organization wishing to submit a written statement for the printed
record of the hearing should submit at least six (6) copies of their statement, with their
address and date of hearing noted, by the close of business, Tuesday, May 30, 1995, to Phillip
D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives,
1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written
statements wish to have their statements distributed to the press and interested public at the
hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on
Human Resources office, room B-317 Raybum House Office Building, at least one hour
before the hearing begins.

FORMATTING REQUIREMENTS:

ea npg Common by tna een ema eht bidfteptad reed
oye cms ape ton nono Si Bay at
saint eatin ‘il nae po bet wl te Cnt sf rer ed web
comite,

Al staaments and any accompanying exhibits fr pcatng mast be typed in single space on legalize paper and way ot
reo a ttl of 10 page nda ataceni,

2 Copier of whole documents submited as ezlbit maura wil net be accoptad fe prlatng. instant exhibit matural should be
‘erenced and quoted or paraphrased. Al exhibit mataral not meeting thse specifications willbe maintained in the Commitee fe for
review and use bythe Comumiton,

2 sein tn Maing be ig ming mn i ered ue ing ng an
a response to by te must inne om Bi sr otal
‘ives pean epee on vor bal he wae pen

4A sopplamental stest must accompany sab statemeot Ustng te mune, full addres, 5 tlephone number whee the wines
rt cengnaie rprosentatvo may be reached and s oplcal orin oe sunmary ofthe comments and recommendations tx th fll
‘atament This sapplemental sheet wil nt be acaded inthe peated record.

Teer and sappy cyto mati! bong and exits o
saul md vy ran we Meant pres adhe pe fag oes pee Reng ay oe bad
er forms.

Note: All Committee advisories and news releases are now available over the Internet at
GOPHER.HOUSE.GOV, under "HOUSE COMMITTEE INFORMATION’.

eeeee


132

STATEMENT
on
THE FEDERAL UNEMPLOYMENT TAX ACT

before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
HOUSE COMMITTEE ON WAYS AND MEANS
for the
U.S. Chamber of Commerce

by
Jeffrey H. Joseph*
May 16, 1995

The U.S. Chamber of Commerce, representing 215,000 businesses, 3,000 state and
local chambers of commerce, 1,200 trade and professional organizations, and 72 American
Chambers of Commerce abroad, commends the Subcommittee on Human Resources of the
House Committee on Ways and Means for holding a hearing on the federal unemployment
compensation system and consolidation of job training programs. The Chamber is anxious to
continue to work with members of Congress on each of these important issues during the
104th Congress.

‘The Chamber has been working with Congress to restructure the federal training and
‘employment system. Current proposals in the House and Senate would consolidate education,
training, and employment programs into a series of one or more block grants to the states.
‘The Chamber views block grants as a positive step toward diminishing control from the
federal government and increasing state and local flexibility. However, it is essential that
state and local workforce development plans emerging from the block grants maintain the
goal of preparing students and workers for skills needed in a high-performance workplace.
U.S. Chamber policy addressing federal training and employment programs is found in the
attached statement.

‘The House Committee on Ways and Means has jurisdiction over several programs
under consideration for the consolidation, including the Trade Adjustment Assistance
program, the NAFTA/Trade Adjustment Assistance Program, and the U.S. Employment
Service. We appreciate the opportunity to work with you to ensure that the new workforce
development system emanating from a merger of these and other federal programs is
accomplished in a manner that benefits employers and employees alike.

In the process of consolidating federal training and employment programs, the
Chamber urges you to repeal the 0.2% Federal Unemployment Tax Act (FUTA) surtax, which
virtually all employers are required to pay. This tax has served its purpose and must be
eliminated.

‘The surtax has a long and lurid history. Originally enacted in 1976, the 0.2%
surcharge was “sold” to employers and Congress as a “temporary” tax imposed solely to pay
off a debt Congress incurred by repeated extensions of unemployment benefits during the
early 1970s. The debt was fully paid in 1987, but Congress extended the 0.2% surtax for
three years to “enhance” the federal budget. Since then, the surtax has been extended several
times and is currently scheduled, by law, to expire at the end of 1998,

The surtax costs employers $14.00 per employee each year, and generates about $1.4
billion annually. While business is committed to helping to fund the nation’s unemployment
compensation system, the 0.2% surtax has served its purpose. The surtax should be given
back to the nation’s employers, as Congress originally promised.

* Jeffrey H. Joseph, Vice President for Domestic Policy, U.S. Chamber of Commerce


110

STATEMENT FOR THE RECORD BY MARK JONES, PRESIDENT,
EMPLOYERS' NATIONAL JOB SERVICE COUNCIL
oN
FEDERAL UNEMPLOYMENT COMPENSATION SYSTEM AND CONSOLIDATION OF JOB
TRAINING PROGRAMS
TO THE SUBCOMMITTEE ON HUMAN RESOURCES,
WAYS AND MEANS COMMITTEE, U.S. HOUSE OF REPRESENTATIVES

This represents the statement of the Employers’ National Job
Service Council (ENJSC) in connection with the hearing of the
Subcommittee on Human Resources held on May 16, 1995. The
subject of the hearing was Federal Unemployment Compensation
System and the Consolidation of Job Training Programs.

The ENJSC represents approximately 90,000 participating employers
who have a substantial interest in the proposals to reform the
Nations! employment and training programs.

Certainly, employers are not opposed to changes in the current
fragmented system. In fact, we believe that changes must be made
to develop a far more effective and efficient system than we
currently have in operation. We advocate block grants to give
the states flexibility in the design of these programs. Clearly,
we would not favor an effort to impose an organizational
structure on the states. A “one-size-fits-all" scheme would be
inappropriate and we would argue for greater flexibility for the
states.

There are four issues however, that are extremely important to us
in this redesign:

First, we do not want to see the Federal Unemployment Tax Act
(FUTA) funds co-mingled with general revenue funds. As
employers, we pay the FUTA tax for specific services and do not
want those revenues used for other purposes. It is our position
that these funds be distinctly identifiable from the Governor to
the point of service delivery.

Second, it is essential that the unemployment compensation system
and the employment/labor exchange system remain linked. The
labor exchange system is the employers greatest assurance that
laid-off workers, drawing unemployment compensation benefits, are
returning to work as quickly as possible. Studies have shown
that this close linkage between these two programs reduces the
duration of benefits by more than one week, A one week reduction
in benefits, alone, saves employers between $250-275 million
dollars nationally in state unemployment insurance taxes. We
want to see the FUTA revenues used, in large part, for this
purpose. This is a very critical issue to us.

Third, in order to maximize employer involvement and support, in
any new delivery system, we encourage you to use a local employer
committee structure (local Job Service Employer Committees/
Employer Advisory Committees) in partnership with local governing
bodies. We firmly believe that such language in the bill is
essential to ensuring employer participation covering a wide
spectrum of businesses that are actually involved in employment
service, unemployment compensation, and training programs.


69

Chairman SHAW. We will recess for just a few moments. Mr.
English has gone down to vote. We will come back and reconvene
as soon as he returns. I would ask the members to get back as
quickly as possible. We will recess for about 10 minutes.

[Recess.]

Mr. McCrery [presiding]. If the panelists will take their seats,
we will resume the hearing. The committee will come to order.

Thank you, Dr. Jacobson, for your statement.

Now, Ms. Bowland, if you would like to share your statement
with the committee. Welcome. It is nice to have you.

STATEMENT OF DEBRA BOWLAND, ADMINISTRATOR, OHIO
BUREAU OF EMPLOYMENT SERVICES, AND TREASURER,
INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY
AGENCIES

Ms. BOWLAND. Thank you very much. I am glad to be here.

Mr. Chairman and members of the subcommittee, I am Debbie
Bowland and I would like to say to Mr. Rangel that employment
training is the most exciting place there is to be in government
today, just to make certain that you know.

I am administrator of the Ohio Bureau of Employment Services
and I am treasurer of the Interstate Conference of Employment Se-
curity Agencies. ICESA recognizes that consolidation and the
streamlining of government programs, particularly in work force
development, is needed, but I hope that as Congress pursues all of
these goals that it keeps in mind the distinctions among programs
that are being considered for consolidation in an employment and
training block grant.

First, employment and training consolidations and reform efforts
must recognize the differences between Programs that are funded
from employer-paid dedicated taxes, funded out of the Unemploy-
ment Trust Fund, and those programs funded from general reve-
nue. By law, State Unemployment Trust Fund dollars can only be
used for the payment of unemployment benefits. Federal Unem-
ployment Trust Fund moneys can be used only for benefits, and in
the administration of employment services and unemployment in-
surance laws.

Merging UI and ES moneys which come from that dedicated tax
called ‘A with general revenue for education and training pro-

ams violates the contract with the employer community that
these funds will be used only for unemployment or reemployment
services. No public policy decision, think, to use FUTA—
employer-dedicated taxes for training programs should be made
without a full understanding of the ‘mplications of that policy deci-
sion, and the debate has to include the views of the employer com-
munity about expanding the use of their tax dollars and potentially
leading to huge tax increases for the employer community.

My initial reading of the CAREERS Act, which we heard about
from Representative McKeon today, certainly did not give me any
kind of assurance that the dedicated nature of FUTA dollars re-
mained intact, nor did I get the feeling that the ES/UI integrated
system that has prevailed in that system remains in place. I know
that is what he said in his testimony, but I think the initial read-
ing of that bill certainly does not reflect that.


24

Mr. McKEoNn. We have been working very closely with the ad-
ministration on this, and, in fact, we met last week with Mr. Ross,
Assistant Secretary at the Department of Labor, and we had two
basic disagreements. I think we probably are just about to resolve
those, so I think we will be—while it is not probably what they
would have proposed, I think they are in agreement with the fin-
ished product, or what it will be when it is finished.

Mr. LEVIN. Well, for example, the four block grants are in their
proposal, right? Rather, the basic structure is very similar.

Mr. McKEon. Very similar. As I said earlier, we have really tried
to reach out and make this a bipartisan effort, and I think some-
thing coming from our committee, which has been very partisan,
we have come a long way.

Mr. Levin. And I congratulate you on that. I think, therefore, we
should not take a term like “block grant,” try to simply apply it
blindly across the board, but try to go beyond the label.

For example, as I understand it, you mentioned 154 programs.
But I think 75, 80 percent of the money is in a dozen or so. Isn’t
that true?

Mr. McKEOon. It could be. I have not figured those numbers. For
sure, it is a smaller proportion of them. Many of the programs have
never been funded.

Mr. Levin. Many of them were never funded, because, for exam-
ple, the youth and education block grant, it looks to me like 80 per-
cent or more is in just a few programs, and adult training, the
same is true in vocational rehabilitation. Almost all the money is
in one program. And adult education, there are only 2, 4, 6, 7, 8
programs that are even funded, more or less—2, 4, 6, 8. And 85,
90 percent of the money is in two programs, the education State
grants and the public library service State grants that are already
in a sense block granted. They are grants to the States.

I raise this because I think the training/retraining area is so crit-
ical, and I do not think we want to use the necessary consolidation
as an automatic response to what is the appropriate funding au-
thorization. Because where the vast bulk of the money is in a dozen
or so programs, it may well be that consolidating those dozen into
4 is not going to itself save that much money. And I think this is
evidenced in the administration proposal, which is to increase fund-
ing under their GI bill by over $1 billion.

So let me ask you this: Has anybody made a study of what would
be saved by the consolidation of these programs and these particu-
lar block grants?

Mr. MCKEON. We will do that in the process. I am not prepared
to give you those numbers today.

Mr. LEVIN. But do you know has anybody made a careful study
of the savings from these particular block grant consolidations?

Mr. McKEon. Like I say, we may have that, but I am not pre-
pared to offer that today. We will as we go through the process, I
am sure.

Mr. LEvIN. All right. I just hope that that can also be done to-
gether, because this is too important an area for the determination
to simply be made by a label.


10

TABLE V. JOBS CERTIFIED BY CROP OR ACTIVITY AND
COUNTRY OF ORIGIN OF FOREIGN WORKERS, 1992

~State No. Jobs crop or Activity origin of Foreian Workers”

Alabama 1 Sheepherding Mexico 4/
Alaska 1 Game Farm (Laborer) Scandinavia
Arizona 171 Citrus (Hand Harvest) Mexico 4/
1 Goatherding Mexico
88 Sheepherding Chile, Mexico 4/, Peru 2/
california 1 Mushroom (Rarvest) china
485 Sheepherding Chile, Mexico 4/, Peru 2/
12 Sheepshearing Australia, New Zealand
colorado 22 Custom Combining (Grain) canada 1/
7 Livestock Mexico 4/
134 Sheepherding Chile, Mexico 4/, Peru 2/
39 Sheepshearing Australia, New Zealand
Connecticut, 143 Apple (Harvest) BWI 3/, Mexico 4/
6 Christmas Tree (General) BWI-3/
93 Diversified Crops (Gen) BWI 3/
133° Nursery (General) BHI 3/
5 Poultry BWI 3/
496 Tobacco (Harvest) BHI 2/
9 Vegetable (Harvest) BWI 2/
Florida 4,271 Sugarcane (Harvest) BHI 3/, Australia
Georgia 152. Vegetable (Harvest) Mexico 4/
Idaho 452 Irrigating Mexico 4/
283 Sheepherding Chile, Mexico 4/, Peru 2/
29 Sheepshearing Australia, New Zealand
T1linois 6 Vegetable (Harvest) Mexico 4/
Kansas 9 Custom Combining (Grain) Canada 2/
2 Farmvorking (General) Scotland
Kentucky 19 Tobacco (Harvest) Mexico 4/
Maine 638 Apple (Harvest) BWI 3/, Mexico 4/
43 Blueberry (Harvest) BWI 2/

14 Diversified crops (Gen) BWI 3/
2 Nursery (General) BHI 3/
10 «Vegetable (Harvest) BWI 3/, Mexico 4/


29

with the passage of NAFTA and GATT, to embrace a volatile econ-
omy and world trade and to accept the elimination of protectionist
trade barriers, but not to bear the total social costs of that up-
heaval. And the social contract is that we would have in place em-
ployment and training systems that help workers adjust to the
changes that would come about with the volatile world trade. Peo-
ple who lose their jobs because of this competition should not bear
the social costs alone, and we have a deal to keep with these Amer-
ican workers who are asked to bear these uncertainties of the freer
trade.

In the unemployment compensation system, Unemployment In-
surance Program, there are two issues to deal with in this hearing.
The first, as has been mentioned, is potential repeal of the 0.2 per-
cent FUTA surtax, and the other is the reinstatement of the ex-
emption of wages for H-2A workers from FUTA taxes.

With regard to the FUTA provisions, the administration believes
that countercyclical financing is really the hallmark of this UI sys-
tem. The taxes need to be built up in the trust fund when unem-
ployment is low to pay for benefits that will be demanded during
periods of high unemployment. Because of that, it is important that
we allow for sound financial management of the system, accumula-
tion of reserves, and, therefore, to continue the surtax through
1998 to cushion the blow in case any economic downturns are on
the distant horizon.

With regard to the FUTA funding for H-2A workers, last Decem-
ber this exclusion from FUTA of the wages paid to temporary for-
eign agricultural workers who work here under H-2A visas did ex-
pire. This exclusion was originally enacted in 1976, and as a tem-
porary one, as we find often, has been extended for many years.

Under the H-2A Visa Program, the temporary farmworkers are
admitted to the United States to perform agricultural services on
a temporary or seasonal basis. This may be in applepicking in Vir-
ginia, sheepherding in Idaho and Nevada, sugarcane cutting in the
Florida area, or tobacco harvesting in other parts of the eastern
part and the southern part of the United States.

The visa, however, is only granted if the Department of Labor
certifies that U.S. workers are not available to perform the serv-
ices, that their wages will not be adversely affected, and that the
working conditions of U.S. workers would not be adversely affected
if such workers were admitted. The visa requires that the H-2A
workers return to their country of origin upon completion of the
work.

The rationale for the exclusion is that the employer should not
pay the Federal unemployment tax since workers must leave the
United States if they are unemployed and, therefore, they cannot
draw and collect unemployment compensation. On the other hand,
we need to bear in mind that the exclusion also does reduce the
costs to employers of the use of temporary foreign workers.

I would note that the administrative costs for the certification of
H-2A workers are funded through the FUTA receipts. Employers
of H-2A workers pay an application fee for that certification. That
is, in the aggregate, about $470,000 a year.


98

Ms. BowLAND. Probably not to the extent that I have heard you
talk about today, but I think the vast majority of our training pro-
grams are targeted ——

Mr. RANGEL. Is there a place in Ohio that you can name that I
could go to to see where concentrated effort has been made to—.

Ms. BowLaNpD. Fostoria.

Mr. RANGEL. Fostoria?

Ms. BowLAND. Fostoria, Norton Manufacturing.

Mr. RANGEL. I was talking about a community.

Ms. BOWLAND. It is Fostoria, Ohio.

Mr. RANGEL. Who represents that area? Do you know offhand?
I will check it out.

Ms. BOWLAND. Mr. Oxley.

Mr. RANGEL. Mike Oxley? Thank you so much.

Ms. BOWLAND. You are welcome.

Mr. RANGEL. Thank you, Mr. Chairman.

Chairman SHAW. Mr. English.

b Mr. ENGLISH. Mr. Chairman, I will try to keep my questions very
rie.

Dr. Corson is the coauthor of the 1993 assessment of TAA. Are
you familiar with the TAA audit that was performed by the U.S.
Department of Labor in September 1993?

Mr. Corson. Somewhat. I do not have a detailed knowledge of
it.
Mr. ENGLISH. I was just wondering if you were aware of its con-
clusions and concurred with the general thrust, which is very criti-
cal of the internal controls in the program.

Mr. Corson. I think some of their concern was that there was
not much information on the program, on what happened to indi-
viduals in the program. Is that your understanding?

Mr. ENGLISH. That is my understanding.

Mr. Corson. I think that is true. It is probably not a surprise,
though, because it is quite a small program, and. in most States,
it has a very small caseload.

Mr. ENGLISH. Thank you.

Dr. Jacobson, how has the Employment Service program adopted
new technology in recent years? To what extent have you applied
new technology to improve your clearinghouse services?

Mr. JACOBSON. Actually, the Employment Service has been very
adept at using new data processing equipment, because you have
to remember, the UI system is one of the largest data processing
agencies in each State. They have tended to keep up with new
technology. In particular, Ohio is a State that has looked for new
ways of making job matches. Colorado is another State that has
taken a lead in developing new technologies.

So it is a very active area, and, in part, it has been forced on the
States because, essentially, they have to do more and more work
with fewer resources. So they have, I think, done a pretty good job
on their own. Recently, the Department of Labor has given more
impetus to these efforts through its revitalization program. That
also is a very positive step.

Mr. ENGLISH. Thank you, Mr. Jacobson.

Knowing the brevity of our time, I think I will conclude now.

Thank you, Mr. Chairman.


91

Government.”

When workers are injured as a result of deliberate national policy such as trade
liberalization or a North American Free Trade Agreement (NAFTA), they not only need
assistance but as a matter of basic fairness they should be entitled to compensation
as well. Property owners who are dispossessed as a result of government action
often are entitled to compensation; workers who lose their jobs as a result of
government action usually sustain far more serious damage and should have no lesser
claim,

In the current budget climate it is natural to scrutinize the cost of such
compensation, but the central question is fairness, not cost.

For workers who qualify, TAA provides a range of benefits including job search
assistance, relocation assistance and up to two years of training assistance. Most
important, it provides a modest level of income support for up to one year after an
eligible worker's six months of basic unemployment benefits have expired.

Entitlement to income supportis so essential to allow trade-injured, TAA-eligible
workers to afford the longer-term, higher quality training which can prepared them for
new jobs.

If TAA and NAFTA-TAA are allowed to disappear into a block grant, with
reduced funding which declines over time, there will be little or no money for income
support, and workers who lose their jobs because of increased imports or trade
agreements will no longer have any entitlement to receive assistance, despite the
federal government's obvious and long-recognized obligation to compensate them for
the loss of their jobs.

While TAA and NAFTA-TAA are far from perfect, most of their problems stem
from inadequate commitment of resources and inadequate federal oversight. These
problems will be severely exacerbated by the block grant approach. Money may be
saved, but at the expense of jobless workers who lost their jobs because of federal
policies and decisions, and who urgently need and clearly deserve to be helped.

The possibility that NAFTA-TAA may be eliminated so soon after the ink has
dried on this nearly brand new trade agreement is especially troublesome. Many
members of Congress would not have voted for NAFTA had they known that the
federal government intended to renege so quickly on its commitment to compensate
and assist workers who are injured as a result of this trade agreement. NAFTA-TAA
is woefully inadequate, but its elimination will only make a bad situation even more
dire for thousands of workers.

Problems related to poor administration at the state level -- since the states
have enormous responsibility for NAFTA-TAA already -- are a preview of what is in
store if the program is eliminated and folded in to a block grant. In many states, due
to inadequate state outreach efforts, potentially eligible unemployed workers are not
made aware of the existence of the program and hence are denied the opportunity
even to apply for assistance. This serious problem, and many others, would become
dramatically worse under a block grant approach.

In the fifteen months since NAFTA took effect, NAFTA-TAA petitions have
been submitted by or on behalf of workers at 455 firms in 46 states. The 216
certifications which have been made cover more than 28,000 workers. The
Congress, which adopted NAFTA over the strenuous opposition of most American
working people, should not now renege on the modest but important commitment to
help NAFTA’s victims which NAFTA-TAA represents.


11

TABLE V. JOBS CERTIFIED BY CROP OR ACTIVITY AND
COUNTRY OF ORIGIN OF FOREIGN WORKERS, 1992 (Continued)

tate Ko, Jobs Crop or Activity Origin of Foreign Worker:
Massachusetts 586 Apple (Harvest) BHI 2/, Mexico 4/
6 Cranberry (Harvest) Scotland
22 Diversified crops (Gen) BWI 3/
9 Nursery (General) BHI 3/
13. Strawberry (Harvest) BHI 2/
78 Tobacco (Harvest) BWI 3/, Mexico 4/
187 Vegetable (Harvest) BWI 3/, Scotland
Montana, 22 Custom Combining (Grain) Canada j/
30 Horticulture Mexico 4/
72 Trrigating Mexico 4/
39 Sheepherding Chile, Mexico 4/, Peru 2/
1 Sheepshearing New Zealand
Nevada 153 Sheepherding chile, Mexico 4/, Peru 2/
99 Vegetable (Harvest) Mexico 4/
New Hampshire 268 Apple (Harvest) BWI 3/, Mexico 4/
71 Diversified Crops (Gen) BWI 3/, Mexico 4/
New York 2,807 Apple (Harvest) BWI 3/, Mexico 4/
55 Nursery Poland
North Carolina 1,932 Tobacco/Vegetable (Har) Mexico 4/
Oklahoma 208 «Custom Combining (Grain) Canada 1/, England,
Mexico 4/
oregon 57 Sheepherding chile, Mexico 4/, Peru 2/
10 Sheepshearing Australia, New Zealand
Pennsylvania 4 Grapevine (Pruning) Czechoslovakia
Rhode Island 15 Apple (Harvest) BNI 2/
South Dakota 11 Custom Combining (Grain) Canada 1/
10 Sheepshearing Australia, New Zealand
Tennessee 22 Tobacco (Harvest) Mexico 4/


97

Ms. BoWLAND. Yes. We are working on that, and we are ensur-
ing, through the use of national skills standards, high-tech train-
ing——

Mr. RANGEL. What kind of jobs are available for this type of per-
son?

Ms. BowWLAND. Right now, what we are doing is working through
our national skills standards, programs with the national skills
standards, our curriculum with vocational education——

Mr. RANGEL. I do not know what that means, but on a national
basis, would you find that your administrators nationally have no
problems in placing high school dropouts?

Ms. Bow.anp. I did not say they had no problems. What I am
trying to indicate is that I think everyone in this age of very high
technology and high performanes workplaces have to ensure that
people who are placed are qualified, and second, they can get the
skill training they need.

Mr. RANGEL. No, no. Forget that. I know that. What I am really
trying to find out is whether your school system is supplying, people
with the training that is necessary to put them in the high-tech-
nology jobs.

Ms. BOWLAND. No.

Mr. RANGEL. Since you deal with this on a national level, have
people in your category demanded from the school system that in-
stead of just diplomas, that they prepare these young people to
enter into the labor market?

Ms. BowLaNp. Yes. In Ohio, we are actually working on stand-
ards that must be met, passports that folks can carry from grade
school through high school and then to jobs.

Mr. RANGEL. Have you found communities in Ohio and other
parts of the country that are not producing this, that they have
high rates of unemployment as well as high rates of high school
dropouts, higher in other inner cities?

Ms. BOWLAND. Yes, and I think we are working to correct that,

yes.

Mr. RANGEL. Are these the areas that cause the States and the
country major problems, the people that are in the street without
jobs and without diplomas and unemployable?

1 Ms. BowLanp. I think that certainly is one of the major prob-
lems.

Mr. RANGEL. And you found this to be national, not just in Ohio?

Ms. BowLAND. I think it is a national problem.

Mr. RANGEL. Have you seen anything from the national level
that addresses that problem, that is, to tie in the school system
with the job market so that when they get to you, that you can
place them in the jobs that are necessary?

Ms. BowLann. I think the school-to-work initiative in the Federal
Government has been excellent. I believe the program on national
skills standards has gone a long way toward us identifying the
skills and occupations and ensuring that we train people to meet
those occupational skills.

Mr. RANGEL. Have you been able to target the areas that have
the least amount of skills, the highest crimes, the highest dropouts,
the highest social problems, in order to make certain that this
group is brought along in order to get into the job market?


102

FINANCING EXTENDED BENEFITS REFORM
‘The Council finds thatthe integrity of the Unemployment Insurance system as well as its capacity to adapt
to the changing nature of unemployment are compromised by incorporating its trust funds into the unified
federal budget. While the flow of funds into the Extended Unemployment Compensation account may
bbe adequate to finance the recommended Extended Benefits reform, such reform is complicated by the
use of dedicated Unemployment Insurance trust funds for the purpose of deficit reduction. Several
members of the Councit believe that prompt action should be taken to correct this situation. Other
members feel that the issue of how trust fund accounts should be treated in the budget is a very complex
‘one, and requires careful consideration within a broader context, The Council intends to revisit this issue
ts future deliberations,

1994-5. Recommendation
MW additional re required to impl the Council's rec ions, such revenue
should be generated by a modest increase in the FUTA taxable wage base, to $8,500.*

WORK SEARCH TEST UNDER EXTENDED BENEFITS
“The Council finds that another problematic aspect of the Extended Benefits program is the federal
requirement that, with some exceptions, those individuals who are receiving Extended Benefits must accept
a minimum wage job if one is offered, or become ineligible for benefits. While the Council understands
that recipients ofboth regular and extended Unemployment insurance benefits have an obligation to search
actively for work and accept appropriate job offers, the Council finds the curent federal requirements to
be excessively onerous. All states use a "suitability" test to determine the jobs which claimants are
required to accept to remain eligible for benefits. This test gives states the lexibilty to ensure adequate
work search by claimants, while protesting unemployed workers” living standards and job skills by
permitting them to decline substandard jobs. The States are in a better position to determine appropriate
‘mechanisms for enforcing a work search test, given the particular conditions of their labor markets

1994-6, Recommendation
The federal requirement that individuals who are receiving Extended Benefits must accept a
minimum wage job if one is offered, or become ineligible for benefits should be eliminated.
Each state should be allowed to determine an appropriate work search test, based on the
conditions of its labor market.

STATE TRUST FUND SOLVENCY

‘The Council finds an overall decline in receipt of Unemployment Insurance benefits among. the
‘unemployed. This decline is at least partially caused by the inadequate reserves of many states’ trust
funds. During the past decade, many states with low or negative trust fund reserves have found
themselves in the position of either having to increase taxes on employers in the midst of an economic
downtum, or having to take measures to restrict eligibility and benefits for the unemployed, Some betieve
that this reliance on pay-as-you-go funding has worked to the overall detriment of the Unemployment
Insurance system.

‘The Council believes that it would be in the interest of the nation to begin to restore the forward-
funding nature of the Unemployment Insurance system, resulting in a building up of reserves during good
economic times and a drawing down of reserves during recessions. The Council finds, however, that any
move toward creating federal guidelines for states’ Unemployment Insurance trust fund accounts must be
carefully weighed. Otherwise, there will be a risk of creating undue incentives for the states to restrict
the eligibility and level of Unemployment Insurance benefits in order to achieve the solvency guidelines.
‘The Council intends to make specific recommendations on this issue in future reports

FUTA TAXATION OF ALIEN AGRICULTURAL WORKERS
‘The Council was asked by Congress to consider the treatment of alien agricultural workers within the
Unemployment Insurance system. Currently, the wages paid to alien agricultural workers with H2-A visas
‘are exempt from the Federal Unemployment Tax Act (FUTA). This exemption is set to expire on January
1, 1995.

‘The Council finds that there are arguments both for and against continuing this exemption. Under the
current exemption, alien agricultural workers are less costly to hire than domestic workers, on whom
FUTA taxes must be paid, This cost differential may create an incentive for substitution of foreign
hich argues in favor of repeal of the exemption. Furthermore, the process
suing H2-A visas imposes costs on the federal and state governments that have
ty for overseeing this process. The vast majority (97 percent) of the cost of the

+ Two members object to this recommendation,


118

percent. Thirty-two of the 52 jurisdictions had an IU/TU ratio of less than one-third.
Even so-called “job losers" are no longer getting UI benefits, although they clearly fall
into the involuntarily unemployed category of workers for whom UI is mainly intended to
assist. Since 1970, the ratio of UI claimants to job losers has fallen nearly forty
percent.

A major contributor to the decline in receipt of U! benefits is the virtual
elimination of Extended Benefits (EB) as a result of restrictions adopted in 1981. Asa
result, long-term unemployed workers remain without assistance during recessions.
An unintended consequence of the effective elimination of EB is the use of less
targeted, temporary benefit extensions. The most recent such program was the
Emergency Unemployment Compensation (EUC) program. The ACUC's first report
demonstrated that EUC cost much more than a properly constituted EB program. in
fact, the EUC program ultimately cost $30 billion, while a properly reformed EB was
estimated by the ACUC to cost at most $14 billion. The Advisory Council's first report
made a number of recommendations to restore the EB program. These measures
should be adopted before the next recession.

In order to reverse the decline in receipt of U! benefits, the Advisory Council
recommended a number of steps for states, These include the adoption of moveable,
or flexible base periods, and easing of high initial monetary eligibility requirements
adopted in some states. Eight states already use moveable base periods, or similar
measures to permit workers flexibility in measuring their participation in the labor
market prior to their separation from work. The Congress should consider means to
encourage states to adopt these and similar measures needed to reverse the decline in
recipiency of UI benefits.

In recent years, the Internal Revenue Service has charged the trust funds up to
$100 million to collect the FUTA taxes. State agencies aiready collect state UI payroll
taxes and could collect FUTA taxes with little or no added cost to the trust funds. For
these reasons, the Advisory Council recommended that the states be authorized to
collect the FUTA taxes and turn them over to the federal trust funds as is currently
done with state UI payroll tax revenues.

The recommendations of the ACUC are supported by extensive factual
documentation and investigation, and represent a consensus of the members of the
Advisory Council. For this reason, the UAW believes they deserve the Committee's
prompt and favorable consideration.

The FUTA Surcharge

Despite the severe budget cuts being imposed on many critical programs,
employer groups are advocating the immediate repeal of the so-called .2 percent FUTA
surcharge. The UAW opposes this repeal. It would have a serious and negative impact
upon the FUTA system. The UAW has grave doubts about the impact on the FUTA
trust funds and their ability to adequately fund extended benefits during the next
recession, if the FUTA surcharge is repealed.

Most fundamentally, employers have no factual grounds upon which to base
their requested repeal of the FUTA surcharge. Since the federal taxable wage base
has been frozen at only $7000 for over a decade, inflation has effectively reduced the
impact of the FUTA surcharge to nil. In fact, taking inflation into account shows that the
current $56 FUTA payroll tax is at its historically lowest level in the history of the
program. That historic low occurred in 1970, when a .5 percent effective FUTA tax on a
$3000 taxable wage base cost employers $56 dollars in terms of 1993 dollars. The
attached Exhibit A is taken from the 1995 Report of the Advisory Council and gives the
complete history of the changes in the FUTA tax rate and taxable wage base.

In short, despite its initial plausibility, this historical overview shows that the
continuation of the “temporary” FUTA surcharge has not worked an injustice upon


65

term unemployed by about 13 weeks on average ref. A5] This translates into an immediate
earnings gain of over $2,000. Equally important, the earnings growth of those individuals also
were greater than that of similar workers who did not use the ES i i

i int the je Thus, the total
‘gain was at least $4,000 per placement,

Indeed, a major reason training often fails is that the large sacrifices in earnings required
to participate in training go for naught as trainees end-up with much the same jobs that they
could have obtained months earlier had they not entered training. Of course, some training is
sufficiently productive to more than offset foregone earnings and the relatively high cost of the
training itself. But much lower cost and much speedier return to work usually are decisive
advantages that make the ES’s direct job placement (and other types of JSA) far more cost-
‘effective than retraining.

‘The Role of the ES in Improving the Performance of the UI System

So far this discussion has focused on the core service of the ES-- provision of a public
labor exchange. Jn addition to matching job seekers to job vacancies, the ES has a special
responsibility for monitoring the job search of Ul claimants. This mission has the dual purpose
of helping to ensure UI claimants are effectively searching for work on their own as well as
helping claimants who need assistance locate suitable work.

Analyses of UI claimants in Pennsylvania and Washington State who were receiving
benefits shows each ES placement reduced unemployment by about two weeks on average
(Compared to over two months for UI exhaustees), and saved about $300 in UI payments [ref. 4
& 7]. The reductions in UL payments reduced the tax burden on firms which translates to
higher wages as well as higher profits.

Indeed, the prospect of saving UI payments and improving the solvency of the UI Trust
Funds have been major factors in state decisions to use their own revenues to supplement
federal Wagner-Peyser expenditures. The ES research I performed in Washington State was
mandated to determine whether use of a small payroll tax to enhance ES assistance to claimants
was cost-effective. The results suggested that every additional dollar spent on the ES saved a
dollar and 15 cents in UI funds. Thus, the enhancement more than paid for itself even ignoring
the benefits to workers and firms of speeding the job search process.

Today only about 60 percent of the ES budget comes from Wagner-Peyser expenditures.
States use locally derived revenue as well as federal funds from other programs to purchase ES
services, To an economist, seeing the ES effectively compete for funds against an array of
alternatives, including the option of lowering taxes or purchasing services from private firms, is
ne of the strongest pieces of evidence suggesting that the ES is a cost-effective institution.

In addition to providing “positive” adjustment services, the ES also reports failures to
attend job interviews or accept reasonable job offers to the UI system? Such "refusals" lead to
the severe penalty of having to return to work for a specified period and then be laidoff in order
to requalify for UI payments. There is evidence that enforcement of this work-search provision
provides a very powerful incentive to assiduously search for work (ref. 5}. Turning down offers
of interviews and jobs without good cause also is generally regarded as the fairest basis for
‘demonstrating a lack of commitment to search for work.

Although it is difficult to estimate the savings generated from "refusal" enforcement with
precision, it is likely that the savings are very substantial, perhaps as much as 5 percent
of the $16-$18 billion spent on UI each year. In contrast, enforcement of the other work-search
provisions to be "able" to work (not sick or caring for dependents), and “available” for work
(actively searching) have little, if any, effect. The difference might be a result of the weak

® Ae the federal level the UL and ES programs are administered separately. At the state level they are
jointly administered by the State Employqent Security Agency (SESA) and personnel are usually cross-
‘trained to perform both UI and ES tasks. Thus, the same person could make the referral, note an interview
id not occur, record the refusal in the UI record, call the claimant in to determine if there was a good
reason for the refusal, and interview the claimant,


7

employer community. I think extremely important policy decisions
are being made, and we have not really focused on how very impor-
tant they are and what the impact of those decisions might be.

I th: you very much for asking us to be here. If you have any
questions, we certainly would be happy to answer them. ICESA is
certainly representative of administrators and Governors all across
the country. Thank you very much.

(The prepared statement follows:]


16

seeking work and are helped to reenter the work force as early as

jossible, thus reducing the burden on employer taxes, and estab-
lishes a new title to Wagner-Peyser, consolidating the current Fed-
eral effort of collecting and disseminating labor market information
in order to make it locally based, current, and widely accessible.

The second program where we share jurisdiction is the Trade Ad-
justment Assistant Act. This provides a wide range of training and
employment services for workers whose jobs are impacted by trade.
Although currently not consolidated as part of CAREERS, we are
willing to work with members of the Ways and Means Committee
to pursue such action on the floor of the House.

‘he philosophy behind CAREERS is that services should be pro-
vided to individuals who have lost their job, are out of work, or who
simply lack the skills to hold a job. Programs such as TAA spend
too much time, money, and effort in trying to determine why or
how somebody lost a job instead of focusing the limited funds avail-
able on ensuring that they are provided adequate services to get
back into the labor force as soon as possible.

Again, I want to thank you, Mr. Chairman, for inviting me here
to speak on this important topic. I would welcome any ideas or sug-
gestions members of this committee may have which would further
strengthen any aspect of the CAREERS legislation.

{The prepared statement and attachment follow:]


99

Chairman SHaw. Thank you.

I would like to thank all the panelists that appeared before us
today, this last panel included, for giving up your time to share
your experience with us.

The hearing is concluded for today. Thank you.

[Whereupon, at 4:33 p.m., the hearing was adjourned.]

[Submissions for the record follow:]


21

Chairman SHaw. Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

I wonder if the gentleman would discuss how his block grant pro-
posal treats three programs this subcommittee is especially inter-
ested in, and you had mentioned Trade Adjustment Assistance, but
also the NAFTA Trade Adjustment Assistance Program and the
U.S. Employment Service.

__ Mr. McKEon. We do not deal with those beyond what I discussed
in my testimony.

Mr. ENGLIsH. OK.

Mr. McKEon. Those fall mainly under your jurisdiction, and so
we have tried to just work on the areas that come specifically
under our jurisdiction.

Mr. ENGLISH. What provision do you make in the proposed em-
ployment and training block grants for economic downturns or
other emergencies?

Mr. McKEon. Each of the block grants carries a separate line of
funding, separate stream, and then they come to the Governor. The
Governor then pushes them down. We push them down through
the bill down to the local agencies. But the Governor is left with
some discretion. He has 15 percent of money for the adult training
that he could use in various ways that would cover and help in
those kinds of circumstances.

Mr. ENGLISH. That is excellent. I have not made a comprehensive
survey yet, but I have gotten some positive feedback on your bill
from some people who are involved in job training back in my dis-
trict, and I am very encouraged by that.

Can you share with us how the reception has been on the part
of the States to the idea of block granting the programs that you
suggest?

Mr. McKEon. You know, we have been working on this now for—
actually, Chairman Goodling and Mr. Gunderson introduced simi-
lar legislation last Congress. But it came under the jurisdiction of
our subcommittee, so we have been working on it, held numerous
hearings since the first of the year, and we have really tried to
work out and reach out into the communities to make it a biparti-
san effort.

We have worked with both sides of the aisle in the committee.
We have worked with the Governors. We have worked with all
areas that we can to try to bring this together. The States like the
block grant.

We have some discrepancy with the Governors. They would like
us to just give them the money.

Mr. ENGLISH. Right.

Mr. McKeon. And we do not plan on doing that. While they will
have a much greater role than they currently have, they will not
have total discretion of what they do with the money.

I think when I served on Tocal school boards and local city coun-
cils, I had as much problem with State government as I did with
Washington, and so my goal is to push as much of the resources
down to the local communities that are actually serving the people
that need the training and the help as possible. So while they like
the philosophy, what we are struggling over now is how much
power the Governors get.


50

Mississippi Manufacturers Association
Monsanto Company
National Association of Manufacturers
National Federation of Independent Business
New Jersey Business & Industry Association
New Mexico Association of Commerce & Industry
Ohio Manufacturers' Association
Ohio Chamber of Commerce
The Oklahoma State Chamber
Oneida Ltd.

Pennsylvania Chamber of Business and Industry
Pennsylvania Manufacturers Association
Pfizer, Inc.

PPG Industries, Inc.

Pratt & Lambert
Procter & Gamble Company
Rockwell International Corporation
Ryder Systems, Inc.

Sears
The Sherwin-Williams Company
Society For Human Resource Management
Sun Company, Inc.

Texas Association of Business/Chambers of Commerce
Thrift Drug Inc.

The Timken Company
UBA, Inc.

U.S. Steel Group
USX Corporation
Varian Associates
Vermeer Mfg. Company
The Walt Disney Company
Washington State Hospital Association
The Western Sugar Company
Westinghouse Electric Corporation
WestPoint Stevens, Inc.
Weyerhaeuser Company
Wisconsin Manufacturers and Commerce
White and Associates
The Wise Company, Inc.


95

participation in building a new school-to-work transition system is necessary but not
sufficient. The participation and support of front-line workers and their unions are
also vital to achieve the goals of this new initiative.

Conclusion

The AFL-CIO represents some 90 national and international unions with some
14 million working people as members. The workers we represent will benefit from
constructive action by Congress to make the nation’s unemployment compensation,
job training, and job placement efforts more effective. We welcome the concern of
your Committee and we look forward to working with you on legislation that will be
good for workers and good for America. Thank you.


33

Massachusetts, Iowa, Wisconsin and Texas ~~ received Department
of Labor implementation grants and began integrating an array of
education, employment and training programs into the One-Stop
Career Centers. Nineteen States which were committed to One-Stop
but needed more time were provided with one-year planning and
development grants. Our plans for this year call for more
“leading edge" States to receive grants and implement one-stop
systems. Indiana, Ohio, and Minnesota have already been
announced as award winners based on the quality of their first-
year proposals.

The President also called for financing an electronic-based
Labor Market Information system that would be housed in these
One-Stop Career Centers. This LMI system would have many
components, including a system for accessing information on job
vacancies across the United States. America's Job Bank -- a
listing of work opportunities in the U.S. and other locations
worldwide ~- is now available to job seekers on the Internet.
Field tests of electronic talent banks enabling employers to
search through a pool of resumes will begin in Michigan and
Missouri in early summer. The President's proposal would also
assure that consumer information on how well education and
training providers perform and how successful they are at placing
people in jobs would also be available so that One-Stop users
could make informed choices of schools and occupational programs.

Continued Funding for Public Labor Exchange Services

The President's approach in the G.I. Bill for America's
Workers calls for States -- working in cooperation with
communities, the private sector, local schools and colleges -- to
integrate ES, JTPA and other local programs into a coherent
system for job training and job search assistance. The
collaborative planning process which was developed for making
grants to States for establishing One-Stop systems has already
Proven successful. Tt is an approach which has bi-partisan
support.

Funding for the present system is derived from a combination
of general revenues and FUTA taxes paid by employers. These two
sources should be maintained, with FUTA funds from business used
for effective public labor exchange services that will help the
unemployed return to work as quickly as possible and assist
employers in finding the workers they need. FUTA funds should
continue to be used for labor exchange services that benefit both
jobseekers and employers: counseling, job search assistance,
jobseeker skill testing, and information on job vacancies, labor
market trends, and on jobseekers. These services have been the
specialty of the existing employment services which have been run
by the States and which should be integrated into the One-Stop
system through the collaborative planning process I discussed
earlier. The interest in establishing such systems is high --
nearly all the States have applied for planning or implementation
grants to set up One-Stop systems.

The Social Contract with Trade-Impacted Workers

The President's proposal did not include the Trade
Adjustment Assistance program (TAA) and the NAFTA-TAA programs,
which provide extended income support and additional training
services for trade-impacted workers. TAA exists because of a
social contract: workers were asked to embrace the volatility of
the economy as we open world markets and reduce or eliminate
protectionist trade barriers. Individuals who have lost their
jobs because of international competition should not be abandoned
to bear the social costs of these trade agreements. Rather, they
should receive assistance from the government whose policies have
contributed to the economic distress in their work lives. The
goal of TAA and the NAFTA worker adjustment program is to provide
opportunities for workers to make the adjustment to new



133

Last year, under the Reemployment Act (REA), the Clinton Administration proposed
permanently extending the surtax to pay for income support for persons needing long-term
training. With help from the Chamber and other business organizations that opposed a
permanent extension, the REA never made its way through Congress. House and Senate
leaders rightfully showed little interest in establishing a costly new entitlement program for
trainees. Interest in consolidating existing programs is the better solution.

With legislation to consolidate federal training and employment programs on the table,
the Chamber urges that you consider inserting legislative language to repeal the 0.2% FUTA
surtax. Keeping the Congressional commitinent to end this “temporary” surcharge would send
a strong signal to employers that Congress is serious about encouraging job creation and
improving the global competitiveness of U.S. companies.

‘The Chamber looks forward to continuing to work with you to restructure federal
training and employment programs and better serve the employment needs of the American
workforce and business community. We remain available to assist with your reform efforts
by way of testimony, briefings, and grassroots activities, among others.


Ww

TESTIMONY OF HON. BUCK McKEON, CHAIRMAN
SUBCOMMITTEE ON POSTSECONDARY EDUCATION,
TRAINING AND LIFE-LONG LEARNING,

COMMITTEE ON ECONOMIC AND EDUCATIONAL OPPORTUNITIES

Introduction

Mr. Chairman, I appreciate the invitation and opportunity to
provide members of this Committee an overview of the job training
consolidation legislation currently before the Committee on
Economic and Educational opportunities.

As Chairman of the Postsecondary Education, Training and
Life-long Learning Subcommittee, and as a Congressman from a
district in California that has been hit hard by defense and
aerospace cutbacks, I understand that the skills of this Nation's
workforce are more important today than ever before to U.S.
competitiveness. However our current patchwork of Federal
programs is not the answer. The Consolidated and Reformed
Education, Employment, and Rehabilitation Act, or "CAREERS" Act,
addresses our long term workforce preparation strategy by
creating a seamless system for youth and adults to meet the
competitive needs of our workforce.

In brief ,the CAREERS Act includes five major components:

First, it provides maximum authority to States and localities in
the design and operation of their workforce preparation system;

Second, it drives money to Stat and down to local
communities to the actual points of service delivery;

Third, it requires the involvement of local employers in the
design and implementation of local systems -- through employer-
led local Workforce Development Boards; and

Fourth, it requires that service delivery be provided through a
one-stop delivery structure which is market driven, accountable,
reinforces individual responsibility, and provides customer

choice and easy access to service

Finally, it establishes a national labor market information
system that provides employers, job seekers, students, teachers,
training providers, and others with accurate and timely
information on the local economy, occupations in demand, skill
requirements for such occupations, and information on the
performance of service providers in the local community.

In establishing this workforce development infrastructure, the
CAREERS Act consolidates and eliminates over 150 existing
education, training, and employment assistance programs into four
consolidation grants to the States, including: A Youth Workforce
Preparation Grant; an Adult Employment and Training Grant; a
Vocational Rehabilitation Grant; and an Adult Education and
Literacy Grant.

The CAREERS Act provides maximum authority to States and
localities in the design and operation of their workforce
preparation systems. We significantly reduce administrative
requirements, paperwork, duplicative planning, reporting, and
data collection requirements across the various programs --
eliminating vast bureaucracy within the system. However, our
legislation does provide some broad parameters for the design of
a workforce development system based on testimony heard in our
numerous hearings and in talking to people around the country,
which we feel are necessary to move the system in the right
direction.



61

mandatory training for TAA recipients. The shift away from expen-
sive treatments was fostered by evidence that both those steps
largely were ineffective while providing all kinds of job search as-
sistance through the Employment Service, was highly effective.

So, in essence, the evidence suggests that the Employment Serv-
ice plays a very important role. One fundamental question then is,
why is it that the Employment Service has not had greater visi-
bility and, in some sense, has been treated as a stepchild?

I think it is not difficult to perceive why that is true. Basically,
the statistics that have traditionally been used to measure the per-
formance of the Employment Service vis-a-vis other programs have
not been interpreted very accurately and have failed to place the
Employment Service in the proper perspective. But when studies
place the Employment Services performance in proper perspective,
the Employment Service is shown to increase people's earnings by
thousands of dollars and to save substantial amounts of UI bene-

its.

An important aspect of the Employment Service, that I think
other people will also mention, is its relationship to the UI system.
Many States have used their own funds to improve ES services
going to claimants as Wagner-Peyser funds have declined. States

ave taken a hardheaded look at those expenditures and have de-
termined that every ES dollar spent on a UI claimant saved ap-
proximately $1.15 in unemployment benefits alone. As a result the
States are generally quite satisfied with the ES’s performance, and
there is a growing trend to spend more discretionary money on the
Employment Service.

This is the kind of evidence that economists, in particular, look
for because it is a market test. There are alternatives, as we have
heard today, to spending more money on the Employment Service,
including cutting taxes. But many States have properly recognized
that taxpayers are better served by using the Employment Service
to help workers find jobs, and ensure claimants are assiduously
searching for work on their own.

The last element of the testimony deals with the role of the Em-
ployment Service in providing labor market information. It turns
out that because of the way the UVES systems are run, they pro-
vide a great deal of information about unemployment and employ-
ment that is used in several Bureau of Labor Statistics programs.
The wage record data of the Employment Service also has been
used to monitor AFDC and food stamp eligibility. In addition, the
Department of Labor has saved millions upon millions of dollars in
research funds by using wage records for various types of research,
substituting very low-cost wage record data for very high-cost sur-
veys. But use of this data has not gone far enough.

One of the main problems that the GAO has pointed to in terms
of revamping the current system is that we know very little about
the effectiveness of current programs. It is very important to have
this information. In fact, I think that there is nothing more impor-
tant than being able to objectively measure the effectiveness of all
the human resources development programs that are in place today
all over the country in a uniform way. No large business could stay
in operation without an effective information system, but somehow


130

‘economy; and, (3) retum authority to the States through block grants. The Association is
concerned though that highly successful programs meeting veterans’ employment and training
needs could erode or be eliminated under some of the proposed legislation. These various

Aegislative proposals would have their greatest impact on disabled veterans.

H.R. 511 was introduced on January 13, 1995, and included among its features is a repeal
of the Department of Veterans Affairs (DVA) Vocational Rehabilitation Program (Chapter
31 Title 38 USC) and the Survivors’ and Dependents’ Educational Assistance Program
(Chapter 35, Title 38 USC). Additionally, the Montgomery GI Bill (Chapter 30, Title 38

USC) for veterans and reserve component members would be repealed by H.R. 511.

‘As you are aware Mr. Chairman, Chapter 31 Is available for serviced-connected disabled
veterans and is designed to make them competitive and restore employability. The actual
goal of the entire training effort is employment. Chapter 35 Is avallable to dependents of
totally disabled service-connected veterans o those who die while on active duty or whose
death was related to service in the military. Frequently, these dependents are spouses with
young family members. In place of these programs, pending legislation would establish block
grants to the states. Without specific parameters clearly contained in any legislation that
might be enacted, NCOA is fearful that block grants will result in different levels of benefits

and perhaps even different levels of eligibility among the states.

In addition to the above, H.R. 511 would abolish entirely the Veterans Employment and
Training Service (VETS) in the Department of Labor (DOL). Another bill, H.R. 1120,
proposed to retain VETS but would terminate the Disabled Veterans’ Outreach Program

(DVOP) and Local Veterans’ Employment Representatives (LVER).

VETS is headed by an Assistant Secretary for VETS and is responsible for the following
Programs that pertain to veterans employment and training: Disabled Veterans’ Outreach
Program (DVOP) and Local Veterans’ Employment Representatives (LVER) administered by
VETS through State Employment Security Agencies; Transition Assistance Program (TAP);


114

International Association of Personnel in
Employment Security

May 26, 1995

‘The Honorable € Clay Shaw, Jr
Chairman, Subcommittee on Human Resources
‘Committee on Ways and Means

United States House of Representatives

1102 Longworth House Office Building
Washington, DC, 20515,

RE: Hearing on Federal Unemployment Compensation System
‘and Consolidation of Job Training Programs
May 16, 1995

Dear Chairman Shaw,

The international Association of Personnel in Employment Security (IAPES) appreciates the
‘opportunity to provide this statement for the hearing record on the above referenced matter. IAPES
represents almost 20,000 professionals in the federal-state Employment Security System of
Unemployment Compensation (Insurance), Employment (Job) Service and Labor Market information.
The Frankfor-based non-profit educational association also has members who are employed in
various job training programs, especially in those states where innovations and customer-service
improvements have led to the creation of comprehensive workforce development system under the
2egis of the State Employment Security Agency (SESA). Many of the association’s associate members.
‘come from the private sector. They are personnel officials who make hiring and firing decisions and
‘work on a daily basis with Employment Security staff. IAPES serves as a source of educational and
professional development material, as a clearinghouse of information, and as a legislative resource
for the association's grassroots network. IAPES represents the largest collective voice of the front-line
employee in the federal-state Employment Security System. It asks for the Committee's consideration
of the following points.

‘© Employment Security programs have a proven record of service,

IAPES welcomes a serious and comprehensive review of Employment Security programs. The
‘association recognizes that the Employment Service is more than 60 years old and that the
Unemployment Compensation program now is celebrating its 60th year. Both programs were
created at a time far different economically than today; yet, Unrough flexibility, innovation and
‘customer-service efforts the programs have remained a vital part of America’s economic fabric.
Not only have millions of Americans benefited from direct assistance from Employment Security
programs, but also many millions more have benefited indirectly. Many local economies have
been kept afloat by the influx of Unemployment Compensation benefit dollars during hard
economic times. These high-turnover dollars stabilize communities by allowing recipients to buy
groceries, pay rent and fill gasoline tanks, These dollars are quickly pumped into local economies
supporting a myriad of private-sector institutions.

In Program Year 1994, more than 10}-million citizens received almost $30 billion in benefits. The
professionals who administer the program —IAPES members — ensure that recipients are eligible
through a recent attachment to the workforce that ended through no fault of their own.
Unemployment Compensation is not welfare. It is for those citizens whe know how to hold jobs
‘and who pay taxes but need a bridge between jobs, Adding integrity to the system is the
Employment Service, which in the same year made more than 34-million placements and
provided some job-seeking assistance to more than 12 million persons. The latter figure is an
increase of more than $00,000 over the previous year, demonstrating the innovations and
customer-service improvements SESAs have pursued and hands-on professionals have
implemented. In Program Year 1993, an IAPES study showed that the per-placement cost was just
‘over $200. That is a productivity measure that far exceeds other employment and training
programs. Other studies have shown that an intensive work-search requirement speeds
‘beneficiaries’ return to work, which saves millions of employer-paid trust fund dollars and helps
keep tax rates lower



116

‘© IAPES believes in a broad-based system serving employers, the unemployed, job seekers and
communities; easily accessible, comprehensive services; accountability, with specific
performance measures; flexibility in design and operation; and a system driven by state and
local needs with customer input.

IAPES believes that the Employment Security System represents the centerpiece of the nation’s
future workforce development program. Its universal access can assure a “no wrong door”
approach, It already has a collaborative relationship with the private sector and a growing
linkage with other workorce development programs, I has proven record of productivity,
ibility, innovation and customer-service responsiveness needed to meet today’s economic
alleges

IAPES again expresses its appreciation for this opportunity to comment. The association offers its
assistance in any way to help improve a program that is staffed by dedicated, professional public
servants who are working to ensure the economic security of the nation,

me

Bill Patton, President
International Association of Personnel
in Employment Security

1801 Louisville Road

Frankfort, KY, 40601

502/223-4459


4

Chairman SHAw. The other members will be on the way in. I am
going to go ahead and call the hearing to order and read my open-
ing statement.

‘Roda , the Subcommittee on Human Resources will examine our
Nation’s unemployment insurance system. Part of the purpose of
this hearing is to consider the employment policy proposals in the
House budget resolution that are within the subcommittee’s juris-

liction.

The Budget Committee recently suggested ending extended un-
employment benefits, withdrawing unemployment compensation for
individuals who voluntarily leave the Armed Forces, eliminating
trade adjustment assistance, and block granting dozens of employ-
ment and training programs. Each proposal is designed to get
Americans back to work sooner, save taxpayers’ funds, and improve
the program’s efficiency.

While the policy proposals in the budget resolution are illus-
trative only, let me state one thing clearly at the outset. This sub-
committee will study all the areas of Federal spending under our
jurisdiction for possible savings. If a program does not make sense,
is no longer needed, or is simply wasteful, we will move to save the
taxpayers’ money by cutting that program back or ending it alto-
gether.

For too long, Congress’ bias has been on the side of spending too
much of the taxpayers’ money and calling it compassionate. Those
days are over.

Our witnesses also will help us assess employment issues under
the subcommittee’s jurisdiction not listed in the budget, such as the
0.2 percent FUTA surtax. This surtax is sometimes referred to as
“temporary,” but I cannot help but noting that if it were alive, it
would now be old enough to vote.

We also will hear about the now expired exemption from collect-
ing the FUTA tax on behalf of foreign agricultural workers which
Congressman Mike Crapo from Idaho will discuss.

I am especially pleased to have with us today Buck McKeon,
chairman of the Economic and Educational Opportunities Sub-
committee that is drafting legislation merging dozens of current
programs into several employment and training block grants. Mem-
bers of this subcommittee worked closely with the members of the
Economic and Educational Opportunities Committee in developing
several of the block grants in H.R. 4, the House-passed welfare re-
form bill. It is gratifying to see that cooperation, and it will con-

Anue.

Our final panel will examine specific employment and training
programs under our subcommittee’s jurisdiction. The Trade Adjust-
ment Assistance Program, the NABTA Trade Adjustment Assist-
ance Program, and the U.S. Employment Service.

If anybody on the minority side has an opening statement, I
would recognize you at this time.

Mr. LEVIN. Mr. Chairman.

Chairman SHaw. Yes, sir.

Mr. LEVIN. Mr. Ford may have a statement for the record when
he comes. I just want to say that while our jurisdiction in this area
is somewhat circumscribed, I do feel that our subcommittee and the
full committee have a major obligation to try to be sure that the


93

training funds, and helping workers to make informed choices about careers and jobs
must be brought to bear in restructuring and delivering future training services.
Unions have a keen understanding of the learning needs of workers. Through our
apprenticeship programs we have determined the best methods for combining
classroom and on the job learning so that workers’ skills are at world class levels.

Full and continuing labor participation, involvement, and input are absolutely
essential in all training-related areas. In addition such participation is vital because it
convinces workers that they have a stake in the process and the results.

We recommend that establishment of tripartite governance structures at the
federal, state and local level where labor, business and community leaders can help
guide the new training system.

These governing structures must have a role in determining specific eligibility
requirements, selecting and certifying training providers and contributing to the
development of up-to-date and accurate job growth information. Labor involvement
in these structures can help to make sure that public funds do not substitute for those
that should come from the private sector and can assure that abuses of the public
trust do not occur. .

Trade unions have important responsibilities for supporting, protecting, and
promoting training and education programs for workers, But employers and local,
state, and federal governments also must give more adequate support to job-related
education and training. Private and public sector cooperation in these areas is
desirable and necessary. Labor organizations should have an equal voice with
employers in such cooperation.

Goals of Restructuring

We believe a restructured system should achieve the following goals: (1) it
should be effective; (2) it should be accountable; and (3) it should be comprehensive.

An effective restructured system will be responsive to local, state, regional, and
national labor markets, both the needs of employers on the demand side and the
needs of workers on the supply side. These needs will vary depending on the labor
market.

But one key element is availability of income support for people in training. For
most unemployed workers with family responsibilities, mortgages, and other bills,
ipating in classroom training is impossible unless they get income support.

Accountability

A restructured training system must be accountable to the taxpayer. Public
sector agencies have a unique and exclusive role to play to achieve this goal: they
should play the role of the "honest broker,” providing objective, good quality
information, vocational assessment and referral, job counseling, job search assistance,
and job development.

A revitalized and accountable Employment Service should be the centerpiece
of efforts to upgrade assistance to unemployed workers. Since it does not itself
operate training programs, the Employment Service can make objective assessments
about the quality of local education and training providers and the appropriateness of
referrals.

As noted earlier, the continued effective functioning of the nation’s
unemployment insurance system depends on a reliable and fully functioning labor
exchange program operated by the Employment Service.


38

Mr. UHALDE. If we can make sure that the workers that we have
made this social contract with—trade impacted workers—and we
have asked them to sign on to free trade either in GATT or NAFTA
or elsewhere, if we can guarantee those levels of benefits and serv-
ices, which is what we tried to do last year, then we could go for-
ward. But if we cannot, we can keep that program separate.

Mr. McCrery. OK. Thank you, Mr. Chairman.

Chairman SHAW. Mr. Ford.

Mr. Forp. Thank you, Mr. Chairman.

Mr. Secretary, you know, the Republicans have proposed once
again another block grant for training and employment. I would
like to know, knowing that I guess there are some good arguments
for consolidating some of the programs that we have in the dif-
ferent agencies of the Federal Government today, the proposal by
the administration in your one-stop career center, how does that
differ from just the block grant proposal on employment and train-
ing in the bill that the Republicans have fashioned before the Con-
gress?

Mr. UHALDE. Well, as the bill in the Economic and Educational
Opportunities Committee currently stands, they too would imple-
ment one-stop career centers and try to build essentially a unified
training and employment services delivery system, and they would
consolidate programs into four block grants.

Our proposal was quite similar in that, except that we would
have retained a strategy to do it on what we would call a leading
edge basis—that is, we would retain some one-stop seed money to
encourage States to build these systems as they brought together
the various programs and delivery systems that currently exist.
But at the end, I believe that the delivery systems would be very
similar in that regard. That is, we would be integrating employ-
ment services at the local level and job training services and other
programs into a seamless, coherent delivery system.

Mr. Forb. Do they consolidate more the employment and train-
ing programs than the administration is proposing in your one-stop
career center?

Mr. UHALDE. The administration proposed about 70 programs. I
think the Chairman was talking about 150. But a lot of those pro-
grams are programs that are zero funded. In terms of the main
programs that we are talking about, the 12 or so, these proposals
are very similar in content. They have a separate block grant for
vocational rehabilitation. The administration didn’t propose a block
grant on vocational rehabilitation.

Mr. Forp. What about the administration’s bill? Does your bill
undermine in any way our national commitment in helping the un-
employed workers through their transitional period? And as you
answer that, would you make that same comparison with the Re-
publican bill that is before us?

Mr. UHALDE. Well, I think in terms of program design, they are
quite similar. Under the administration’s proposal, the President
chose to increase investment by $1 billion in that employment and
training system to protect the interests of unemployed Americans.
We currently are not able to provide assistance to even a majority
of those who need assistance.


125

STATEMENT OF
SERGEANT MAJOR MICHAEL F. OUELLETTE, USA, (RET),
DIRECTOR OF LEGISLATIVE AFFAIRS AND
LARRY D. RHEA, DEPUTY DIRECTOR OF LEGISLATIVE AFFAIRS
NON COMMISSIONED OFFICERS ASSOCIATION OF THE
UNITED STATES OF AMERICA

Mr. Chairman. The Non Commissioned Officers Association of the USA (NCOA)
appreciates the opportunity to present testimony to the subcommittee conceming a number
of Unemployment Compensation issues the Association considers important. NCOA is a
federally-chartered organization with a membership in excess of 160,000 noncommissioned
and petty officers serving in every component of the five Armed Forces of the United States;
active, national guard, reserve, retired and veteran. The issue of Unemployment
‘Compensation for Ex-Servicemembers (LICX) has been and continues to be a key item on
NCOAs legislative agenda. This statement primarily concems the importance of retaining
the UCX benefit for those military members who choose to leave military service prior to
‘completing a 20-year career. The Association also wants to Include support for two other
unemployment compensation matters considered vital quality-ofife issues by military
members and their families. One of these issues concems unemployment compensation for
members of the Guard and Reserve who lose their primary civilian jobs. The other concems
the possible payment of unemployment compensation to military spouses who must
voluntarily terminate civilian employment due to the reassignment and relocation of the
military member.

ISSUE #1
UNEMPLOYMENT COMPENSATION FOR.
EX-SERVI

Mr, Chairman: In 1980 Congress terminated Unemployment Compensation benefits for
servicemembers who were eligible to reenlist but chose not to do so. At the same time,
Congress continued to pay unemployment benefits to the miscreants, malcontents and others

unsuited to military service who were denied reenlistment or discharged early.

It took only a few short years for Congress to realize that this policy imposed an inequitable

and undue hardship on those who had honorably served in the Atmed Forces.

‘Congress restored UCX benefits in the mid-eighties but imposed a five week waiting period


100

STATEMENT SUBMITTED TO
U.S. HOUSE OF REPRESENTATIVES
WAYS AND MEANS SUBCOMMITTEE ON HUMAN RESOURCES

by
ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION
May 16, 1995

‘The Advisory Council on Unemployment Compensation (ACUC) was created by an Act of Congress in
November of 1991 to provide advice on improving the nation’s tinemployment compensation system, The
Congressional mandate to the Council was a broad one, it "to evaluate the unemployment
compensation program, including the purpose, goals, countercyclical effectiveness, coverage, benefit
adequacy, trust fund solvency, funding of State administrative costs, administrative efficiency, and other
aspects of the program and to make recommendations for improvement." In addition, Congress
specifically requested that the Council consider the treatment of alien agricultural workers within the
Unemployment Insurance system.

This statement contains the findings and recommendations from the ACUC’s 1994 and 1995 reports
Recommendation #1994-7 addresses the treatment of alien agricultural workers. While the Council has
not yet agreed upon a recommendation regarding the FUTA tax rate, an initial set of findings on this issue
follows recommendation #1995-6,

1994 FINDINGS AND RECOMMENDATIONS

PURPOSE OF THE EXTENDED BENEFITS PROGRAM
‘The Council finds that the nature of unemployment has changed since the inception of the Unemployment
Insurance system. The length of time that individuals are unemployed, which increases sharply during
recessions, ias also increased slowly but steadily during non-recessionary times. Workers who have been
laid off from their jobs are now less likely to return to their previous jobs than has historically been the
case, This indicates an increase in the level of long-term unemployment in the economy.

‘The Unemployment Insurance system was designed primarily as a means of alleviating the hardship
‘caused by short-term unemployment. The system was never intended to combat long-term unemployment.
‘The purpose of the Unemployment Insurance system, and in particular the Extended Benefits program,
‘must be expanded if the system is to deal effectively with the changing nature of unemployment. In doing
50, however, careful consideration must be given to the funding of the system, in order to ensure that
expenditures for combatting long-term unemployment do not drain the Unemployment Insurance trust fund
reserves. It must also be recognized that while Unemployment Insurance reform is a necessary component
of developing effective strategies for dealing with long-term unemployment, other reforms ~- especially
among programs for dislocated workers -- will be needed

1994-1. Recommendation
The scope of the Extended Benefits program should be expanded to enhance the capacity of
the Unemployment Insurance system to provide assistance for long-term unemployed workers
as well as short-term unemployed workers. Those individuals who are long-term unemployed
should be eligible for extended Unemployment Insurance benefits, provided they are
participating in job search activities or in education and training activities, where available and
suitable, that enhance their re-employment prospects. To maintain the integrity of the
Unemployment Insurance income support system, a separate funding source should be used
to finance job search and education and training activities for long-term unemployed workers.*

THE TRIGGER FOR EXTENDED BENEFITS
‘The Council finds that receipt of Unemployment Insurance benefits by the unemployed has slowly but
steadily declined since at least 1947 -—- the first year for which data on the system are available. In
addition to the long-term downward trend in receipt of benefits, there was a pronounced decline in the
‘arly 1980s, just as the economy entered a recession.

‘The reasons behind the decline in the Unemployment Insurance system are many. The long-term
decline appears to have been caused by the changing demographics of the labor force, the changing
industrial and geographic composition of employment, and @ decline in the solvency of states
Unemployment Insurance trust funds. ‘The sharp dectine in receipt of benefits in the early 1980s appears
to be attributable primarily to changes in federal policies which encouraged the states to increase the

= One member of the Council emphasizes that an increase in employers’ paytoll taxes should not be used as the
funding source. Another member emphasizes that such a recommendation must be considered in the context of
‘reform of dislocated workers programs.


41

downsized in defense, insurance, and now with new changes in the
budget will be downsizing in health care.

Could you tell me two things? One, how many States in the last
year used extended unemployment benefits? And, also, could you
just tell me what information you have about the solvency of the
benefit trust funds?

Ms. Wyrscu. Currently, there are three States on the Extended
Benefits Program: Rhode Island, Alaska, and Puerto Rico. Within
the last year, those same States triggered on, so we only have three
States on at present.

And your question was about the solvency of State funds or sol-
vency of—

Mrs. KENNELLY. The Extended Unemployment Trust Fund.

Ms. Wyrscu. The extended unemployment account from which
the extended benefits are paid is below its ceiling now. It is the ad-
ministration’s position that the 0.2 percent surtax, as it is called,
should be continued in order to have that account reach its ade-
quacy level. There is a ceiling on that account in this year of $12.4
billion. And the current balance in the account at the end of this
year is estimated to be $2.2 billion.

Mrs. KENNELLY. Well, is the administration concerned about the
future solvency of the fund if the 0.2 percent FUTA tax is repealed?

Ms. WyrSCH. The account builds up over the next several years
to a level in 1998 of $11 billion, and it would be close to its ceiling
of $14.5 billion in 1998. And it is the administration’s testimony—
Mr. Uhalde just gave it—that we should continue the tax as it is
now legislated until its expiration in 1998 for those solvency rea-
sons.

Mrs. KENNELLY. Because we would have a good, healthy trust
fund for people for unemployment collections to be made, even from
the extended account.

Ms. Wyrscu. It is our position that we do need to build up those
accounts to have the available resources when we need them and
that we are not now close to the adequacy levels in the extended
account and that we should continue for solvency reasons to have
the 0.2 percent surtax in place until 1999.

Mrs. KENNELLY. Well, I am glad to hear that because I do begin
to hear that possibly there will be a slowdown in the economy. If
you put this on top of some of the structural changes that have
taken place, I think to have a trust fund that is solvent is very im-
portant. And I thank you for that.

Thank you, Mr. Chairman.

Chairman SHAW. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman.

I wanted to ask you about TAA. It seems to me that last year
the administration proposed ending this program. Am I correct?
And have they changed their position on this?

Mr. UHALDE. Yes, as I mentioned earlier, the administration did
propose folding in the Trade Adjustment Assistance Program into
a more comprehensive proposal. But the reason we felt we were
able to do that is the more comprehensive proposal would have had
benefits and training comparable to what TAA currently has.
Under current block grant proposals, we could not guarantee that