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25–399 2017

S. HRG. 115–46 

THE DECLINE OF ECONOMIC OPPORTUNITY 

IN THE UNITED STATES: CAUSES 

AND CONSEQUENCES 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

APRIL 5, 2017 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

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

HOUSE OF REPRESENTATIVES 

PATRICK J. TIBERI, Ohio, Chairman 

ERIK PAULSEN, Minnesota 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

WHITNEY K. DAFFNER, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Patrick J. Tiberi, Chairman, a U.S. Representative from Ohio .................. 1 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 3 

WITNESSES

Statement of Timothy Kane, Ph.D., J.P. Conte Fellow in Immigration Studies, 

The Hoover Institution, Washington, DC, on Behalf of Hon. Edward Lazear, 

Professor of Economics, Graduate School of Business, Stanford University, 

Morris Arnold and Nona Jean Cox Senior Fellow, The Hoover Institution, 

Former Chairman of the President’s Council of Economic Advisers, Stanford, CA ................................................................................................................. 5 

Statement of John Lettieri, Co-Founder and Senior Director for Policy and 

Strategy, Economic Innovation Group, Washington, DC .................................. 7 

Statement of Jared Bernstein, Ph.D., Senior Fellow, Center on Budget and 

Policy Priorities, Washington, DC ...................................................................... 10 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Patrick J. Tiberi, Chairman, a U.S. Representative from Ohio ....................................................................................................... 46 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 47 

Prepared statement of Hon. Edward Lazear ......................................................... 49 

Prepared statement of John Lettieri ...................................................................... 68 

Prepared statement of Jared Bernstein ................................................................. 81 

Response from Dr. Kane to Questions for the Record Submitted by Senator 

Amy Klobuchar ..................................................................................................... 96 

Response from Dr. Jared Bernstein to Questions for the Record Submitted 

by Senator Amy Klobuchar ................................................................................. 97 

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THE DECLINE OF ECONOMIC OPPORTUNITY 

IN THE UNITED STATES: CAUSES 

AND CONSEQUENCES 

WEDNESDAY, APRIL 5, 2017 

UNITED STATES CONGRESS, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 10:02 a.m., in Room 

1100, Longworth House Office Building, Honorable Pat Tiberi, 

Chairman, presiding. 

Representatives present: Tiberi, Paulsen, Schweikert, Comstock, LaHood, Rooney, Maloney, Delaney, Adams, and Beyer. 

Senators present: Lee, Heinrich, Klobuchar, and Peters. 

Staff present: Breann Almos, Theodore Boll, Doug Branch, Kim 

Corbin, Whitney Daffner, Connie Foster, Martha Gimbel, Colleen 

Healy, Adam Hersh, Karin Hope, Matt Kaido, Brooks Keefer, 

Christina King, John Kohler, Paul Lapointe, AJ McKeown, Thomas 

Nicholas, Victoria Park, Alexander Podczerwinski, Russell Rhine, 

and Alex Schibuola. 

OPENING STATEMENT OF HON. PATRICK J. TIBERI, 

CHAIRMAN, A U.S. REPRESENTATIVE FROM OHIO 

Representative Tiberi. Good morning, everybody. Welcome to 

our first Joint Economic Committee hearing of the year. 

I want to especially welcome our ranking member, Senator Heinrich, and our vice chairman, Senator Lee, who is apparently on his 

way to a markup, as well as other members of this committee. And 

we are joined by a new member, Mr. Rooney from Florida, as well. 

I look forward to working with all of them to dive into some important issues facing our economy. 

The U.S. economy did not surge back from the last recession, as 

it had every other recession since World War II, and we are paying 

a price for it. The drawn-out recovery and the meager growth rate 

we have settled into are exacerbating the country’s many challenges. 

The purpose of today’s hearing is to gain insight into why the recovery, besides being slow, is also so uneven. Many parts of the 

country face problems more severe than national average economic 

growth and unemployment rates convey. Some areas effectively are 

still in a recession. 

In my home State of Ohio, we have made strides in encouraging 

businesses to come to our State, and our unemployment rate has 

dropped at a steady pace over the past few years. However, that 

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hasn’t been true for every part of our State. We can do better, especially for the communities where folks feel they have been left behind. In Ohio, that is in counties in Appalachia and in areas of 

urban centers of Ohio, where the dynamics of the rural and urban 

poor couldn’t be more different. 

Allow me to submit to you four perspectives. 

First, accelerated national growth would lift many struggling regions. The familiar image of a tide lifting all boats is appropriate. 

Second, innovation is integral to economic development, especially in an advanced economy. Innovation arises from entrepreneurship, which has been the hallmark of U.S. economic success. 

When entrepreneurial activity wanes, as it has recently, economic 

growth also slows. 

Third, a large, complex economy, such as the U.S.’s economy, will 

always have parts that expand and parts that contract, largely related to different rates of technological change. However, government intervention, such as with respect to taxes, wage and employment benefit mandates, zoning, and licensing, can make this worse 

by restricting market entry, impairing new business formation, and 

limiting job creation. 

Fourth, education and skill development are the key to a productive, adaptable labor force. I was struck by observations that Federal Reserve Chair Janet Yellen made in a speech last week in 

which she stressed the importance of entrepreneurship, the importance of vocational education and apprenticeships, and engaging 

employers in the training process, among other things. 

Everyone is aware of the demographic change the country is undergoing right now. The baby boom generation is reaching retirement age, and that is affecting many aspects of our economy. One 

such effect is slowing entrepreneurial activity, as part of today’s 

testimony will explain. 

The challenge of an aging population makes it all the more important that the economy work efficiently and that government actions at both the State, local, and Federal levels not be prohibitive. 

Unfortunately, this is not always the case. For example, laws and 

regulations for many years have been accumulating at a faster rate 

than the economy has grown. As a result, business expansion is 

discouraged and new projects are deferred or abandoned. U.S. 

worldwide ranking in the ease of starting a business has slipped 

from 45th out of 190 countries in 2016 to 51st today, according to 

the World Bank. 

Members from both sides of the political aisle have frequently 

criticized the inefficiencies of the regulatory buildup, yet it continues. The effects are real, and they are holding the economy back. 

One of the key areas of weakness in this recovery has been private business investment, which is sensitive to tax and regulatory 

regimes. The economy requires faster rates of private investment 

than the existing regimes have permitted. Regulatory and tax reform will create more jobs and opportunity. 

A central aspect to the economy’s functioning can be characterized as ‘‘dynamism,’’ the rate at which the population starts new 

businesses, moves to another region, changes jobs or occupations. 

It refers to people’s innovativeness, entrepreneurship, and motivation. Less dynamism means less of this is happening. 

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Many of our communities are hurting, and I believe that increased private investment, restoring economic dynamism, and the 

resulting accelerated economic growth can help them recover 

quicker. 

We have an excellent panel of witnesses today, and I look forward to the insightful testimony they are going to provide on these 

challenges facing local and regional economies in the country. 

In closing, let me observe that there are few periods in the country’s history when America did not face serious challenges. We face 

many new challenges today, but I have full faith in the resourcefulness of the American people and the functioning of our market 

economy to overcome them, and, as in the past, I believe we will 

succeed. 

It is now a great pleasure to introduce for an opening statement 

our new Ranking Member, Senator Heinrich. 

[The prepared statement of Chairman Tiberi appears in the Submissions for the Record on page 46.] 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Thank you, Chairman Tiberi. 

And to all our witnesses, thank you for joining us today for our 

first hearing of this Congress. 

The United States has long been the global leader in opportunity 

and innovation. When I was growing up, both of my parents 

worked incredibly hard. Neither had a college degree. It wasn’t 

easy, but I was able to get a college degree. And I am sitting here 

today with all of you because of the sacrifices that they made and 

because of the opportunities that this Nation afforded to them. 

What seemed like a very attainable dream 30 or 40 or 50 years 

ago too often seems unattainable today. Across New Mexico and 

the Nation, working people feel that they can’t get ahead, and, too 

often, parents don’t believe that the future is as bright for their 

children as it was for them. 

When we ask ourselves, what are the barriers to opportunities 

for me and my neighbors, many of my colleagues focus on the role 

of regulation and the Tax Code. That conversation is important, 

but I would caution us all to not conflate what is good for CEOs 

or what is good for investors with what is necessarily good for a 

working family living in rural New Mexico. It is a mistake to think 

that deregulation or tax reform alone will revive rural communities 

or create good-paying jobs in small towns or cities across America. 

What our business leaders lack is certainty. Expiring tax credits 

are not good for planning. The constant threat of taking health 

care away from families does not instill certainty. Repealing rules 

that keep our air and our water clean don’t give businesses the certainty and the quality of life that they need to create the good jobs 

of the future. Policies that are good for business and promote pragmatic public health goals, like the methane rule that Congress is 

trying to do away with, should be protected, not targeted. 

We are about 80 days into this Administration, and what we 

have seen is a budget that would devastate rural America and 

make it harder for seniors and children to get the core services that 

keep them healthy and give them opportunities. 

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Too many people here in Washington think that if the stock market is on the rise, the economy is doing just fine. That is not the 

reality for most of America’s working families, and it is certainly 

not the reality for many of my constituents. The way we should 

measure the success of the economy is if wages are going up, if parents can afford to send their kids to college, if entrepreneurs can 

start new businesses and workers are able to retire with some 

measure of peace of mind. 

I believe that we have to get back to basics. Congress must take 

concrete action that focuses our limited resources on investing in 

hardworking families, the men and women in this Nation who are 

fighting to give their kids a better future, rather than on tax cuts 

for the wealthiest. 

Comprehensive education and workforce training must be a top 

priority in the face of the global nature of the economy we see 

today. We need tax and labor policies that reward hard work. We 

ought to prioritize tax programs for families that are proven to reduce poverty and incentivize work, things like the Earned Income 

Tax Credit and the Child Tax Credit. 

Public-private partnerships alone cannot create the modern infrastructure that works for all communities, especially those in 

rural areas. Congress must be making a substantial investment in 

roads, in water projects, and high-speed broadband that connect 

people and communities to financial and educational opportunity. 

The renewable energy sector is just one example of a place where 

jobs are growing rapidly and not just in metro areas but also in 

rural communities. Congress’ work to encourage this market 

through tax credits has helped get that industry off the ground. 

The success of the future of our economy will be tied to whether 

Congress today takes the bold steps necessary to connect people 

with the opportunities that will exist tomorrow. 

A great deal of work remains to be done to ensure that all Americans get a shot at getting ahead. I look forward to starting this 

conversation with you all today, and I especially look forward to 

hearing from our witnesses. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 47.] 

Representative Tiberi. Thank you, Senator. 

Let’s go on to the witnesses. 

Our first witness, from right to left, I would like to introduce Dr. 

Tim Kane, an economist and research fellow at the Hoover Institution at Stanford University. In addition to his senior research roles 

at the Kauffman Foundation and the Heritage Foundation, Dr. 

Kane has served twice as a senior economist here at the Joint Economic Committee. 

He has published a number of books on a variety of topics and 

has provided commentary for many national news outlets. Dr. 

Kane cofounded multiple software firms, and his startup 

enonymous.com was awarded Software Startup of the Year in 1999. 

Dr. Kane earned a Ph.D. in economics from U.C.-San Diego. He is 

also a graduate of the United States Air Force Academy. 

Dr. Kane will be presenting the testimony of his colleague Dr. Ed 

Lazear, who is unable to be with us today. 

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And what is not in your resume, which I should have started out 

with, Dr. Kane is a native of Columbus, Ohio, a graduate of 

Westland High School. 

Me, as a graduate of Northland High School and a native of Columbus, Ohio: Go Bucks. 

STATEMENT OF TIMOTHY KANE, Ph.D., J.P. CONTE FELLOW IN 

IMMIGRATION STUDIES, THE HOOVER INSTITUTION, WASHINGTON, DC, ON BEHALF OF HON. EDWARD LAZEAR, PROFESSOR OF ECONOMICS, GRADUATE SCHOOL OF BUSINESS, 

STANFORD UNIVERSITY, MORRIS ARNOLD AND NONA JEAN 

COX SENIOR FELLOW, THE HOOVER INSTITUTION, FORMER 

CHAIRMAN OF THE PRESIDENT’S COUNCIL OF ECONOMIC 

ADVISERS, STANFORD, CA 

Dr. Kane. Yes, sir. 

Well, Chairman Tiberi, Ranking Member—— 

Senator Heinrich. Hit your mike, if you would. 

Dr. Kane. Got it. 

So, Chairman Tiberi, Ranking Member Heinrich, Vice Chairman 

Lee, and members of the committee, thank you for giving me this 

opportunity to address you once again. 

And I come to you today as an Air Force veteran with some humility. This is my first time to wear glasses in public. That is hard 

for an Air Force man to admit. 

So I would like to make four points. 

First, there is regional variation in economic success. There always has been variation in economic experience among states. The 

last recession and recovery were not exceptions. Typically, those 

areas that were hit hardest during the recession have the most robust recoveries. 

Second, although states differ in their experiences and outcomes, 

some adverse factors are common. Most important is an aging population, which affects both employment and business formation. 

Third, states vary in their performance partly because they opt 

for different tax and labor market policies. State-based policy 

changes can be helpful to growth, but it is important to encourage 

genuine growth rather than mere transfers of prosperity from one 

region to another. 

Fourth, the most important remedy for local ills is a growing national economy. A rising tide may not lift all boats equally, but 

draining the ocean will not help those with the least forward momentum. 

So my focus is primarily on the period since 2000. Special attention is given to the 2007 and 2009 recession and recovery since it 

is the most relevant to the situation that exists today. 

So, first, State experiences differ before, during, and after recession, any recession, in part because education, average ages, and 

the proportion of new immigrants vary across states. Perhaps most 

importantly, the industrial composition varies. Corn, for example, 

is important in Nebraska, not so much in New Mexico. 

Because states have differing industrial makeups and because industries rise and fall somewhat idiosyncratically, it would not be 

surprising to see states’ economic conditions be out of sync with one 

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ments than is Tennessee. The dot-com crash, for example, in the 

early 2000s affected Silicon Valley pretty severely but other parts 

of the country to a lesser extent. 

And the housing bust in 2000 was felt strongly in a number of 

areas, including central California, Florida, Arizona, and Nevada, 

whereas states like North Dakota barely experienced increased unemployment, with the peak rate never climbing more than 1 percentage point higher than the rate that prevailed in 2006. By contrast, Nevada’s labor market was massacred during the recession, 

with the unemployment rate rising almost 10 percentage points. 

California wasn’t far behind. 

Although these specific cases are vivid and suggest important 

State differences, a more systematic approach is useful to put 

things in the proper perspective for policy analysis. 

So, considering unemployment—oh, pardon me. I am going to 

ramble beyond my time unless I am not careful, so forgive me for 

just a second. Here we go. 

Okay. So it is important to point out that the State rebounds are 

different. Let’s look at Michigan. Michigan’s unemployment peaked 

at 13.9 percent in 2009, but by 2016 it had fallen almost 9 percentage points, down to 5.1 percent. Michigan is a very interesting case 

study. The rebound phenomenon is pervasive and a positive aspect 

of our economy. 

So it is well known that the workforce is aging, primarily because the large cohort of baby boomers is entering its senior years. 

The employment-to-population ratio, which is defined as the ratio 

of those 16 and older with jobs relative to the overall population 

16 and older, now at 60 percent, was at 63.4 percent before the recession began, despite unemployment rates that are down at 4.7 

percent. 

About half of the difference between the current rate and the 

prior peak is a result of an aging population, but the other half 

isn’t explained by the fact that we have an older workforce. It is 

more problematic. It reflects lower employment rates, particularly 

among less educated young men. 

So another, subtler effect of aging is the slowing of entrepreneurial activities. This is a little tricky. But recent research on 82 

countries from 2000 to 2010 shows that younger countries have 

higher rates of business formation. This has a profound implication 

for our country as it ages. One solution is an immigration policy 

that encourages young, entrepreneurial individuals to come to the 

United States. 

Now, studies on cross-State performances just within the U.S. 

demonstrate the importance of policy choices on growth and employment outcomes. Those states that adopt more flexible labor 

market and low tax policies are the ones experiencing the best 

growth in employment but also in their State GDP. 

Data from 2000 to 2015—and this is research that Dr. Lazear 

has worked on personally—revealed that states with most positive 

business climates grow fastest. On average, employment growth is 

twice as high in states that have, quote/unquote, market-oriented 

labor policy, defined as being right-to-work states and having minimum wages that are below the average across states. Similarly, 

GDP grows about one and a half times faster over this period in 

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those states with more free labor policies, let’s call them. That is 

what Abe Lincoln called them. 

Generally, positive economic policies are the best way to achieve 

growth throughout the country. It is difficult to predict which areas 

will grow and which will decline, and by the time the policies are 

implemented, the problem may have already passed. 

So one final point. Just as states differ in the benefits that they 

derive from growth, so, too, do individuals benefit differently, or 

differentially, from growth. It is well known, for example, that the 

disparity in incomes between the rich and the poor has grown over 

time as the value of education has grown. The remedy is to enhance the skills of those who are benefiting the least from our economic growth. 

A comparison between wages in the U.S. and Germany is striking. Most Germans without a college training are enrolled in strong 

vocational training programs and earn 92 percent of the average 

wage in Germany. In the U.S., high school graduates earn only 70 

percent of the average wage in the U.S. 

The most effective way to enhance opportunity for all Americans 

is to ensure that we have a vibrant, growing economy built on flexibility, with minimal impediments, with opportunity that is available to all. 

Thank you. 

[The prepared statement of Dr. Lazear appears in the Submissions for the Record on page 49.] 

Representative Tiberi. Thank you, Dr. Kane. 

Our next witness is John Lettieri, Co-founder of the Economic Innovation Group. Mr. Lettieri serves as Senior Director for Policy 

and Strategy and leads their policy development, economic research, and legislative affairs efforts. He has worked in both the 

public and private sectors with policymakers, entrepreneurs and investors, and global business leaders. 

Prior to EIG, Mr. Lettieri was the Vice President of Public Policy 

and Government Affairs for the Organization for International Investment. Additionally, he served as the foreign policy aide to 

former U.S. Senator Chuck Hagel during his time as a senior member of the United States Senate Foreign Relations Committee. 

Mr. Lettieri is a graduate of Wake Forest University, where he 

studied political science and global commerce. 

Thank you. Your testimony may begin. 

STATEMENT OF JOHN LETTIERI, CO-FOUNDER AND SENIOR 

DIRECTOR FOR POLICY AND STRATEGY, ECONOMIC INNOVATION GROUP, WASHINGTON, DC 

Mr. Lettieri. Thank you. 

Chairman Tiberi, Ranking Member Heinrich, members of the 

committee, good morning, and I appreciate the opportunity to testify today. 

While there are many ways to approach this discussion, I want 

to start by posing a question; namely, are people today suffering 

from too much change in the economy or from too little? 

This question matters, because if we believe our problem is too 

much changed, it follows that our policy agenda should be oriented 

around mitigating disruptions and hedging against risk. On the 

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other hand, if we believe the economy has grown too static, too inflexible, and too risk-averse, our policy agenda will look quite different. 

So what is the answer? Well, in this supposed age of the gig 

economy, automation, and artificial intelligence, conventional wisdom would certainly have us believe people are suffering from too 

much and too rapid change across the economic landscape. But I 

disagree. In fact, I believe our economy features far too little 

change and churn in critical areas. In short, economic dynamism 

is fading rapidly, and the cycle of creative destruction seems broken. 

Now, I realize these are provocative claims, so let’s look at the 

facts. 

First, what exactly is dynamism? Dynamism can be understood, 

in essence, as the rate and scale of churn in the economy. 

Historically, the high-churn nature of the U.S. economy has 

spurred innovation and acted as a kind of shock absorber in times 

of economic trauma. But the post-Great Recession economy bears 

little resemblance to its dynamic past. So let’s start by looking at 

the startup rate, the job turnover rate, and domestic migration. 

First, we see the startup rate has collapsed. At the core of the 

broader decline in economic dynamism is a steep drop in new firm 

formation. And this holds across all industries and all regions of 

the country. 

The startup rate fell rapidly during the Great Recession to its 

lowest point on record. But even as the broader economy rebounded, the startup rate has barely budged and remains mired at 

8 percent, which is roughly half of what it was in the late 1970s. 

This is a deeply troubling development because new firms are 

the creative part of creative destruction. They help keep the economy in a constant state of rebirth by replacing dying industries, 

fostering competition, and producing new and higher-wage jobs. 

When they disappear, the cycle of creative destruction is thrown 

out of balance. 

Next, we see that job turnover has plummeted. Job turnover is 

an important sign of labor market flexibility. High turnover was 

once a key feature of the U.S. economy but has declined substantially since the early 2000s. In 2015, only 1 out of every 14 positions in the economy turned over. And this hurts disadvantaged 

workers the most. They are the ones most acutely impacted by low 

turnover rates because without churn in the labor market it is simply more difficult to find an unoccupied rung on the career ladder. 

For the broader economy, there is evidence, thanks to Ed Lazear, 

that slower rates of churn reduce GDP growth in the early stages 

of the economic recovery. 

Third, we see that people are staying put in record numbers. 

Americans are far less geographically mobile than they once were. 

High rates of internal migration historically served as an important adjustment mechanism for the economy, mitigating downturns 

as workers moved to areas more rich in opportunity. But domestic 

migration has fallen by roughly half since the 1990s, settling into 

a historic low of only 1.5 percent. And I will add, demographic 

trends are exacerbating this dynamism problem dramatically, as 

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we are now at the slowest period of population growth since the 

Great Recession. 

The consequences of declining dynamism are profound. For workers, it means fewer labor market opportunities and fewer pathways 

to achieving the American Dream. For markets, it has corresponded with an era of declining competition and increased concentration among elite firms. And for regions, it means shrinking 

industrial bases and more profound geographic disparities. 

Nevertheless, this low-churn, startup-less recovery has been 

quite good for one constituency, and that is large incumbent businesses. Indeed, large older firms are enjoying something of a golden 

age. They have never been more dominant within their industries 

or responsible for a larger share of the U.S. workforce. And, unchecked by normal competitive pressures, they are also enjoying a 

sustained period of near-record profitability. What should be temporary rewards in a competitive economy now resemble perpetual 

awards to incumbency. 

In light of these findings, I believe the decline of economic dynamism to be the central organizing challenge of our time. Our solution should not fundamentally be aimed at making the economy 

look more like the past but, rather, at ensuring the benefits of tomorrow’s economy are more broadly shared. 

In closing, I will briefly highlight five guideposts for a future-oriented opportunity agenda. 

First, we need a radical new focus on business creation and increased competition. We simply can’t reverse the decline of dynamism without reviving American entrepreneurship. We must lower 

barriers to entry and place greater emphasis on the unique needs 

of new companies, not just the incumbents. 

Second, we must work to enhance geographic mobility and labor 

market flexibility. Central to any opportunity agenda should be 

empowering people to move to places of opportunity and to more 

efficiently develop and deploy their skills in the marketplace. 

Third, we must do more to invest in the future through renewed 

commitment to funding infrastructure and basic research. Such investments are critical to private-sector innovation and dynamism. 

Fourth, a broad pro-growth agenda is needed, but we should also 

be bold in incorporating ideas aimed at helping struggling regions 

regain their footing. 

And, fifth, we need to be far more data-driven and experimental 

in our policymaking, because, indeed, these challenges are new, 

and they place our policymaking efforts in uncharted waters. 

While the decline of dynamism poses a threat to the American 

Dream for future generations, the good news is we retain enormous 

advantages and resources as a Nation, more than enough to meet 

this challenge if we choose. 

So thank you, and I look forward to taking your questions. 

[The prepared statement of Mr. Lettieri appears in the Submissions for the Record on page 68.] 

Representative Tiberi. Thank you. 

And our last witness, Dr. Jared Bernstein, joined the Center for 

Budget and Policy Priorities in May of 2011 as a senior fellow. 

From 2009 to 2011, Dr. Bernstein was the Chief Economist and 

Economic Adviser to Vice President Joe Biden, Executive Director 

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of the White House Task Force on the Middle Class, and a member 

of President Obama’s economic team. 

Prior to joining the Obama administration, Dr. Bernstein was a 

senior economist and the director of the Living Standards program 

at the Economic Policy Institute in Washington, D.C. Between 1995 

and 1996, he held the post of Deputy Chief Economist at the U.S. 

Department of Labor. 

Dr. Bernstein holds a Ph.D. in social welfare from Columbia University. 

Welcome back, Dr. Bernstein. 

STATEMENT OF JARED BERNSTEIN, Ph.D., SENIOR FELLOW, 

CENTER ON BUDGET AND POLICY PRIORITIES, WASHINGTON, DC 

Dr. Bernstein. Well, thank you for that nice introduction. 

Chairman Tiberi, Ranking Member Heinrich, members, thank you 

for holding this hearing and giving me the opportunity to be here. 

I make five points in my testimony. 

First, though the U.S. economy continues to grow steadily at 

moderate rates and the labor market closes in on full employment, 

many barriers to economic opportunity and mobility remain in 

place. Some Americans, of course, are doing great in today’s economy, but many are not. 

Point two: The opportunity barriers faced by those left behind include high levels of income inequality and low mobility, unequal access to educational opportunities, residential segregation by income, inadequate investments in children in certain areas, and a 

markedly slower employment recovery in rural relative to metro 

areas. 

Over the current expansion, both employment and labor force 

have grown much more quickly in metro than they have in rural 

areas. The probability of attending a top-tier college is 50 times 

higher for those in the top 1 percent than for those in the bottom 

20 percent. College debt has grown much more quickly for low- relative to high-income students. Declining rates of mobility over time 

are closely associated with the rise of inequality. 

And taking down these barriers is the key to the opportunity policy agenda. 

Point three: Faster GDP growth, while obviously a critically important goal, should not be expected to solve opportunity deficits in 

America today. The reason is inequality. It is already the case that 

not enough GDP growth is reaching those who have been left behind. Why should we believe that more growth is the full answer, 

especially absent policies that more directly help connect left-behind people and places to that growth? 

One highly authoritative study I cite underscores this point. 

Quote, ‘‘Increasing GDP growth rates alone cannot restore absolute 

mobility to the rates they have been. In contrast, changing the distribution of growth across income groups to the more equal distribution would reverse more than 70 percent of the decline in mobility.’’ 

Point four: Specific policy solutions targeting opportunity barriers include running tight labor markets; investing in infrastructure; direct job creation; helping small manufacturers; supporting 

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renewable energy investments; supporting work through 

healthcare, housing, and wage policies; and apprenticeships. 

While mobility specialists often talk, with good reason, about 

moving people to opportunity, Congress must also discover ways to 

move opportunity to places that have too little of it. Historically, 

indirect measures, like tax incentives to invest in disadvantaged 

areas, have proved ineffective. More direct measures are needed, 

like direct job creation in places where employment is too scarce. 

Helping small manufacturers compete is another way to bring 

good jobs to left-behind areas. The Commerce Department’s Manufacturing Extension Partnership has a strong track record in helping such firms adopt new technology, integrate into global supply 

chains, strengthen regional partnerships, and connect with national labs researching advanced manufacturing. One recent study 

found that each dollar spent on the MEP pays for itself nine times 

over, quote, ‘‘as a result of the jobs, investment, and production it 

supports.’’ Yet the Trump administration’s budget defunds this initiative. 

My final point suggests what not to do. Avoiding policies that 

keep opportunity barriers in place is just as important as the 

proactive agenda items I have just noted. Reducing the provision 

of public health care, regressive tax cuts, budget cuts to programs 

that help low- and moderate-income families reconnect to the growing economy would all reduce opportunity. I welcome the chance to 

explore those points in our further discussion. 

Thank you. 

[The prepared statement of Dr. Bernstein appears in the Submissions for the Record on page 81.] 

Representative Tiberi. Thank you, Dr. Bernstein. 

Mr. Lettieri, in my home State of Ohio, as I mentioned, we have 

seen areas not participate, I guess, in what you would call the recovery, particularly urban and rural. 

A couple questions for you. I know you have gathered economic 

data across the country. Could you share with us some of the economic data specifically to Ohio? And can you offer, based upon the 

data that you have collected, some observations and conditions of 

Ohio’s regions and the causes and consequences of why they may 

have been left behind? 

Mr. Lettieri. Thanks for that question, Mr. Chairman. 

So the story in Ohio is a regional story as well. The unfortunate 

reality is that, aside from Columbus, in your district, in particular, 

Ohio’s economy is marked by extremely low rates of dynamism. So, 

if you look at the startup and closure rate, both are far below the 

national averages. 

And that speaks to that broader regional challenge, which is 

that, where we see economies struggling to make the transition 

from legacy industry to the knowledge economy, it is not a high closure rate of businesses that is really plaguing these local economies; it is just low rates of churn across the board—too few births 

and not too many deaths. That is basically the right way to look 

at it. 

And in Ohio, in particular, the State is underwater in its startup 

and closure rate, meaning that, over the course of the first 5 years 

of the recovery, they actually shed more businesses than it opened. 

LAP51NQ082 with DISTILLER

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And that is obviously a very troubling sign for access to opportunity because of the things I mentioned in my testimony. New 

businesses, when they are born, set off a chain reaction in the economy that create labor market churn, bring innovation into industries, and a whole host of other things downstream that are beneficial to the local economy and help raise the national economy as 

well. 

We see all of those things really moving in the wrong direction 

in certain parts of the country. Ohio is struggling with that, just 

like the rest of the Midwest generally is. 

Representative Tiberi. So I was intrigued in your testimony 

because you allude to the apparent paradox of technological leaps 

in automation, artificial intelligence, and a gig economy on one 

hand and the decline of dynamism, as you define it, on the other. 

Could you kind of further explain that? How are the advancements that you mention, which open up new types of job opportunities, occurring at the same time as declines in job switching and 

relocation? 

Mr. Lettieri. Yes. 

So we have obviously always had technological transformation in 

the economy. We have always had these great leaps that really redefine the economy overnight and open up new types of industries 

and opportunities. 

The problem today is that, while we have those types of transformations occurring, they are not, A, spreading to the benefit of 

as wide an array of people as they once did, and B, we have policies 

and trends in place that actually mute those benefits in a really 

perverse way. So it is not that there isn’t change occurring; it is 

that there is not enough coming in to replace that which is dying 

out. 

So this is what I mention in terms of creative disruption. When 

you don’t have the creative part of that equation in place, it feels 

to people like too much destruction, but it is really just the rate 

of creation has dramatically changed. 

The rate of business closure has stayed remarkably steady over 

the last 30 or 40 years. It is actually right now near an all-time 

low. And that is really surprising, given how much we hear about 

disruption of industries and technological transformation. 

I will just point out something like e-commerce. Everyone knows 

Amazon and online e-commerce, it is a huge driver of the economy 

and a lot of change. But in retail sales, it is still only 8.3 percent 

of total retail sales in the U.S. Even big, transformative changes 

take a long time to work their way through the system. 

So I think sometimes we overstate the amount of challenge due 

to change, and not enough focus on what we are missing that we 

once had. 

Representative Tiberi. Thank you. 

One final question to Dr. Kane. I hear over and over complaints 

from entrepreneurs about uncertainty—uncertainty with the regulatory environment, uncertainty with respect to the Tax Code. 

I found it intriguing that, in the testimony, your data said, from 

2000 to 2015, it revealed that the states with the most positive 

business climate grow the fastest, and the employment growth, on 

LAP51NQ082 with DISTILLER

13 

the average, is twice as high in states that have market-oriented 

labor policies. 

Can you expand on a couple points? What are the key components that make for an attractive business climate? What policies 

are detrimental to expansion? 

Dr. Kane. Yes, sir. Happy to. 

Yeah, I think in Dr. Lazear’s research, it is interesting, we are 

not saying that there is 7 percent more growth in these states, or 

14 percent, or 36; it is 100 percent more employment growth in 

states with better labor policies. 

So this is a policy issue. It is not that there are younger populations in these states or any of these other factors that are often 

explained. And those are—this is in the oral and the written testimony—minimum wage laws are one. So a State that raises its minimum wage or a city that raises its minimum wage to $15 an hour 

is saying that if someone is earning $14 an hour it is illegal for 

them to work. That is a really ridiculous, anti-work program. And 

I really appreciated the opening statements about hard work needs 

to be rewarded, not punished. 

So I think the other thing is this right-to-work phenomenon. 

These three states that adopted right-to-work laws in the upper 

Midwest, Michigan being one, have experienced phenomenal employment growth. 

So those are two that I would point to. 

But I need to piggyback on the importance of entrepreneurship, 

because this isn’t just Silicon Valley companies—and shout-out to 

CompuServe in central Ohio. So there is innovation there. But 

most companies and most startups aren’t in the high-tech space. 

And just the decline—to reinforce the testimony here, is that 

when Jimmy Carter was President, one out of six companies were 

startups, on average, in those years, meaning they were born that 

year. And those employed the bulk of new workers, almost all net 

workers. Today, the number of startups is 1 in 12. That is a national data point. So, you know, if we continue on that, 30 years 

from now we just won’t have startups. We will have highly regulated big companies. And that is an incredibly dangerous trend. 

And yet, in Ohio, if you want to start a company, you get 

charged, right? At least $100 in every State. Not one Governor has 

said, ‘‘You know what? This is going to the Startup State.’’ And 

some states are worse at it; some states are better. I can’t tell you 

where Ohio is, but I can tell you they are not as good as they could 

be and should be. 

Representative Tiberi. Thank you. 

Senator Heinrich, you are recognized. 

Senator Heinrich. Thank you, Chairman. 

Dr. Bernstein, I want to ask you a little bit about the role of minimum wage laws. Would you characterize them as anti-work? 

Dr. Bernstein. Oh, not at all. And, in fact, I am glad to have 

the opportunity, because I thought what we just heard from my 

friend Tim was really quite misleading, given the research that has 

been done, which is, in many ways, some of the highest-quality research we have, because, as Tim suggested, we have so many of 

these kinds of quasi-experiments across the country, where 30 

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states or something like that have raised their minimum wages in 

lots of cities, so we can actually do this kind of comparison. 

And what we have found is that moderate increases in the minimum wage consistently have their intended effect. The idea that 

they are disemploying has just been consistently proven wrong by 

the literature. 

Now, that doesn’t mean you could set the minimum wage at $15 

an hour tomorrow in the Nation, although, with a long phase-in, 

that could possibly work. But cities that have done so, particularly 

those with a high wage or price base, have found that they have 

been able to do that and raise the living standards of low-wage 

workers. 

That is one of the things that gets lost in this testimony that 

suggests, you know, right-to-work and get rid of minimum wage 

and undermine labor standards. You know, my research suggests 

that that doesn’t correlate much at all with GDP and employment 

growth. I think there is some cherry-picking going on there. But, 

furthermore, as you said and I said in both of our opening statements, even if you do get GDP growth, you are not helping to lift 

the living standards to provide the opportunities for the workers 

who are missing out on it. 

And so I welcome the opportunity to correct the record on that 

point. 

Senator Heinrich. Thank you. 

And in looking at some of the quality research that is out there, 

one of the things that research has shown is that investments in 

things like job training, things like early childhood education— 

early childhood ed is a good example. It returns approximately 

$8.50 for every dollar spent on that. Meanwhile, if you look at highincome-earner tax cuts, there has been really little demonstrable 

effect on employment growth one way or another. 

As we look at how to use the limited resources that we have 

right now, do you think that it would be misguided to prioritize tax 

cuts over things like job training and early childhood education and 

other investments that show a demonstrable return on investment? 

Dr. Bernstein. Very much so. 

And I guess the way I would frame that, Senator, is to point out 

that what we really want to do in this space, in terms of boosting 

the opportunity of those who have been left behind, taking down 

the opportunity barriers that are holding them back, is precisely 

that: direct investment in meeting the needs of this population. 

Indirect approaches—you know, cutting taxes on high-end folks 

and crossing your fingers and hope that it trickles down through 

some investment channel—has proven time and again not to have 

the kind of bang for buck of some of the policies that you mentioned. 

You mentioned the 8-plus-dollar return on investments in quality 

preschool. That is something we don’t do in this country, and we 

are historically unique in that regard. Every other country in the 

OEC invests about five times as much we do in young children, 

precisely to tap those returns. 

Yes, you know, I talked about the earned income tax credit, I 

talked about the child tax credit, direct investment in infrastructure, helping small firms—and I know, Chairman Tiberi, that you 

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have written about this as well—helping small firms and supply 

chain in places like rural Ohio connect with the global economy, 

that comes from direct intervention to actually help those firms 

connect. I mentioned the Manufacturing Extension Partnership, 

but there are other ways to go about that. Certainly, infrastructure 

investment is a key point as well. 

Those direct investments make a difference. I think going this indirect route, essentially, you know, deregulating, cutting taxes for 

those at the top, and hoping that it trickles down, it just doesn’t 

work. 

Senator Heinrich. I want to jump to Mr. Lettieri, and then I 

will come back to the deregulation and tax cut point that, Dr. Bernstein, you were just mentioning. 

But I wanted to ask you, Mr. Lettieri, you know, you are familiar 

with how this place works. You have worked here on the Hill, and 

you know that we play this tax extenders game every year. 

And one of the things that a number of you talked about was certainty. So I wanted to ask you about the false equivalency of one 

plus one plus one not really adding up to three, where, because we 

are playing a budget game here on Capitol Hill that we know how 

it is going to turn out, we pretend like we are going to extend some 

of these credits a year at a time, knowing we are going to probably 

extend them for the next year and the next year, but inserting 

enough uncertainty into the economy because people can’t plan for 

the next 3-year window or 10-year window because we are playing 

that rolling game. 

For either you or Dr. Kane or both, does one plus one plus one 

equal three when it comes to tax certainty? 

Mr. Lettieri. Well, thank you. I will start with that. 

Tax certainty is certainly a huge issue for businesses in general. 

And I think something that gets lost in the mix is that tax and regulatory burdens for businesses don’t always have to do with the 

fact of regulation or the top-line rate but to do with uncertainty. 

And this is particularly true on the new-business side. 

If you don’t know what you are going to face, in terms of the 

gauntlet of regulations or tax policy, when you are trying to start 

a business, in addition to the things that Dr. Kane mentioned 

about the actual cost of starting a business, it is going to be basically a soft impediment and an entrepreneurial tax that we are levying into the market for companies that are already fragile and 

trying to get off the ground in a tough marketplace. 

And so the more that we can provide that certainty, obviously, 

the better. And I think that gets lost in the mix because we are 

so focused on this question of top-line rates or false binary choices 

between things that don’t really need to be binary. 

Senator Heinrich. Thank you. 

Representative Tiberi. I would like to welcome our new Vice 

Chairman, Senator Lee. 

You are recognized. Welcome. 

Senator Lee. Thank you very much, Mr. Chairman. I look forward to working with you on this committee in my capacity as vice 

chair. And I am thankful to you for holding this important hearing. 

I am grateful to each of you for coming to testify. This is an important issue. 

LAP51NQ082 with DISTILLER

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I know that all three of you testified about many of the problems 

with economic opportunity in this country, including problems that 

we are seeing with labor force participation, with declining economic dynamism, and a whole host of other issues on the business 

side. 

But what I would like to get at here is one of the problems that 

I think underlies a lot of the challenges that we face today. And 

I would like to hear from each of you about your brief responses 

to some of these questions. What are you seeing at the family level? 

Are there strong families in these communities where these problems are most pronounced? 

Often, we see that success at a local level is built on strong families, is built on strong institutions of civil society, community institutions of one sort or another. But many of these areas have faced 

declines in recent years. 

For instance, Stanford economist Raj Chetty, and others along 

with him, have identified that in many communities you have higher percentages of single parents being associated with lower overall 

economic mobility. Meanwhile, children with married parents are 

experiencing a greater degree of upward economic mobility, especially in those communities with fewer single parents. 

I guess what I am getting at, are these communities simply economically distressed, or is there something deeper going on here? 

Is there something occurring at a more fundamental level that we 

need to have a look at? I would like each of you to respond to this 

one. 

Dr. Kane. Yes. Thanks, Senator Lee. I think that is a valid 

point. 

I think when we look back at U.S. history—and I am not an expert in this area, but I know we have had social policies that are 

often well-intentioned to support, for example, single mothers but 

not support them if they are married, right? So I don’t know the 

state of that policy now, but I think, looking back on it—and this 

goes back to Senator Moynihan, and some of the research that he 

did shows that those could be destructive. 

So sometimes we have well-intentioned policies, and while I 

wouldn’t want to belabor the debate that Jared and I have had 

many times, you know, a friendly debate, I think some of these 

well-intentioned policies can be harmful. And so you would want to 

tread very carefully in trying to fix things. 

For example, if you have welfare payments or disability payments or unemployment insurance payments in an area that is distressed, it says they can’t get those payments if they actually are 

mobile and move to an area where there is work. So that does 

merit deeper scrutiny. 

Senator Lee. Thank you. 

Mr. Lettieri. 

Mr. Lettieri. Thank you, Senator. 

I think we make a mistake when we try to separate economy and 

culture and institutions. Those are all really deeply linked. And so, 

in a State like yours—you mentioned Raj Chetty’s research, which 

I think is very compelling. Utah features really high social capital, 

and, as a result, it helps to offset things that maybe are not exportable to other states. 

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For instance, Utah spends the least per capita on student education, yet has really tremendous outcomes in terms of upper mobility and prosperity at the community level. And so, clearly, something else is going on there besides just rates of spending and government intervention. 

But it is also notable for the fact that government tends to really 

work well in Utah. And I have looked at this quite a bit, and I have 

been out to Salt Lake City and Provo. It is an amazingly dynamic 

economy and one that, given its results, certainly holds lessons, I 

think, for the rest of the country and also policy examples that we 

should study more closely. 

Senator Lee. Thank you. 

Dr. Bernstein. 

Dr. Bernstein. Yeah, I think it is a great question, and thank 

you for raising it. I think Dr. Chetty’s work is extremely rigorous 

in this area. 

One of the things they find, however, is that the communities 

with a large share of mother-only families, as you correctly point 

out, correlate with lower mobility, but you have to be careful not 

to conflate correlation with causation. They also find that two-parent families in those neighborhoods experience the same lower mobility rates, suggesting single-parenthood is probably more of a correlate than a cause. 

So I think the thing that I try to articulate in my testimony that 

I commend to you is a set of investments in families like this that 

have a proved track record in improving employment, earnings, 

health status, nutrition. That has to do with things like the earned 

income credit, the child tax credit, nutritional support, housing 

support. 

We now have longitudinal research that tracks the—this is what 

Chetty uses as well—that tracks these kids from birth to adulthood. And we find that the kinds of investments that we often 

think of as the safety net, kind of helping you today and not having 

much to do with tomorrow, are actually investments in these kids’ 

futures. 

Senator Lee. Thank you. A lot of issues there. There are things 

that I want to follow up with if we get a chance later. I want to 

stay on good terms with my Chairman here, so I see my time has 

expired. Thanks to each of you. 

Thank you, Mr. Chairman. 

Representative Tiberi. Thank you, Mr. Lee. 

Mr. Rooney, you are recognized for 5 minutes. 

Representative Rooney. Thank you, Mr. Chairman. 

I would like to continue the Senator’s slant here on an area that 

wasn’t mentioned, as far as our workplace capability, and ask you, 

Mr. Lettieri, a little bit about workplace capability in terms of our 

failed so-called entitlement programs and whether or not they have 

disabled a large part of our potential working force in America 

right now. 

Some Bureau of Labor Statistics surveys show that three 25- to 

55-year-old males are not looking for work for every one unemployed, which gives us a 20-percent unemployment rate. And I 

know I don’t have the statistics of all the big economists, but I am 

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an employer, and I have seen the stability in all parts of our country. 

Fifty-three percent of these folks that aren’t looking for work are 

on Medicaid, which is twice the number of all 25- to 55-year-old 

males. Three-fifths are on disability payments, which is another 

whole subject. And this is really interesting; the average, watching 

2,000 hours of television a day, and half of them are on daily pain 

meds. 

So, with all those things in there, what are we going to do about 

them as we try to figure out how to put Americans to work? 

Mr. Lettieri. Thanks for the question. 

We unambiguously have a crisis with prime age working men in 

this country and labor force participation, so I don’t think there is 

any disagreement about that. It is also part of the population that 

is growing at an incredibly anemic rate. So, in terms of the top-line 

GDP growth targets that we would all like to see set, it is going 

to be really hard to meet those on the current trend line with labor 

force participation and population growth. 

So your question is fundamentally about safety net, and I will 

first acknowledge I am not an expert on safety net programs, except to say this: There is broad agreement about things we can better. Things like the earned income tax credit, which Jared mentioned, this is an area that both is shown to be really effective at 

delivering people from the effects of poverty and incentivizing work 

and not generous enough with parts of our population that are 

really in need, which are the ones you just mentioned. And so I 

think that is low-hanging fruit for us to do much better. 

And to Dr. Kane’s point earlier, we can also reform the safety net 

programs that are well-intentioned and good if you stay in one 

place but really bad for encouraging mobility to higher-opportunityrich areas. 

Those are two things that we can do now that I think there 

would be broad, almost unanimous bipartisan support for. 

Representative Rooney. Thank you. 

If I might have time for one more here, I will ask Dr. Kane, you 

mentioned about the workforce dynamism and things like that in 

the service economy. Can you comment on the role of career technical education versus the elitist higher ed in creating the kind of 

workforce that can survive and prosper in the service economy? 

Dr. Kane. Yes, sir. 

First, I am not a big fan of training programs that are run by 

the government. I think training is important, and I think it is important to maintain their high skills, but I think it is more important to let the market work and empower people, perhaps with 

what I would call scholarships, to choose the training that is best 

for them. 

So I think when you ask the government to figure out what the 

jobs of the future are going to be, they are almost always going to 

get it wrong. And I say that, again, with some limited level of expertise. 

I do worry that, as we analyze this problem, you know, looking 

at it more broadly, displaced workers, disability programs which 

create perverse incentives—Austan Goolsbee, right, Austan 

Goolsbee we all know, President Obama’s chief economist, his first 

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op-ed was about abuse of the disability program. So it is something 

that really screams out for attention. 

I think, looking broadly, this isn’t just an issue of lack of opportunity; it is a set of perverse incentives that have pulled people out 

of the labor force, to their long-term detriment. 

Representative Rooney. Isn’t it true that when Speaker Gingrich negotiated workfare with President Clinton that the number 

of people on welfare went down? 

Dr. Kane. I think that was a great compromise, a great story in 

our history of two sides coming together and working on a program 

to restore positive work incentives. Yes, sir. 

Representative Rooney. Thank you. 

I yield. 

Representative Tiberi. Thank you, Mr. Rooney. 

Dr. Adams, you are recognized for 5 minutes. 

Representative Adams. Thank you, Mr. Chairman, and thank 

you to vice ranking member, as well, for hosting such an important 

meeting. 

North Carolina’s 12th District—I represent that District—faces 

many barriers to economic opportunity and economic mobility. And, 

just recently, the Charlotte-Mecklenburg Opportunity Task Force 

released a report on intergenerational poverty, found that Charlotte-Mecklenburg faces many of the barriers that we have spoken 

about today. 

There was a recent study on economic mobility of America’s 50 

largest cities, and it has been realized that children born into poverty, into the bottom 20 percent of the income, in Charlotte had a 

4.4 percent chance of making it to the top. So, rather than making 

it into the middle class in Charlotte-Mecklenburg, poor children, 

who are majority African American, Latino, are likely to stay poor. 

That is something that we really need to work on. 

Dr. Bernstein, can you elaborate on the importance of breaking 

the cycle of poverty and speak to specific ways to break this cycle? 

Dr. Bernstein. Yes. And thank you for that important question. 

You know, it takes me back to some of the comments I tried to 

underscore in my initial statement, which is that the best way to 

help poor people, poor families, and poor communities lift out of 

poverty is to directly invest in them. 

The idea that we can somehow expand our GDP or tweak our 

Tax Code—by the way, expanding GDP is great, it is important. 

Having an efficient Tax Code, obviously critically important. But 

what we can’t count on—and we have seen this time and again, because the data you are citing is historical data; this isn’t just something that happened last week—is that through various different 

types of Tax Codes and regulation regimes, this problem has persisted. And the reason it has persisted is because we have inadequately invested in these places, in these families, in these kids, 

cradle through primary school, through high school, through college, through the workplace. 

In my testimony, I try to lay out a really thorough agenda that 

starts with preschool, moves into educational years, helps people of 

the type who are facing the barriers we are talking about access 

higher education, and supports their job market when they are in 

places with insufficient labor demand. Those are the kind of direct 

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investments that I think would attack the cycle you are talking 

about. 

Representative Adams. Thank you. 

As a followup, you noted in your testimony that a much lower 

percentage of children of parents with lower incomes and educational levels pursue a higher education, and only 14 percent of 

them complete a bachelor of arts degree versus the 60 percent of 

children of parents with higher incomes. 

So how can we reduce the burden that these students face in 

completing their education, ensure that they have the tools to 

break through the opportunity barriers? 

Dr. Bernstein. First of all, without getting into details, let me 

just underscore my first set of comments, which is the low level of 

investment in young children, in my view, directly connects to the 

imbalance in accessing completion to higher ed. 

This starts with early childhood education. There is probably no 

bigger policy mistake we make in this country than under-investing, or even hardly investing at all, in early childhood education. 

The return on this—this is not a conservative result or a liberal result. The return on that is, you know, eight, nine X to one. 

I talked about primary school, but what I didn’t get a chance to 

talk about is accessing completion to higher education, which directly applies to your question. Tuition assistance is important, but 

so is the ability to handle debt. I have numbers in my testimony 

about the disproportionate debt burden of middle- and low-income 

families. Income-based repayment ideas are helpful in that space. 

We also have to be mindful about affordable tuitions in public universities. There is a role to play there as well. 

Now, particularly when some older persons are trying to complete college, they need work supports to be able to get through 

school often while working. And that takes us right back to the 

earned income credit, the child credit, help with housing, nutritional support. 

We are not talking about, you know, helping people stay on welfare. We are talking about helping people get through college. So, 

to me, that is breaking down an opportunity barrier. 

Representative Adams. All right. 

Thank you very much, Mr. Chairman. I am out of time. 

Representative Tiberi. Thank you. 

Mr. LaHood, welcome to the Joint Economic Committee. You are 

recognized for 5 minutes. 

Representative LaHood. Thank you, Mr. Chairman. 

And I want to thank the witnesses for your valuable testimony 

here today. 

Dr. Kane, I wanted to talk a little bit about the State of Illinois, 

my home State. And when I look at Illinois, I look at a State that 

20 years ago led the Midwest in terms of innovation, in terms of 

jobs, in terms of opportunities. And as we sit here today, it is kind 

of the poster child for, I think, how things have been done in the 

wrong way when it comes to economics. 

And you look at the fact that the State of Illinois has $110 billion 

in unfunded pension liabilities for our public pensions. We have a 

$12 billion deficit. We have a business climate that is very stagLAP51NQ082 with DISTILLER

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nant. We continue to hemorrhage jobs, people, and opportunities 

out of our State. 

And Illinois is almost like an island in the Midwest when you 

look at other states around us, whether that is Wisconsin or Indiana or Iowa or Missouri, that have exercised fiscal restraint, improved their business climate, you know, made those tough decisions that needed to be done at the State level. 

And I look at Illinois, with our high workers’ compensation costs 

compared to the other states around us, obviously our pension debt, 

the systemic problem with corruption, mostly from Chicago, and it 

is very frustrating to see that. 

And when we talk about the consequences of those things, when 

you look at our business climate, I guess, what suggestions would 

you have in terms of how we reverse that and the consequences if 

we don’t? 

Dr. Kane. Mr. LaHood, I think the words are cautionary tale, 

right? It has been fascinating to watch, coming from the Midwest 

and seeing that. What I hope the attitude will be of the Congress 

is to focus on the people of Illinois, but not the State of Illinois. 

So a bailout, I think—there will be a debate sometime in our future about whether we should bail out these states that have gotten themselves in trouble. And that means they won’t face the consequences of their actions, and we would collectivize the poor 

choices, whether it is pensions or budget deficits. 

I would emphasize, I think I need to emphasize Jared’s point earlier about early childhood education. Continuing to invest in the 

children of Illinois is really critical, and making sure you look out 

for that. But that means making tough choices about some government workers, teachers who have been dealt very generous programs, and also labor contracts for government workers where you 

can’t fire the worst performers. That is what is really, I think, punishing poor students. And I think that is what is really going to 

hurt Illinois in the long term, is if we don’t continue to invest and 

try to improve the quality of teachers in the schools. So it is a bit 

of a diversion. But then, you know, focus on budget deficits. 

You all have challenges I can’t imagine in dealing with trillions 

of dollars in deficits that are normalized even in the good times. 

Illinois has those in isolation. And so getting the books in order is 

priority number one. And not getting a bailout from Congress is a 

big part of that story. 

Representative LaHood. Thank you. 

Dr. Bernstein, I wanted to just talk a little bit about the migration to urban areas that we have seen. And when we look at particularly innovation technology and modernization and companies 

and businesses that have migrated to larger cities and what that 

means for rural areas, and really small and medium-sized cities. 

And are there examples of how to reverse that trend or where 

small- to medium-sized cities and rural areas have been successful 

in reversing that trend? And as we move forward, I think that we 

are going to continue to face this. 

Dr. Bernstein. It is a great question. And I think you have teed 

it up in exactly the right way. Unfortunately, part of the answer 

is we don’t yet have a lot of examples of what you are talking 

about, the smaller places figuring out how to make those linkages, 

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but we do have some. And one of the things we see—you are getting at a key kind of undercurrent of the discussion we are having 

today, because part of the solution to what we are talking about, 

move people to opportunity, move them to the—help them get to 

the cities. But part of it has to be, well, let’s help them where they 

are as well, because the solution can’t be everybody goes someplace 

else. 

And so one of the things that I have stressed, and it is in my 

testimony, is particularly helping smaller businesses, and particularly small manufacturers, link up to supply chains. Some of those 

supply chains are going to link them up to the larger manufacturers in the cities, some of them are actually going to link them up 

to global supply chains. They can’t always do them by themselves. 

It is one of the disadvantages that smaller producers have over 

larger ones. And there are public programs, I mentioned the Manufacturing Extension Partnership is one of them, but that is one of 

a number that help smaller firms do that. I think that is the key 

linkage. 

Representative LaHood. Thank you. 

Thank you, Mr. Chairman. 

Representative Tiberi. Thank you, Mr. LaHood. Mr. Delaney, 

you are recognized for 5 minutes. 

Representative Delaney. Thank you, Mr. Chairman. I want to 

thank the guests. 

There is some chance here that we are having entirely the wrong 

conversation. And when I say we, I don’t mean you, I mean elected 

officials and policymakers, because the argument historically has 

been we either need more government or less government to solve 

the problems of inequality, lack of opportunity, lack of mobility. Yet 

if you go to examples in both our country and around the world, 

where people have pursued very big government or very small government strategies, you see the same type of underlying performance. It may calibrate positively or negatively one way or another, 

but you can often find other reasons for that. 

And so the question is are the problems just inherently different 

now, and do we need actually a different approach for addressing 

them? In other words, is automation, technological innovation, 

global interconnection creating such a different fact set as it relates 

to work in this country that the prescriptions and approach need 

to be different? Because I think it is somewhat unassailable, the 

point that we need greater investment in people and in our country 

to make a difference again. Yet it is also somewhat unassailable to 

say that government has been very inefficient and has failed to 

successfully make investments to the highest return on investment 

it could possibly have made historically. 

So do we need kind of new thinking on this approach that actually does involve greater investment in kids, in communities, to try 

to make a difference against some of these problems and try to prepare them for a world that is changing rapidly? But do we need 

those investments to be made and applied and measured differently? 

And there are some examples of this in the country. I mean, 

there is this emerging kind of world of social impact bonds and pay 

for success. And Salt Lake City is actually a good example of that, 

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where they have actually been able to deliver a material investment in prekindergarten education, but they have not done it with 

the government writing the checks. They have had philanthropists 

write the checks. And if those students show better performance 

over time, they will get a return on their investment. 

So what is the new thinking on this, to the extent you think it 

exists, that allows us to get out of this ideological box, right? We 

need either much more government or much less government, neither of which have proven to be that successful, quite frankly, particularly in light of the changing kind of future, which I think is 

coming at us very fast. I mean, we talk about what trade has done 

to us, that seems to me to be a bit of a speed bump when you compare it to what automation might do to us. So what is some of the 

new thinking? And I will leave it to the panel, whoever has an idea 

they want to make. Otherwise, if not, we will start with Dr.—— 

Dr. Kane. Just with the short amount of time, sir, a great question. Let me—just for debate purposes I will say no, we don’t need 

new thinking, yet we all should be innovative. But people have tremendous incentives to invest in themselves, right? And we have a 

free market economy. And it is very easy to get caught up in what 

we are doing wrong as a country and that this is a crisis. We are 

still an incredibly powerful, successful economy. People have the 

right incentives already aligned. I think where they don’t have the 

power to make their choices, we are talking about kids who are 5 

and 4 years old, then that is where I think you could do more, and 

states maybe could do more, not the Federal Government. 

Representative Delaney. Because a 5-year-old doesn’t have the 

power to invest in themselves. 

Dr. Kane. Exactly. 

Representative Delaney. Right? And a lot of people don’t have 

the power to invest in themselves. 

Dr. Kane. But I tell you what, 18-year-olds and 21-year-olds do. 

I don’t think they need bailouts on their college loans. I would 

focus more on kids, not adults. 

Mr. Lettieri. I will just add to that. I think it is a great question. One of the challenges is we are really bad at predicting the 

future, even when we have a lot of information. So I think the best 

thing we can do is to allow for a permissionless environment where 

people engage in productive ways, take healthy risks, deploy their 

skills in the marketplace in a way that carries a lot of downstream 

benefits for the broader economy and doesn’t require government 

to try to keep pace with innovation and demographic changes. 

Representative Delaney. Do you think they need more security 

to take that risk? 

Mr. Lettieri. I think in some ways they certainly do. I also think 

they need fewer impediments. 

Representative Delaney. Right. 

Mr. Lettieri. And so we have to be doing both. 

Representative Delaney. Less barriers, but maybe a slightly 

different social contract that allows them to be slightly more secure 

to be mobile and take risks. 

Mr. Lettieri. Yes, and but the best security you can have, I 

think, in this economy is access to a healthy labor market and a 

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thriving jobs sector. And right now, we are seeing the heart of that 

getting hollowed out with declining dynamism. 

Representative Delaney. Dr. Bernstein, very quickly. 

Dr. Bernstein. I think the new thinking we need is to really appreciate the importance of public goods and the cost of ignoring 

them. For decades now—— 

Representative Delaney. The cost of doing nothing is not nothing, in other words. 

Dr. Bernstein. For decades now, there has been this mythology 

that, you know, government bad, private sector good. Well, sometimes government bad, sometimes private sector good. The private 

sector cannot function without a government sector that invests 

deeply in public goods. And I am talking about not just human capital, which is critical, and we have been talking about that, but 

physical capital as well. 

By the way, this is an answer to Mr. LaHood that I didn’t quite 

finish, was infrastructure. The places that we are talking about are 

places that have been left behind, you know, water systems, transportation systems. A $19 trillion economy cannot produce with an 

infrastructure that we continuously ignore. And if anyone doesn’t 

believe me, go ride on the Washington Metro and see what happens 

when you ignore your infrastructure for 20 years. It breaks. 

Representative Tiberi. Thank you. 

Mr. Schweikert, you are recognized for 25 minutes based upon 

that coffee you got me. 

Representative Schweikert. You see, if you can’t make 

friends, buy them, Mr. Chairman. 

Representative Tiberi. You are recognized for 5 minutes. 

Representative Schweikert. Gentlemen, could we do a little 

bit of sort of speed dating here, at least conceptually. About a year 

ago, The Economist magazine had a lead article that sort of set off 

a series of interest in me, and basically was talking about have we 

hit a time of almost oligopoly in the country. And this sort of goes 

to your dynamism discussion of, because of the regulatory environment we have societally, that was one of the things, organizations, 

business organizations, concerns have gotten so big, so powerful to 

sort of amortize their rules, their costs, is that one of the things 

that is slowing down or shutting down much of the creative destruction that should be rolling through the economy? And they 

rattled off airlines, milk, I mean, a series of things industries-wise 

that if you actually look, they are this side of sort of a true oligopoly. Thoughts? 

Dr. Kane. We should call out the EIG report that was, I think, 

produced either right before this or beforehand. I thought it was a 

fantastic deep dive on some of the dynamism issues. Speed dating, 

to respect what your request was, I would say yes. And this might 

be, you know, throwing a very big political hot potato out there, but 

I thought—— 

Representative Schweikert. Oh, it is uncomfortable to talk 

about, but that is why I am saying is it something—— 

Dr. Kane. Things like some of the major regulatory environments put on the financial industry and health care, requiring companies to provide certain benefits, that is very easy for a large company to provide. It is hard for an entrepreneur to provide those 

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things. But more importantly, the more generous benefits that are 

mandated by the government big firms can easily provide, that 

helps workers nest, that sort of locks them in and makes them less 

entrepreneurial. 

Representative Schweikert. Okay. So your argument would be 

that structurally, regulatorily we have actually incentivized growing bigger and—— 

Dr. Kane. To put it in speed dating terms, I would say don’t require employers to be paternalistic. 

Representative Schweikert. Anyone off the top of your head 

want to give me a guess why my county, Maricopa County, now the 

fastest growing county in the country, last year, I had 81,360 people move to my county? Cook County lost over 21,000 people. What 

are we doing right? What are they doing wrong? Anyone willing to 

step up to that? 

Dr. Bernstein. I don’t know the answer. It is a very granular 

question. I suspect you may have an answer to that. 

Representative Schweikert. No, actually, in some ways I 

don’t, because I think it is like everything we all learn around here, 

it is complicated. It could be labor markets, it could be—— 

Dr. Bernstein. I mean, here is what I was going to say, to answer your question. Maybe this applies to the question you just 

asked, but if it doesn’t, we will move on. Yes, the regulatory and 

tax environment obviously matter a ton. But what we hear a lot 

from businesses is that what also matters—and I just was talking 

about public goods—what also matters is the skills of the workforce, the quality of the schools, the quality of the environment, the 

parks. 

Representative Schweikert. To your point, and then I want to 

bounce over to something else, if I actually look at my government 

spending per population, Cook County spends a hell of a lot more 

than my county does, yet my schools are better, my population 

growth is better. 

Dr. Bernstein. Well, Cook County is a much more disadvantaged population. 

Representative Schweikert. Okay. But I can go through some 

of the other counties also that are losing population around the 

country. So there is something out there in the ethos and the way 

things are delivered and the entrepreneurial spirit. 

Also, you were talking about something, and this is another fixation of mine, business startups, just new businesses starting. I accept there is never—in this particular occasion there is probably 

not a good government solution. There often isn’t. How do I get my 

demographics, my older population to be the entrepreneurs? How 

do I get my 50-plus to be the ones willing to take risks and start 

a business? Because if one of my dynamism problems in the economy is I don’t have enough creative destruction, enough new 

startups, how do I get my entire spread of my demographic curve 

to be willing to be that new entrepreneur? 

Mr. Lettieri. That is a great question. One, we can look at that 

a little more broadly and say—actually, first, older folks tend to be 

really entrepreneurial versus younger folks. This is one of the great 

myths of entrepreneurship. Peak age is 40 for starting a business. 

And the peak range is I think something like 40 to 55. So that is 

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really where you have both the knowledge, the skills, the network, 

all those things are starting to come together, and you have some 

startup capital. Because the number one sources of—top sources of 

startup capital are not external markets or venture capitalists or 

angel investors, it is home equity, it is personal savings, it is lines 

of credit, all things, by the way, that got wiped out by the Great 

Recession. 

Representative Schweikert. And I know I am up against time. 

So what is happening out there that I am not seeing the number 

of startups? 

Mr. Lettieri. We are voluntarily restricting the most entrepreneurial potential population that we have, which is high skill immigrants. We are voluntarily saying we don’t want them in the building. So this is just what the data tell us. This is not a political 

point. 

If you were trying to run government like a business, you 

wouldn’t shut out your most productive workers and not let them 

in the building. And I think this is an area where we have tremendous chance to make improvements that have nothing to do with 

legacy costs or right versus left dynamics; it is just a choice. And 

it has historically been one of our strongest assets as a country. 

Representative Schweikert. Thank you, Mr. Chairman, for 

your patience. 

Representative Tiberi. Good questions. Just before I recognize 

the gentlelady from Minnesota, on John’s last point, do all three of 

you agree? 

Dr. Bernstein. I agree strongly. 

Dr. Kane. Couldn’t agree more strongly, sir. I think that is a 

great opportunity, actually, for this Congress to show the world 

how bipartisanship works. Now that it looks like comprehensive 

immigration reform is dead, thank goodness, you can move on to 

incremental piece by piece. And the things thing that make the 

most sense, opinion polls show Democrats, Republicans, independents all want is students that are here studying in our engineering 

schools, give them a green card. That would be a great piece of legislation. I think all three of us would love that. 

Dr. Bernstein. Totally agree. I just can’t resist saying that there 

are a lot of people here already in whom we seriously underinvest. 

Representative Tiberi. Thank you. Very good points by all 

three of you. 

On that note, Senator Klobuchar, you are recognized for 5 minutes. 

Senator Klobuchar. Thank you very much. 

I am going to focus a bit on rural areas, taking you away from 

the Washington Metro, as big of an issue as it is. And I guess I 

will start with immigration. 

We have got a dairy in Minnesota that employs a couple hundred 

people. They are legal Mexican workers that have come over. They 

want to bring their spouses. They can, but then they can’t work for 

7 years. And while I am on the bill for green cards and H–1B visas, 

with Senator Hatch, and we’re trying to fix that, I also believe we 

have other needs in this country, especially in rural areas and agriculture. And I am really concerned about not just the proposals out 

there, but also the rhetoric that I think is going to be a real hit 

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to the rural economy, to the heartland, if we continue on the path 

we are on, which is to have no comprehensive immigration reform. 

Dr. Bernstein, could you talk about the need for immigrant workers in things like the dairy industry? 

Dr. Bernstein. Well, yes. I mean, you have seen it on the 

ground, and I think we probably all have if we have looked for it. 

This is a critical workforce, a critical part of the workforce, and in 

fact an essential growing part of the workforce if we would allow 

it to grow. One of the reasons our macro economy is constrained— 

and I am using some of the language of the chairman, who has 

written about constrained potential in GDP—is because our labor 

supply is growing too slowly. Well, a lot of that, as Tim said, is demographic. One of the ways we have often dealt with that is being 

welcoming towards immigrants. 

And so at the micro level, which you are describing, it is critical 

for employers to have that supply. But at the macro level it is also 

really important. So we are definitely shooting ourselves in the 

feet. 

Senator Klobuchar. They are not just people with science degrees. 

Dr. Bernstein. I am sorry? 

Senator Klobuchar. They are not just people with Ph.D.s that 

we need. 

Dr. Bernstein. Oh, no. I mean, I think that is a great point. 

And while I very much take and endorse John’s point about entrepreneurs, that is not the only immigrants we are interested in. 

Senator Klobuchar. Now, another way we can get at that, of 

course, and I appreciate all of your support for doing something on 

this front, but another way we can get at it is apprenticeships. It 

won’t take care of everything, but we have a lot of kids that graduate with degrees, and then they can’t get jobs, and then we have 

this huge need for welders and filling some of our health and technology jobs. And what do you think—I know you, I think, talked 

about this, Dr. Kane, would be the best thing we could do to further apprenticeships? It is this funny patchwork of State and Federal laws. And other countries, as you pointed out, do it better. 

Dr. Kane. And I will second the point. When I was saying comprehensive reform, instead I mean trying to do everything with one 

giant bill. I absolutely agree, I think immigrants at all skill levels 

strengthen the U.S. economy. 

Senator Klobuchar. Thank you. 

Dr. Kane. I worry that we may be making it too hard for agricultural workers to come in, whether as guest workers or—— 

Senator Klobuchar. And that was part of comprehensive reform was agreeing with the immigrants—— 

Dr. Kane. Well, I like comprehensive meaning let’s address all 

immigrants. Let’s not try to do it with one bill and 15 years later 

we have got nothing. So building a working coalition is a key priority. 

On your question of how to encourage more entrepreneurship, I 

am doing a study now, so I hope I can come back and tell you about 

it, about what the State differences in entrepreneurship are. We 

can identify truly what states are doing it well versus others. So 

not everything is known. But I can tell you that some states do 

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make it easier. Where I think no State is perfect, I think here in 

Virginia it is $100 to start an LLC. So if my 14-year-old wants to 

start a company, just coming up with the name for the company, 

the State of Virginia is going to charge her a hundred bucks. 

Senator Klobuchar. Okay. 

Dr. Kane. That discourages it. But some states are worse. Virginia is one of the best. So I don’t think anybody is doing it as well 

as they could. 

Senator Klobuchar. Good. Export-Import Bank, something also 

important in rural America and in the Midwest, especially for some 

of our smaller businesses that can’t access export financing in other 

ways. We know while that is continuing in place, we are missing 

a quorum because the Congress hasn’t confirmed a person for that 

Board. And I would like to know what you think the effect of that 

will be, Dr. Bernstein, when we are competing against every other 

developed nation that has a similar entity that helps finance exports. 

Dr. Bernstein. Well, that is where I was going to go. I mean, 

not every economist loves the idea of an Ex-Im Bank. And I remember when I worked in the White House, I kept running into 

people from Boeing around every corner. And so I do think it needs 

to be a diverse—much more diverse bank. But I will say where you 

land is exactly where I land. To unilaterally disarm on that would, 

again, be I think a very noncompetitive thing for our businesses to 

do. 

Senator Klobuchar. Okay. Thank you. Last, infrastructure investment. We had a bridge collapse in the middle of Minnesota, as 

you all know, on a summer day, big interstate highway. Since then, 

we have invested in our bridges and our roads for positive effect. 

I think we got rated one year the best State to do business in by 

CNBC, in part because of that. Could you talk about the importance of that to the economy to get goods to market? Any of you. 

Mr. Lettieri. 

Dr. Bernstein. I will just briefly say I have a section in my testimony where I try to go through both the productivity-enhancing 

aspects of infrastructure, which are notable, and I think missing 

from our economy right now. One of our biggest problems, the 

other part of our constrained potential, I talked about labor supply, 

is our very slow productivity growth. One way I really think we 

could help would be investing more in productivity-enhancing infrastructure. It is also a job creator in places where labor demand 

is insufficient. 

Senator Klobuchar. Thank you. 

Representative Tiberi. Thank you. 

Staying in the State of Minnesota, Mr. Paulsen, you are recognized for 5 minutes. 

Representative Paulsen. Thank you, Mr. Chairman. Thanks, 

everyone, for being here today. 

Mr. Lettieri, I will follow up on some of the themes of what you 

started out with economic dynamism fading. It is interesting, because company startups, as you mentioned, have been on the decline. If you go back to 1977, they contributed 16 percent of total 

U.S. employment. I think you mentioned the 8 percent figure that 

we had in 2013 for that type of startup. Small businesses are the 

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engine of the economy. We always like to talk about how most of 

our jobs, and our economic growth comes from that sector. 

The two time periods where those company startups rebounded 

or actually increased in this large 40-year period were during the 

mid-1980s, where it jumped up from 11.8 percent to 13 percent, 

and also in the early 2000s, when it jumped up from 9.7 percent 

to 10.8 percent. This chain reaction, I think, that was mentioned 

earlier, leads to other economic churn and opportunity and growth. 

What was it about those two time periods, either related to public policy or technology or some other changes, that we should be 

looking for right now in terms of replicating or reproducing in some 

manner? Anything in those two timeframes in particular that stand 

out? 

Mr. Lettieri. Well, we had major tax policy changes preceding 

both of those periods. I would just caution that I don’t know that 

that is a perfect explanation for what followed, because I think one 

of the points that we can’t underscore enough is that demographics 

play a huge, huge, huge role in rates of entrepreneurship, and that 

is both nationally and regionally. I haven’t looked at those demographic changes during those time periods, but it may have also 

been providing tailwinds for those types of bumps. 

I will just point out now that there is—and, actually, I think 

your legislation on employee stock ownership is a great example of 

things that are not intentional barriers to entrepreneurship or to 

the health of new companies, but are just in the background providing an advantage to larger incumbents and a disadvantage in 

the competition for talent among smaller private firms, which is 

particularly true for new firms. So there are things like that that 

we can do that on their own may not seem like massive changes 

in policy, but in the aggregate will have a tremendous and, I think, 

eventually transformative effect on leveling the playing field back 

towards competition and new entry. 

Representative Paulsen. Sure. And you referenced the bipartisan legislation for helping those that may have stock options but 

don’t have a market to sell those options in. That legislation is both 

in the Senate and in the House. We may be able to move that forward to promote new startups. 

Let me follow up too, because you had five recommendations, one 

of which was enhancing geographic mobility. Are there any policy 

initiatives that any of you might have that would enhance geographic mobility? Obviously, immigration is one component. Anything else? 

Mr. Lettieri. Yes. And this is about not doing something that we 

are doing now, which is this Kafkaesque patchwork of occupational 

licensing barriers around the country. This is mostly a State and 

local issue, but I think if I would urge you to do anything, it is to 

use the bully pulpit that you have in Congress to really point out 

and spotlight just how poisonous this is for the economy. 

It really checks all the wrong boxes. It hurts people who are least 

advantaged the most. It inhibits geographic mobility, meaning that 

you can’t transfer your skills. Even if you are highly licensed and 

highly skilled and highly trained, you can’t transfer those from one 

State to another, in most cases, without having to go through that 

whole process again. So it is a tax on folks just moving to locations 

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with higher opportunity. And they create these bizarre and nonconforming standards that have proven over and over again in research to not bring any benefit to the consumer and to actually depress jobs. 

I mean, Alan Krueger, former adviser to President Obama, has 

done great research on this that shows, to the tune of millions of 

jobs and hundreds of billions of dollars of costs, that these regulations play. So this is the—in an era of low dynamism, this is exactly the kind of thing we have to carve out of the system. And it 

is in every State. 

And just with one more point, we have only had eight successful 

instances of delicensing an occupation in a State. Eight. And now 

30 percent of U.S. jobs—— 

Dr. Bernstein. Just to be bipartisan, I want to be clear that I 

very much endorse those comments about occupational licensing. 

Another piece of this that I think would be helpful, one of the 

real constraints, and we know this, is housing costs, especially 

going from rural areas, where housing can be extremely cheap relative to other areas. And so one of the problems we have with our 

housing vouchers program is they are not generous enough to help 

people move across areas where housing costs rise considerably. 

And a lot of those areas are areas with considerably more opportunity. And there are ways in which the program itself is constrained such that the voucher amount is set in too small a geographical space. 

So if we simply open up that space, that will improve the ability 

of people to move to opportunity through the voucher program. 

Representative Paulsen. Thank you, Mr. Chairman. 

Representative Tiberi. Thank you. Good comments. 

Senator Peters, welcome back. You are recognized for 5 minutes. 

Senator Peters. Great. Great to be back here. Thank you to our 

panelists today. 

I want to pick up on some of the comments that were just made 

related to regulation, taxation, other issues. And I want to preface 

this question first saying I do believe we have to have a more efficient Tax Code than we have right now. There are a lot of issues 

that need to be worked out. And hopefully, we will be able to find 

some common ground on tax reform. Also, we can do a lot better 

when it comes to regulation as well, also making that more efficient, understanding that there are some good relations, some that 

aren’t, and how do we find middle ground. 

But I just want to get your sense, obviously those are two factors 

that we have to be considering, but looking at the factual situation 

of some urban areas that are doing extremely well, and I think all 

three of you have cited places like San Francisco, Los Angeles, and 

New York. And I think most folks, with all due respect to my 

friends there, wouldn’t say those are low regulation places, nor are 

they low tax places. 

So it seems to me that there is something else going on here that 

we have to grapple with if we are going to be moving these kinds 

of Centers of Excellence not just in those three places, you know, 

continue to do it, we think that is wonderful, but how do we move 

it to places like Detroit and other places around the country? There 

is something else happening here. What else is happening in these 

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areas that we need to be thinking about beyond the regulatory 

space and the tax space? 

Dr. Bernstein. Well, first, I just want to underscore the point 

that you are making, because I think it has gotten a little bit lost 

in our discussion today. Yes, the minimum wage I think in all 

three of those places is either at $15 or headed to $15 an hour. 

That doesn’t mean you can do that in Mississippi, but it certainly 

means it is not the constraints that we have heard today in places 

like that. 

Look, I will be brief, because I am just echoing things I said earlier. One of the things we see in each one of those places is significant investment in both human and physical capital through public 

policy, both in terms of education, in terms of infrastructure, in 

terms of transportation, in terms of housing, in terms of the safety 

net. I mean, we think of programs like the child tax credit or the 

earned income tax credit or nutritional support or even Medicaid, 

we think of these programs sort of helping people today. 

The research I underscore in my testimony shows these are investments that improve people’s ability to get into the job market. 

And if you couple them with appropriate skills training, you are 

going to enhance the productivity of your area. And that is going 

to help not only create jobs, better quality jobs. 

Dr. Kane. Sir, I missed the third city. You said San Francisco, 

New York, and—— 

Senator Peters. Los Angeles. 

Dr. Kane. Los Angeles. All right. So two of those cities are in 

California. California is experiencing a big population slowdown 

and even a pretty huge migration if you look underneath the dynamics. A lot of foreign immigrants come into California, but a lot 

of natives are moving. I think those places have been successful 

early and then boomed, and they are carrying on with momentum. 

Now, Hollywood and Silicon Valley may be different, but I don’t 

think you want to look at the correlation of the high regulations 

they have now and their previous success as symptomatic of something to be replicated. 

And Detroit is another example. Was a booming city, was a dominant city in America, but became a part of a very high regulatory 

environment, and then we see the consequences, which are pretty 

horrific. 

There are places like New Mexico and Arizona surrounding California that are now booming and are changing their dynamics, becoming I think more oriented toward right to work, labor friendly 

policies that I think are successful. 

Mr. Lettieri. I will just add, I do think we sometimes discount 

the benefits of legacy investments. And this is to Dr. Kane’s point 

that places can coast for a long time based on the strength of—in 

Silicon Valley’s case you had actually, again to the point I made 

in my testimony, a lot of public sector investment that got spun off 

into commercialization of the technology industry, and that became 

a hub there. 

But I want to push back a little bit on the rosy outlook for those 

places, at least as it relates to business creation. We found in our 

recent research that five metro areas alone accounted for fully half 

of the national net increase in firms, five, over the course of the 

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recovery, 2010 to 2014. On the surface, that may look like those 

five places are doing better than ever. It is actually that they are 

just more resilient as dynamism is retreating. So the pie is getting 

smaller and those places are getting bigger relative slices than the 

rest of the country. 

But New York, as an example, is relatively speaking doing worse 

on business formation than it has done in the last three recoveries. 

And so that speaks to even those places that are resilient are facing national headwinds that are going to start changing the equilibrium in the wrong direction. 

Senator Peters. All right. Thank you. 

Representative Tiberi. Go ahead. 

Senator Heinrich. I just want to speak very briefly to Dr. 

Kane’s comment about New Mexico. We actually share more, I 

think, in common with Ohio and some of the more rural parts of 

the Midwest than with other Western and certainly Pacific states, 

and have struggled coming out of this recession, which is one of the 

reasons why I find this particular hearing so interesting. 

Representative Tiberi. Thank you. 

The gentlelady from Virginia. Welcome to the Joint Economic 

Committee. 

Representative Comstock. Thank you, Mr. Chairman. I wanted to associate myself with the comments of Dr. Kane on H–1B 

visas. Thank you for highlighting that and separating that out. Because while I have a high-tech, big industry in my district in Virginia, I also have agriculture in the western part of my District. 

So I am part of two of those coalitions. And I think what I say is 

they are different coalitions. And so if we can go at them separately, I think we could advance these kind of issues faster. So 

thank you for highlighting the need to maybe do that separately. 

But what I wanted to talk a little bit about is venture capital 

and private sector investment there. I was fortunate to participate 

with one of my constituents, Steve Case, in the Rise of the Rest 

Summit that he had here last week. And one of the things I was 

happy he highlighted, I highlighted also, was the chairman’s Investing in Opportunity Act, which can I think helps a lot of what 

we are talking about here. 

One of the things that was highlighted, not just that 78 percent 

of the venture capital goes to just three states, California, Massachusetts, and New York, but one of the things that is not often 

highlighted is that 90 percent of it goes to men. And so there are 

a whole lot of women out there who are missing out on this in all 

50 states, not just the rest of us who are—and I highlighted that 

woman piece. 

So what can we do to create these startup ecosystems, not just 

on the Federal level, I think legislation like the chairman’s, 

broadband, making sure, you know, doing better on that basis, but 

how can we help our State and local environments create that ecosystem that supports the startup culture all around the country? 

I mean, that is what Steve Case has been going traveling around, 

kind of bringing certainly the talent in all of these areas. So how 

can we help and what policy might we do here? 

Dr. Kane. Thank you, Representative Comstock. I actually started a couple of software businesses when I was in San Diego, and 

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got venture capital, so I speak with a little bit of personal experience. What shocked me at the time was that I had to ask some 

friends and family to disinvest because they weren’t what are 

called qualified investors. It was shocking to me. They had taken 

the biggest risks, and they got their money back with some small 

return. 

I would applaud the Congress, I think it was called the JOBS Act 

that you all passed a few years ago, to make it easier for families 

in—and what is called the crowdsourcing types of investments. I 

don’t think that story is—or I would say I don’t think that chapter 

is over yet. I am not sure of the consequences. Maybe there is more 

to be done there. Definitely worth looking into. But I think you are 

right, access to financing is critical. 

Even when interest rates on paper are zero, we know that people 

still have—are not able to walk into a bank and get a loan at a 

0 percent interest rate. So there are real challenges for everyone, 

and especially outside of those big three areas. 

Representative Comstock. And, Mr. Lettieri, did you want—— 

Mr. Lettieri. Yeah, I strongly agree. And I think the Investing 

in Opportunity Act is a great example of how we can do better. 

Jared mentioned that place-based incentive policies have been spotty at best in the past at delivering results. And I think there is a 

reason for that. They have really largely been poorly designed and 

poorly implemented, and don’t match the needs that real entrepreneurs and businesses need. 

The need that you are pointing out of access to capital, it is not 

sufficient, but it is necessary in scaling any business. So it is one 

of the few universal things you can say applies no matter what industry you are in, no matter what region of the country. And the 

regionalization of access to capital is growing more profound, not 

less. So we need things that from the policy standpoint, both at the 

Federal and the State and local levels, that can really help balance 

that playing field, because it is obviously artificial when 90 percent 

of venture capital goes to men versus women and to three states 

versus the rest of the country. That is a solvable problem. And public policy designed the right way can nudge it back in a more balanced direction. 

Representative Comstock. One of the things that we also 

highlighted, I think Senator Warner, Mark Warner, who is from 

Virginia and highlighted too, and I think you all addressed this a 

little earlier, some of the workforce programs the government has, 

you know, and they are all over and they are disparate, really 

aren’t serving the purposes. And the employers and those sort of 

in the states and localities might know better what they need for 

that. 

How can we maybe redirect that money when we have a huge 

pot of money that is not very effective here on labor retraining? We 

know retraining and upgrading skills and lifelong learning is something we need. How can we partner with maybe our local universities, our State and local—our private sector companies and what 

incentives can we give them on that front? 

Dr. Bernstein. So I think the answer to that is actually known 

and not deeply implemented, as you suggest, and it is called sectoral employment training, which sounds complicated, but really all 

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we are talking about is instead of training that is based on just 

providing people with a set of basic skills, it actually works in close 

association with employers, universities, and the students themselves, the trainees themselves. The idea is that you are training 

people for jobs, and not just jobs today, but jobs tomorrow. You are 

looking around the corner. 

And to be very concrete and granular about this, an employer 

tells you guess what, we are going to set up an MRI lab in this 

neighborhood. We are going to need lab technicians who know how 

to keep an MRI running. And that becomes the sectoral employment emphasis of your training program. So I think that is key. 

Apprenticeships, earning while you learn. Other countries do 

much more than that. Somebody mentioned Germany earlier. They 

have a lot of success with that. So I would also say that. 

On your first question, just very quickly, because I didn’t get to 

respond to that, a lot of what we focus on is sort of on the supply 

side, how can we provide enough credit for these folks. And I get 

that that is obviously critical. We also have to worry about the demand side. One place where you see more businesses flourishing is 

where lots of people have money to actually go into the door and 

buy the stuff they are selling. Because you can do all you want to 

free up credit for people, but if you don’t have a customer base, you 

don’t have demand, you are not going to get the economic activity. 

And I think some of the ideas I try to stress in my testimony about 

wage policies, about labor demand, about direct job creation are 

helpful in that regard. 

Representative Tiberi. Thank you. 

Representative Comstock. Thank you, Mr. Chairman. 

Representative Tiberi. Thank you. Good questions. Mrs. Maloney, you are recognized for 5 minutes. 

Representative Maloney. Thank you, Mr. Chairman. And 

thank you, ranking member and all of the panelists. 

Really this topic of this hearing is one of the things that Democrats and the Republicans agree on wholeheartedly, is that the 

focus of this Congress should be the creation of economic conditions 

that produce more good-paying jobs, higher household incomes, and 

greater economic growth. 

And I would like to ask Dr. Bernstein how investing in—or rather, empowering women might be one of the solutions for economic 

growth in our country. Yesterday was Equal Pay Day, the day 

that—this day marks the day when women’s earnings from last 

year finally catch up to what their male peers were paid in 2016. 

And I guess in honor of that day, the Democratic staff of the Joint 

Economic Committee issued a report on the gender pay gap, not 

only that it was a gap of 79, 80 cents to the dollar, but they looked 

deeper into it on how it impacts over the lifetime of a woman, how 

it compounds, and the lower pay contributes to lower pensions, 

lower Social Security, lower savings, and contributes to women, 

older women being twice as likely as men to live in poverty. 

Heidi Hartmann, a MacArthur scholar, has her own not-for-profit 

research foundation, did her own study that showed that if you just 

paid women equally, you would eradicate most of the poverty in 

this country. And I would like to ask Dr. Bernstein and others to 

comment on that. If we addressed the persistent opportunity deficit 

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for low-income Americans, and I would say particularly women, 

women are the sole or primary earner in 40 percent of households 

with children. That is an astonishing stat. And they are also at the 

bottom income level. Nearly 70 percent of mothers are their households’ sole and only breadwinner. So could you comment, if we just 

paid women equally for the same work, what impact would that 

have on the economy and lifting families and children out of poverty? 

Dr. Bernstein. Well, I am glad you mentioned Heidi Hartmann, 

because she is someone who I have worked with over the years and 

have written on this very topic with. A great scholar. 

Obviously, this would help both on the family well-being and 

antipoverty, as well as on the broader macro economy, particularly 

if we are talking about folks in the bottom half of the pay scale. 

You know, they spend their earnings. So when you pay women 70, 

75 cents on the dollar, that means there is less economic activity, 

less consumption. 

I think the policy interventions here are all germane. Because 

much of what we have talked about we haven’t really focused on 

through a gender lens enough this morning. So if you are thinking 

about the minimum wage, if you are thinking about unions in the 

retail sector, if you are thinking about the earned income credit, or 

the child tax credit, in many cases these disproportionately benefit 

women. I don’t know if I have this number exactly right, but something like 60 percent of the beneficiaries of a higher minimum 

wage are women. 

And so I think both through wage policies and through enforcement of gender parity laws that is absolutely the right way to go. 

Representative Maloney. I also appreciate the comments of 

many of you on the focus of the need for infrastructure. And I almost think it is a national disgrace how far we have fallen behind 

the rest of the world. We don’t have high-speed rail. But we did 

just open up a new subway in my District, the Second Avenue subway. It has been rated the best subway in the country. And already 

the economic activity that it has generated is astonishing. Our realtors are saying their income is up 30 percent. Property values are 

up. The next stage would attach this sort of business district with 

a very low income district, East Harlem in New York, and bring 

the same economic activity and support to it. 

And so my question really, and I would like to ask Dr. Kane and 

Mr. Lettieri, since I haven’t heard from you on that last question, 

should our policies prioritize projects like this one which connect 

economically distressed communities with regions of a high economic hub to help really address the income gap and opportunity 

gap and really with the infrastructure projects? 

Mr. Lettieri. Thank you for the question. I think we should do 

more and be creative in ways that we connect high opportunity 

areas with areas that are struggling. And that helps to reinforce 

upward momentum and decrease the isolation that many of these 

communities are experiencing. Economic segregation is a big problem. And sometimes that is a physical segregation, sometimes that 

is a market segregation in terms of access to capital and other 

things, access to information, access to services. So connectivity is 

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key in today’s economy. This is true in a city, it is also true in rural 

areas. 

The difference today, I think, between a flourishing rural area 

and a struggling one has more than ever to do with how connected 

that place is. Is it connected to a population center? Does it have 

access to that through infrastructure? Is it connected to markets 

and population and things like that? So thinking about that as an 

underlying theme of all policy efforts I think is wise. 

Representative Maloney. Thank you. My time has expired. 

Representative Tiberi. Thank you. 

Representative Maloney. And I just want to congratulate the 

staff of the Democratic JEC on their excellent report. Thank you. 

Representative Tiberi. Thank you. 

The gentleman from Virginia is recognized for 5 minutes. 

Representative Beyer. Thank you, Mr. Chairman, very much. 

This is really fun and fascinating. 

I want to add my voice as a small business person to the 

pushback on access occupational licensing. You know, I have been 

training automobile mechanics for more than 40 years, with no licensing in Virginia. And they do a very good job fixing cars. In fact, 

one of the challenges is we are trying to get everybody through the 

ASE tests. But it is amazing how often excellent mechanics, because of language difficulties or reading difficulties, can’t get 

through the tests, which we will pay for again and again and 

again. 

I have been impressed with how much, when we talk about robust competition policy, we come back again and again to the challenge of increased market concentration in a lot of industries. In 

the year I was born, 1950, there were 50,000 automobile dealers in 

America. Today there are 18,000. And many of them are grouped 

in big public groups or family groups. And yet, you know, when you 

do that, you get stifled innovation, the barriers to entry are very 

high, oligopolistic, monopolistic, lots of rent-seeking behavior, all 

the things that especially, Mr. Lettieri, you write about it on page 

after page here. 

So I am really interested in knowing what you, and especially 

Dr. Bernstein, how would you go about reversing that market concentration? Much more aggressive antimerger activity, much 

stronger antitrust activity? How do you get the barriers to entry 

down? 

Mr. Lettieri. It is a really important and very tough question, 

because you have to come at it from I think a lot of different angles. Certainly, I think given the trends, we should at least ask 

whether our antitrust policy is effective and right-sized for the 

market that we are seeing. But I would rather focus, if I was putting emphasis just one place, on the new business side, because 

that problem becomes worse if we don’t reverse the decline in entrepreneurship and get the birth rate of firms higher than it is 

above the death rate of firms. 

We are experiencing right now the first period of a contracting 

business sector in recorded history in this country. We have fewer 

firms in the economy as of 2014 than we did in 2007. The difference is something close to a million missing firms over that period. So if you think about the remarkable downstream effect that 

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that has on competition and market concentration, on innovation, 

on wages, it is hard to overstate how profound that effect would be. 

So coming at it from that angle is going to, I think, be the longer 

term solution as we are looking at market and competition issues 

and antitrust, occupational licensing as well. I mean, that is part 

of what is diminishing competition is fewer independent businesses 

can start and compete with the incumbents in any given region due 

to regulatory capture and things like that. So I think you have got 

to come at it from both of those angles. 

Representative Beyer. Let me shift just for time purposes to 

Dr. Bernstein. We spend a lot of time talking corporate tax reform. 

Chairman Brady from this committee is going around talking about 

everything that is coming. And yet, you know, it is worth pairing 

any rate reduction efforts to ensure that the increased capital that 

results actually increases economic opportunity in wages, investment, innovation. I know, Dr. Bernstein, you have read and written 

a lot about Bill Galston and Elaine Kamarck and the increase of 

financialization, you know, the growing financial shares, GDP, and 

short-termism. Ms. Comstock referred to Senator Warner’s great 

work on how much corporate profits now are being used for 

buybacks and for dividends and relatively little, a huge falloff in 

R&D. How do we move away from short-termism and 

financialization? 

Dr. Bernstein. It is a great question, because I view the problem you are talking about as one that is fundamental to something 

we have discussed at different times today, which is the slowdown 

in productivity growth. The slowdown in productivity growth is intimately related to weak investment. And in my own work, I believe that there is some misallocation going on, that we are 

misallocating too many of our resources to this kind of frothy financial activity at the top of the scale that really doesn’t create much 

in terms of concrete investment or opportunity that actually filters 

down through the rest of the economy. It just allows folks in financial markets to trade with each other and generate lots of rents. 

So I think, you know, one idea to help improve that allocation 

is to discourage a lot of the kind of noisy, high frequency trading 

through a very small financial transaction tax. I am talking about 

a basis point or two or three, nothing off the charts. And my research on this suggests that not only would that dampen noise 

trading, and helpfully allocate, I think, capital to more productive 

uses, but it would also raise revenue that we could use in other 

areas that, to get back to your first question, in trying to help 

smaller businesses find their way into concentrated markets. 

Representative Beyer. Thank you. 

Mr. Chairman, I yield back. 

Representative Tiberi. Thank you. This has been great. You 

guys, can you stay a few more minutes to do a follow-up from each 

of us? Do you mind? This has been really, really great. 

I am intrigued on the opposite ends of the panel here on your divergence on minimum wage in particular. And I want to give you 

an example, Dr. Bernstein, and just get your comments on it. This 

is a lesson learned as a 16-year-old in Columbus, Ohio. I was working at a McDonald’s. And during the first year that I worked there 

in high school, the minimum wage was set to go up. And it did go 

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up. And at that point in time, most of the part-time workers were 

high school students at this McDonald’s. And the owner, it was a 

franchisee, husband and wife owned one restaurant, that McDonald’s. And so we were all excited, us high school kids, that we were 

going to get I think it was 25 cents more an hour at the beginning 

of the year. 

What happened, which was phenomenal, was the manager came 

in and said, because of the minimum wage increase, some of you 

are going to have to work more hours because we are going to have 

to let a couple people at the bottom rung, who were hired the latest, let go. Thankfully, I made the cut and I stayed on at the restaurant. But that was a real life example of, oh, wow, it doesn’t 

help everybody because two people, part-timers, lost their job. Can 

you comment on that? Because that is rarely talked about. 

Dr. Bernstein. No, it is a fair question and a good question. And 

I don’t want to create the misimpression that nobody ever experiences what you experienced when minimum wages go up. They do. 

The disemployment effect or the dampening kinds of employment 

effects that you have discussed aren’t zero, but in lots of very careful studies they are pretty close to zero. So that even in cases 

where some workers have the experience you just cited, many, 

many more end up ahead. 

And what is I think important, and maybe perhaps not quite germane to your story of numerous years ago, is the fact that today 

the minimum wage workforce is different than it used to be. It is 

much older. It is much more parents. It is people who are disproportionately working now full-time. And talk about anecdotes, 

my kid worked in a frozen yogurt store in Alexandria this summer. 

Working right next to her was a single mom, and, you know, earning something alarmingly close to the minimum wage. Now, with 

some of the wage subsidies I mentioned, that person maybe can get 

a bit of a leg up. But I think we have to be mindful about who 

earns the minimum wage these days, along with the fact that the 

disemployment effects, while not zero, are often found to be close 

to it. 

Representative Tiberi. Thank you. 

Any other comments before I yield? 

Dr. Kane. I just absolutely disagree. I think the research, especially the newer, better research is showing that some of the older 

studies were wrong. Jonathan Meer, Dr. Jonathan Meer at Texas 

A&M has done some great work. 

Let me point out in particular what happens to the individuals 

who get disemployed. So maybe nine people get a raise and one 

loses their job. They lose more than a job. If you are an 18-yearold or a 17-year-old or, God forbid, a single mother who is the one 

that loses their job, that has lifetime implications. Studies show 

that people that are displaced because of higher minimum wage 

laws have lifetime lower earnings. That is a huge disinvestment in 

people that desperately need it. 

So when we talk about a lack of mobility and how to invest in 

the poor and what training programs we do to compensate for telling a person who wanted to work, this is a moral issue as well, you 

are not allowed to, the government won’t allow you to work, and 

then 5, 10 years later, gee, we are going to come up with a training 

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program, they were involved in a training program. They were 

learning basic work skills, and they were then robbed of that opportunity by I think a terrible policy. 

Representative Tiberi. Thank you both. 

I am go to go yield to the gentleman, Ranking Member from New 

Mexico. 

Senator Heinrich. I am going to shift gears here real quick, 

Chairman. And I want to go back to something, Dr. Bernstein, that 

you talked about that I thought was really on point, was just connecting small communities, rural communities, small towns to supply chains. And I think a lot of what we see, these disruptive 

trends have to do with the unequal connection to the marketplace, 

to many different resources that you see in geographically different 

parts of the country. 

So I wanted to turn that towards infrastructure and talk about, 

you know, what—ask what is the role of infrastructure and how 

should we be prioritizing that to greater increase access, whether 

it is to a supply chain, whether it is to the marketplace, for the geographic parts of the country that have limited access to it? And 

maybe talk a little bit about the, you know, the places where public-private partnerships work in infrastructure, airports are a great 

example, and the places where we are just going to have to do direct investment, because for a water project in rural Wyoming, 

rural New Mexico, we are not going to be able to attract private 

capital at the return rates to make those kinds of things happen. 

Dr. Bernstein. Well, I just wanted to start where you ended, 

which is that there is, I think, a growing kind of attention to an 

idea, and I know the Trump administration is pushing this, an infrastructure program that looks to me like it is wholly based on 

public-private partnerships, wherein you provide a pretty hefty, I 

would argue, wasteful tax credit in many cases to infrastructure 

that would have been built anyway. And the only investors that are 

going to come to that well are those who are investing in projects 

that spin off some kind of a return, ergo a user fee. And a lot of 

the places we are trying to focus on today, that is not going to be 

the case. 

I thought Mrs. Maloney’s example was a really interesting one. 

She talked about how a subway line generated more economic activity. Well, that is in New York City. The same thing happens 

when you build a cloverleaf off of an expressway in a rural area. 

You don’t have to be in New York City. This generates connections 

and economic activity, but you are not going—that is going to have 

to be—that has got to be a public good, and that has got to be 

thought about, in my view, as a traditional infrastructure program. 

You are not going to be able to tap that through a tax credit publicprivate partnership. 

Dr. Kane. Jared makes good points. I have been not able to comment on the infrastructure question. I would just approach it cautiously. I am probably less a fan, because I think it can be abused. 

And, you know, based at the Stanford University and being out in 

California for the last few years, I think the massive rail project 

out there that looks like a horrible boondoggle that probably will 

never come to fruition and will cost the people of Ohio money because Federal money, you know, has gone into that program as 

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well, I think often small communities, rural communities get left 

out of the infrastructure programs. Looks great, tends to go to bigger areas, better connected. 

And so I would just be cautious about it. But I think Jared 

makes a really important point, in that some of the most important 

infrastructure we have are our national parks, for example. And we 

don’t quantify those. And you know, we are guilty as economists, 

we don’t quantify some of the intangible values in life. So it is not 

always that you need to build, you know, lay down some more asphalt as a way to invest in what is important to Americans. 

Senator Heinrich. Thanks for that perspective, Dr. Kane. 

Representative Tiberi. Great question. Good comments. 

Mr. Rooney, speaking of buildings things, you are recognized. 

Representative Rooney. If we have time, you know, Mr. 

Lettieri, you talked about business formation, especially for young 

people, and the impact of industries becoming less competitive. 

What about the financial service sector? I mean, we have got DoddFrank, this giant elephant in the room squashing everything that 

we try to accomplish in getting lending going. And we have had a 

lot of smaller banks go out of the market. And we have had some 

senior bank CEOs joke that Dodd-Frank is the best thing that ever 

happened to them. 

So I just wonder if you all, as trained economists, have any advice for the record about the impact of things like Dodd-Frank and 

what some other people around here might be thinking about to get 

lending going. 

Mr. Lettieri. I will just make a brief point, then turn it over to 

my colleagues here, that if you are judging—so Dodd-Frank had a 

number of different goals. If one of the goals was to reduce industry 

consolidation, I think that is one where it certainly has failed to 

produce the intended result. And I am going to, in my answer, stay 

agnostic as to other results it may have produced that were more 

successful. 

But this obviously is germane to entrepreneurship because access 

to capital is so critical. And we are seeing small business lending 

on a downward decline. We are seeing actually a really severe 

problem and a pervasive problem with a lack of new entrants into 

the financial services industry. And so whatever the merits of a 

regulatory event like Dodd-Frank, I think we have enough evidence 

now to say there are some corrective measures that need to be 

taken. 

Representative Rooney. Thank you. 

Dr. Kane. I would just answer briefly, sir. Yeah, I think DoddFrank has sort of failed in achieving its goals. It has been hard on 

local and community banks. We have seen maybe too much consolidation. I don’t think consolidation, sir, is always a bad thing if it 

happens naturally. But when it happens because government is 

sort of rewarding larger firms and making it harder on smaller 

firms, that sort of consolidation is a great concern, and I think 

Dodd-Frank falls into that. 

Dr. Bernstein. I differ in the following sense. It is very easy to 

get amnesia around what happens in financial markets. The purpose of Dodd-Frank, which isn’t perfect—and I stipulate to some of 

the issues my colleagues raised. The purpose of Dodd-Frank was to 

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ensure that risk was not systemically underpriced so that we have 

another credit bubble and a massive implosion and recession. And 

thus far, it has helped in that regard. That doesn’t mean that it 

can’t be fixed. But it also doesn’t mean that you should forget why 

Dodd-Frank is in place in the first place. Similarly, the Consumer 

Financial Protection Bureau has also returned, I think, some very 

important results for its beneficiaries. 

Representative Rooney. I can’t count how many times the 

Bush administration, of which I was a member, testified before 

Barney Frank begging to raise downpayments for mortgages and 

were turned down. Okay? The Bush administration tried to prevent 

that, and the people that were in charge did it. 

Dr. Bernstein. I definitely stipulate to your point, but I continue to stress let’s not forget why Dodd-Frank is there in the first 

place. 

Representative Tiberi. Thank you. Thank you, sir. 

Mr. Lee, you are recognized. 

Senator Lee. Thank you very much, Mr. Chairman. 

I want to pick up where we left off earlier when we were speaking. Dr. Bernstein, I will start with you. I want to talk a little bit 

more about the role of civil society. Would you say that more dynamic areas are also known for stronger social ties, active communities, and more civic engagement? Do you see that as something 

that stands out in the data you review? 

Dr. Bernstein. You know, I am not familiar with that connection in the data, but it certainly sounds intuitive to me. 

Senator Lee. And the fact that it sounds intuitive, I think, 

speaks to the relative isolation that seems to pervade a lot of distressed communities. At least, anecdotally, that is what we see, 

and from what I know of the data, there are data sets to support 

that. 

To your knowledge, has the decline in dynamism in much of 

America gone hand-in-hand with the decline in social connections 

at the local level? 

Dr. Bernstein. I mean, I think that is true. I don’t know so 

much about the dynamism connection, but I am thinking of the 

work of Robert Putnam, the guy who—sociologist, ‘‘Bowling Alone’’ 

and all that. And I think that he is documenting precisely the 

kinds of dynamics you are talking about. 

Senator Lee. Thank you. 

Mr. Lettieri, I wanted to get back to you. You mentioned some 

good stats about my State, which I appreciated, and some nice features. We are seeing a different story than people are seeing in 

other parts of the country. Labor force participation and the employment-to-population ratio are several points above the national 

average, far more favorable than what you see in many parts of the 

country. And the unemployment rate in Utah is consistently noticeably below the national average. 

Given your work in understanding the regional variation and 

economic success, can you describe for us what you think states 

and regions with similar numbers are doing differently and what 

is contributing to their success? And then also tell us, could this 

have anything to do with what we have been discussing, with 

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strong institutions of civil society, especially with strong families, 

and high levels of civic engagement? 

Mr. Lettieri. It is great question. And you are exactly right. So 

places like Utah and then other areas where we see the highest 

rates of labor force participation are also highly dynamic economies. So there is something about a dynamic economy where they 

get really high engagement from their human capital. And that is 

an important and really rich scheme that runs throughout those 

different State and regional examples. They all come with different 

advantages, they all come with different industry bases, they all 

come with different demographics, but they all find a way to engage their human capital at really highly rates. So I think that is 

a lesson, kind of broadly, that we can apply. 

I think your point about social capital and institutions runs 

stronger in the other direction than it does as a predicate for dynamism. And by that, I mean—and I think this gets to Jared’s 

point—in areas where you see really highly concentrated distress 

and poverty, you also tend to see low social capital, low 

connectivity among institutions and families and civic organizations and things like that. It is not always sufficient to produce economic dynamism, but it is a headwind for economic growth when 

you don’t have it. 

And so I think on the poverty and distress end of the spectrum, 

those two are much more tightly correlated than on the dynamism 

side of the spectrum. 

Senator Lee. It might be sort of a condition precedent for having it, not always a guarantee, but a condition precedent or at least 

a benefit if you do have it. 

Mr. Lettieri. I think that is right. 

Senator Lee. So those who in the past concluded that what you 

needed more than anything was access to a port or access to a 

river, a highway, or government program, it is not always the case. 

Sometimes what people need more than anything is access to other 

people, access to networks, access to institutions of civil society to 

which they are connected. 

Thank you. 

Dr. Bernstein. Could I add just one tiny little point? 

Representative Tiberi. Go right ahead. 

Dr. Bernstein. I think everything you just said makes a ton of 

sense to me, but I also think kind of at the root of some of the 

places we are talking about is the lack of access to a job. There is 

just not enough employment activity. 

And I think if you start bottom-up with some direct job creation, 

actually bring jobs to people, my guess—and, again, this is nascent, 

sort of embryonic stuff—my guess is that that would help a lot in 

terms of the dynamics you are concerned about. 

Representative Tiberi. Great exchange. 

Our last questioner, Mr. Beyer, thank you for staying. 

Representative Beyer. Thank you, Mr. Chairman. I wouldn’t 

miss this. 

Representative Tiberi. It has been very good. 

Representative Beyer. Dr. Bernstein, my 24-year-old daughter 

has worked now for two startups since graduating from college. I 

have been visiting lots of the startups in northern Virginia, like 

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43 

1776, and what I am struck by is the startups are all brand-new 

ideas. They are not doing things that were around 10 years ago or 

30 years ago. They are really dependent on having some cool new 

app. Her latest business that she is in is—they do weddings from 

top to bottom. After Kellyanne Conway’s gaff—I can’t tell you the 

name of the firm, but it is pretty cool. 

[Laughter] 

But then I look and say, how much of—but I also see that relatively few young people are doing this. We talk about college debt. 

We talk about the difficulty of bank loans—which, by the way, the 

only way you can get a bank loan right now is if you don’t need 

it. 

And then the notion that all the old businesses, whether it is funeral homes or car dealers or gas stations or breweries, anything 

like that, they tend to be multigenerational. Now, there is the 

graying effect that you talked about; the average age is 10 years 

older. 

How do you overcome this to get the economic dynamism, the 

birthrate higher than the death rate, when the barriers to entry 

are so high? 

Dr. Bernstein. Well, first of all—— 

Representative Beyer. And, by the way, I do believe in concentration as long as it is my family business. 

[Laughter] 

Dr. Bernstein. First of all, just an anecdote, since we live a few 

miles from each other, there is a new startup in the Bradlee Shopping Center that is not an app. It is a Duck Donuts shop, and it 

is just—the line is out the door because the donuts are amazing. 

Don’t eat too many of them, but just—there is entrepreneurialism 

happening, and it is not related to apps. 

I think the one—I will just bite off a tiny piece of that. Others 

may have other things to say. Because it is a really—it is a deep 

problem. 

But I do think that the indebtedness problem that you suggested 

for kids who are coming out of college is something we need to address in this space. Because there are people—and they tend to be 

in the bottom half of the income scale—who aren’t getting the 

training they need and the encouragement they need perhaps to 

start a business, perhaps to be an entrepreneur, because they are 

either so burdened by debt or they can’t afford to leap over the barriers between them and that kind of education. 

And I have a number of ideas in my testimony that tries to bring 

that down, including income-based repayments but also assistance 

with college tuition of the type that is being zeroed out in budgets 

that are currently under discussion. I think that is deeply contraindicated in this space. 

Dr. Kane. Sir, if I can—— 

Representative Beyer. Yes, please, Dr. Kane. 

Dr. Kane. Two perspectives. 

One is, if you think about this as sort of a supply/demand problem—and I am trying to think of how to frame it. What are the 

constraints on the supply of entrepreneurs? And I think there are 

a lot more incentives for entrepreneurs to sort of stay in their safe, 

nested, paternalistic companies. 

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What is really shocking—and your testimony points out to this— 

is that we live in an era where it is so much easier to create a company, right, than it was in 1950 or 1960 or 1970, where if you 

wanted to create a startup company and, say, you were going to 

make, I don’t know, glass backboards, I mean, you had to build a 

factory. But now you can make an app. So the capital needs are 

actually so much lower, we should see an explosion of entrepreneurship, and instead we are seeing the reverse. 

So what is it that is holding people back from doing what is out 

there? And I think maybe the safety net is a little bit too safe, the 

paternalism is too comfortable. I don’t know, but I think that, to 

me, it is not just a downward trend, it is the lack of potential. 

So I think I maybe have one hint on what it is, because if I go 

to central Ohio and talk to my friends and say, ‘‘Why aren’t you 

guys making apps?’’, they will say, wait a minute, they didn’t work 

in the app—they are 40-year-olds, they are in the prime, but they 

don’t have experience making apps. They have experience in all 

these other things. So what constraint do they face? And it is this 

occupational licensing issue that makes it really, really hard to 

start in traditional industries. I mean, starting a restaurant, rife 

with risk. The lawsuit risk is higher than it was in the 1960s and 

1970s. 

So I would look at the legal culture and the occupational licensing are what is holding back what should be a golden era for entrepreneurship. 

Representative Beyer. Okay. Thank you all very much. 

Thank you, Mr. Chairman. 

Representative Tiberi. What a way to end it. Thank you. 

Great question. 

Thank you all for staying extra. This has been outstanding. I 

really appreciate all of your time, the different perspectives done 

in a very ‘‘happy warrior’’ way. We absolutely appreciate that. 

The record will be open for 5 business days for any member that 

would like to submit questions for the record. 

And, with that, the hearing is adjourned. Thank you. 

[Whereupon, at 12:10 p.m., the committee was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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PREPARED STATEMENT OF HON. PATRICK J. TIBERI, CHAIRMAN, JOINT ECONOMIC

COMMITTEE

Good morning everyone. Welcome to the first Joint Economic Committee hearing 

of the year. I want to especially welcome our Ranking Member Senator Heinrich 

and our Vice Chairman Senator Lee, as well as the other Members of this Committee, and I look forward to working with them this Congress and diving into some 

important issues facing our economy. 

The U.S. economy did not surge back from the last recession as it had after every 

other recession since World War II, and we are paying a price for that. The drawnout recovery and the meager growth rate we have settled into are exacerbating the 

country’s many challenges. 

The purpose of today’s hearing is to gain insight into why the recovery, besides 

being so slow, is also uneven. Many parts of the country face problems more severe 

than national average economic growth and unemployment rates convey. Some 

areas effectively are still in a recession. 

In my home State of Ohio, we’ve made strides in encouraging businesses to come 

to our State and our unemployment rate has dropped at a steady pace over the past 

few years. However, that hasn’t been true for every part of the State. We can do 

better, especially for the communities where folks feel they are being left behind. 

In Ohio that is in counties in Appalachia and in areas surrounding urban centers 

of Ohio where the dynamics of the rural and urban poor couldn’t be more different. 

Allow me to submit to you four perspectives. First, accelerated national growth 

would lift many struggling regions. The familiar image of the tide lifting all boats 

is appropriate. 

Second, innovation is integral to economic development, especially in an advanced 

economy. Innovation arises from entrepreneurship, which has been the hallmark of 

U.S. economic success. When entrepreneurial activity wanes, as it has recently, economic growth slows. 

Third, a large, complex economy such as the U.S. economy will always have parts 

that expand and parts that contract, largely related to different rates of technological change. However, government intervention such as with respect to taxes, 

wage and employment benefit mandates, zoning, and licensing can exacerbate this 

by restricting market entry, impairing new business formation, and limiting job creation. 

Fourth, education and skill development are the key to a productive, adaptable 

labor force. I was struck by observations Federal Reserve Chair Janet Yellen made 

in a speech last week in which she stressed the importance of entrepreneurship, the 

importance of vocational education and apprenticeships, and engaging employers in 

the training process, among other things. 

Everyone is aware of the demographic change the country is undergoing. The 

baby boom generation is reaching retirement age and that is affecting many aspects 

of the economy. One such effect is slowing entrepreneurial activity, as a part of today’s testimony will explain. 

The challenge of an aging population makes it all the more important that the 

economy work efficiently and that government actions, at both the State and local 

levels and the Federal level, not be prohibitive. 

Unfortunately, this is not always the case. For example, laws and regulations for 

many years have been accumulating at a faster rate than the economy has grown. 

As a result, business expansion is discouraged and new projects deferred or abandoned. U.S. worldwide ranking in the ease of starting a business has slipped from 

45th out of 190 countries in 2016 to 51st today, according to the World Bank. 

Members from both sides of the political aisle have frequently criticized the inefficiencies of the regulatory build-up, yet it has continued. The effects are real and 

they are holding the economy back. 

One of the key areas of weakness in this recovery has been private business investment, which is sensitive to tax and regulatory regimes. The economy requires 

faster rates of private investment than the existing regimes have permitted. Regulatory and tax reform will create more jobs and opportunity. 

A central aspect of the economy’s functioning can be characterized as ‘‘dynamism’’—the rate at which the population starts new businesses, moves to another 

region, and changes jobs or occupations. It refers to the people’s innovativeness, entrepreneurship, and motivation. Less dynamism means less of this is happening. 

Many of our communities are hurting, and I believe that increased private investment, restoring economic dynamism and the resulting accelerated economic growth 

can help them recover. 

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47 

We have an excellent panel of witnesses today, and I look forward to insightful 

testimony on economic dynamism and the challenges facing local and regional 

economies in this country. 

In closing let me observe that there are few periods in the country’s history when 

America did not face serious challenges. We may face new challenges today, but I 

have full faith in the resourcefulness of the American people and the functioning 

of our market economy to overcome them, as in the past. 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING DEMOCRAT, JOINT

ECONOMIC COMMITTEE

Thank you, Chairman Tiberi, Vice Chair Lee, and our witnesses for joining us 

today for our first hearing of the Congress. 

The United States is the global leader in opportunity and innovation. 

When I was growing up, both of my parents worked exceedingly hard. Neither 

had a college degree. 

It wasn’t easy, but I was able to get a college degree and am sitting here with 

all of you today because of the sacrifices they made and because of the opportunities 

this country afforded them. 

What seemed like an attainable dream 30, 40, 50 years ago too often seems unattainable today. 

Across New Mexico and the Nation, working people feel like they can’t get ahead. 

And parents don’t believe the future is bright for their children. 

When we ask ourselves—what are the barriers to opportunities for me and my 

neighbors—my Republican colleagues focus on the role of regulation and the tax 

code. 

This conversation is important, but I caution us all to not conflate what is good 

for CEOs or investors with what is good for a working family living in rural New 

Mexico. 

It is a mistake to think that deregulation or tax reform alone will revive rural 

communities or create good paying jobs in cities and small towns across America. 

What our business leaders lack is certainty. 

Expiring tax credits aren’t good for planning. 

The constant threat of taking health care away from families doesn’t instill certainty. 

Repealing rules that keep our air and water clean don’t give businesses the certainty they need to create the jobs of the future. 

Policies that are good for business and promote pragmatic public health goals— 

like the methane rule, that Congress is trying to do away with—should be protected 

not targeted. 

We are about 80 days into this Administration and what we’ve seen is a budget 

that would devastate rural America, and make it harder for seniors and children 

to get core services that keep them healthy. 

Too many people here in Washington D.C. think that if the stock market is on 

the rise, the economy is doing just fine. But that’s not the reality for most of America’s working families. 

The way we should measure the success of the economy is if wages go up, parents 

can afford to send their kids to college, entrepreneurs can start new businesses, and 

workers are able to retire with peace of mind. 

We have to get back to the basics. 

Congress must take concrete action that focuses our limited resources on investing in working families –the women and men in this Nation who are fighting to give 

their kids a better future—rather than on tax cuts for the wealthy. 

Comprehensive education and workforce training must be a top priority in the 

face of the global nature of the new economy. 

We need tax and labor policies that reward hard work. We ought to prioritize tax 

programs for families that are proven to reduce poverty and incentivize work, like 

the Earned Income Tax Credit and the Child Tax Credit. 

Public-private partnerships alone cannot create the modern infrastructure that 

works for all communities, especially those that rural communities need. 

It will take Congress making a substantial investment in roads, water projects, 

and high-speed broadband that connect people and communities to financial and 

educational opportunity. 

The renewable energy sector is a place where jobs are growing rapidly and not 

just in metro areas, but also in rural communities. Congress’ work to encourage this 

market through tax credits has helped get the renewable energy industry off the 

ground. 

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The success of the future of our economy will be tied to whether Congress today 

takes the bold steps necessary to connect people with the opportunities that will 

exist tomorrow. 

A lot of work remains to be done to ensure that all of us get a shot at getting 

ahead. 

I look forward to starting this conversation with you all today and hearing from 

our witnesses. 

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The Decline of Economic Opportunity in the United States: Causes and 

Consequences 

Testimony before the Joint Economic Committee of the United States Congress 

Edward P. Lazear1 

AprilS, 2017 

Chairman Tiberi, Ranking Member Heinrich, Vice Chairman Lee, and members of the 

committee: Thank you for giving me the opportunity to address, once again, the Joint Economic 

Committee, this time on the important topic of opportunity and how it varies within our 

economy. 

I will make four points. First, there is regional variation in economic success. There 

always has been variation in economic experiences among states. The last recession and 

recovery were not exceptions. Typically, those areas that were hit hardest during the recession 

had the most robust recoveries. Second, although states differ in their experiences and outcomes, 

some adverse factors are common. Most important is an aging population, which affects both 

employment and business formation. Third, states vary in their performance, partly because they 

opt for different tax and labor-market policies. State-based policy changes can be helpful to 

growth, but it is important to encourage genuine growth rather than mere transfers of prosperity 

from one region to another. Fourth, the most important remedy for local ills is a growing national 

economy. A rising tide may not lift all boats equally, but draining the ocean will not help those 

with the least forward momentum. 

State Differences in Unemployment and Poverty 

My focus is primarily on the period since 2000. Special attention is given to the 2007-09 

recession and recovery since it is most relevant to the situation that exists today. 

First, state experiences differ before, during, and after the recession in part because 

education, average ages, and the proportion of new immigrants vary across states. Perhaps most 

important, the industrial composition varies. Com is important in Nebraska, but not so in 

Arizona. Because states have differing industrial makeups and because industries rise and fall 

somewhat idiosyncratically, it would not be surprising to see states' economic conditions to be 

out of synch with one another. For example, Texas is more sensitive to oil prices movement than 

is Tennessee. The dot.com crash in the early 2000s affected Silicon Valley severely, but other 

parts of the country to a lesser extent. 

The housing bust in 2007 was felt strongly in a number of areas including Central 

California, Florida, Arizona, and Nevada. States like North Dakota barely experienced increased 

unemployment with the peak rate never climbing more than one percentage point higher than the 

rate that prevailed in 2006. By contrast, Nevada's labor market was massacred during the 

I 

Mr. Lazear, former chairman of the Council of Economic Advisers (2006-09), is a professor at Stanford 

University's Graduate School of Business and a Hoover Institution fellow. 
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recession, with the unemployment rate rising almost ten percentage points. California was not far 

behind. 

Although these specific cases are vivid and suggest important state differences, a more 

systematic approach is useful to put things in the proper perspective for policy analysis. 

Unemployment 

Consider unemployment first. In 2006, unemployment rates varied from a low of2.6% to 

a high of 7% or about a 4 Y, percentage point difference. In 20 I 0, when unemployment peaked 

nationally, about I 0 percentage points separated the highest unemployment rate state from the 

lowest. A standard statistical concept used to measure how much variation there is between 

states is the "standard deviation." Not only did the national unemployment rate double during the 

recession, the standard deviation in unemployment rates across states also doubled from 2006 to 

2009. 

The relative homogeneity in unemployment experience that existed before the recession 

has returned. The lowest state unemployment rate in 2016 was in South Dakota at 2.8%, with the 

highest in New Mexico at 6.7%. The spread between high and low is under 4 percentage points, 

and the cross-state unemployment rate standard deviation has fallen back below 2006 levels. 2 

Note that despite the return to more uniformity, there still exists significant dispersion in labor 

market conditions across the country, given that the rate in New Mexico is twice that in South 

Dakota. 

Although there are changes in the rankings by states in terms of their unemployment 

rates, significant persistence exists. Those states that were low rate states in 2006 tend to be low 

rate states in 2016. Six of the ten lowest unemployment states in 2006 were in among the ten 

lowest unemployment states in 2016. There is less persistence among the highest unemployment 

states. Only Alaska, Mississippi, and the District of Columbia were among the highest ten 

unemployment states in both 2006 and 2016. 

The good news is that, at least some of the time, slack labor markets are not a permanent 

condition. There are good economic reasons for this. When there is high unemployment in a 

state, some of those having difficulties finding jobs move to states with better economic 

conditions. The converse also happens. When there is a good pool oflabor available, firms 

move in to take advantage of the slack labor conditions. Unfortunately, this process is slow and 

may imply many unemployment experiences, often associated with depressed wages even after 

finding a job. 3 

'Figures I a, b, and c show the variation in unemployment rates across states for each of the three years. Figure 2 

displays what happened to the mean and standard deviation of the unemployment rate across states in the three 

years. 

'Katz and Blanchard ( 1992) discuss how adverse shocks to employment can depress wages for a decade. See von 

Wachter and Schmieder (2015) on the negative impact of unemployment benefits and nonemployment durations on 

reemployment wages and von Wachter, Song, and Manchester (2007) on the lasting impact of job loss on future 

wages. Autor, Dom, and Hanson (20 13) also offer a thorough examination of trade's adverse impact on wages, 

unemployment, and labor force participation rates. 

2 
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Poverty 

In 2006, state poverty rates varied from a low of 5.4% in New Hampshire to a high of 

20.6% in Mississippi. At the height of the recession in 2009, the same two states were bookends, 

but the rates varied from 7.8% to 23.1%. By 2016, New Mexico had supplanted Mississippi as 

the lowest poverty rate state, but Mississippi remained a close competitor. New Hampshire is 

still the state with the lowest poverty rate. 

More important than the rankings, however, is the fact that poverty varies so greatly 

among the states, with the worst state having a rate about three times as high as the best state. 

State differences in poverty are persistent. In 2006, Mississippi, District of Columbia, Arkansas, 

Louisiana, and New Mexico had the highest poverty rates. In 2015, Mississippi, New Mexico, 

and Louisiana remained among the highest five poverty rate states, and the District of Columbia 

was sixth highest. 4 

Recession and Recovery 

It is important to point out that the state rebound experiences from the recession differ quite 

substantially. There is almost a perfect inverse relation of post-recession unemployment rate 

improvement with the peak rate of unemployment during the recession. Those states that 

experienced the highest unemployment during the recession enjoyed the most improvement. For 

example, Michigan's unemployment peaked at 13.9% in 2009, but by 2016, it had fallen almost 

9 percentage points, down to 5.1 %. Conversely, North Dakota, with the lowest peak rate of 

4.1% (also occurring in 2009), experienced a rate fall of 1.4 percentage points between its peak 

and its low in 2014. There is little room for improvement when the rate is very low, but the 

pattern is not merely mechanical. The rebound phenomenon is pervasive and a positive aspect of 

our economy. States with high rates can more easily call back idle resources when the economy 

starts to grow again. Michigan could have remained at very high rates of unemployment, or 

worse, the rate could have continued to rise. It did not. Instead, it fell to a rate close to the 

national average. 

The Aging Worliforce 

It is well-known that the workforce is aging, primarily because the large cohort of babyboomers are entering their senior years. The effects of an aging workforce show up in a variety 

of ways, but the two most important are the decline in the employment rate, which has a direct 

effect on GOP growth, and the reduction in business formation, which has drawn the attention of 

'Figures 3a, b, and c show the variation in poverty rates across states for each of the three years. Figure 4 displays 

what happened to the mean and standard deviation of the poverty rate across states in the three years. 

3 
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this committee. 5 Business formation has declined in many regions, although there are pockets 

where new business creation remains strong. 

The employment-to-population ratio, which is defined as the ratio of those 16 and older 

with jobs to the overall population 16 and older, was at 63.4% before the recession began and 

fell about 5 percentage points during the recession. It has crept back up to its highest level in 

eight years, now at 60%, but still well below the pre-recession peak, despite unemployment rates 

that are down at 4.7%. About half of the difference between the current rate and the prior peak 

of 63.4% is a result of an again population. When a larger fraction of those over 16 are in their 

retirement years, a smaller proportion of that group will be working. 6 

Another subtler effect of aging is the slowing of entrepreneurial activities, which is 

consistent with the general decline in the formation of new businesses. Since this session is about 

opportunity, it is important to report recent findings that establish the effect of an aging 

population on opportunities for the young. 7 When a society ages, the top positions in firms tend 

to be dominated by older persons, and this tendency diminishes the ability of younger ones to 

acquire the skills necessary to start businesses. The surprising fact from a study of 82 countries 

from 2000-2010 is that younger countries have higher rates of business formation, but more 

important is that every age group, and especially in 30s, tends to have higher rates of 

entrepreneurship in younger countries than in older ones. It is not merely the case that 35-yearolds are more likely to start a business than are 65-year-olds. Additionally, 35-year-olds in 

Korea are more entrepreneurial than 35-year-olds in Japan because Japan has an older population 

than Korea. Also true is that Japan was significantly more entrepreneurial a couple of decades 

back when it had a much younger population than it has today. 

Figure 5 demonstrates the importance of aging on entrepreneurship rates. The 82 

countries studied are divided into three groups: youngest, middle, and oldest countries. Note that 

the younger countries have higher rates of entrepreneurship at every age than the middle-aged 

countries have. The curves do not cross, meaning that the entrepreneurship rate in young 

countries is higher than in middle countries at all ages. The same is true in a comparison of 

middle and old countries, with the older countries have the lowest rates of entrepreneurship. One 

other noteworthy fact is that the curves have an inverted-U shape. Entrepreneurship rates tend to 

peak when individuals are in their 30s. The young do not have the experience to start businesses, 

and the old may lack the energy, creativity, or incentives to start businesses. 

These results have profound implications for the country as it ages. To keep business 

formation active and job creation lively, it is necessary to maintain a younger population. To the 

extent that natural rates of population growth are declining as desired family size shrinks, the 

5HDynamism in Retreat: Consequences for Regions, Markets and Workers," February 2017, Economic Innovation 

Group. 

6 Unfortunately, that is not the only issue. The employment rate of those 25 to 54 has also fallen by about 2 

percentage points from its pre-recession level and if anything, that rate should be higher, not lower as firms try to 

find substitutes for older workers who have retired. 

7

See Liang, James, Hui Wang and Edward P. Lazear, "Demographics and Entrepreneurship," forthcoming, Journal 

of Political &anomy. 

4 
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obvious alternative is an immigration policy that encourages young, entrepreneurial individuals 

to come to the United States. 

Policy Driven Differences Among States 

Research on cross-state performance demonstrates the importance of policy choices on 

growth and employment outcomes. Some of the factors discussed above, like those having to do 

with commodity prices and other industry shifts, may be beyond the control ofpolicymakers, but 

others are sensitive to choices that the states make. As reported in a Wall Street Journal op-ed,8 

those states that adopt more flexible labor market and low tax policies are the ones that 

experience the best growth. The relevant paragraphs are paraphrased below. 

Market-oriented policies are effective in raising both employment growth and state GDP 

growth. States that adopt more flexible labor policies and lower taxes enjoy better economic 

outcomes. 

Data on employment, state GDP, employment laws, and tax rates from 2000 to 2015 

reveal that states with the most positive business climates grow fastest. There are a number of 

ways to categorize the business climate that prevails in a particular state. Labor climate is 

captured by the state's minimum wage relative to that which prevails in other states (or the 

federal minimum when that is binding) and by whether the state is a right-to-work state or not, 

defined as having a general right-to-work law on its books. Right-to-work laws prohibit requiring 

that employees to pay dues to a union. The relevant data are directly available from the 

Department of Labor, from the US Department of Commerce Census Bureau, and from the Tax 

Foundation, a non-partisan research group. 

Throughout most of the period studied (2000-2015), there were twenty-two right-to-work 

states. Minimum wages vary both over time and across states. Finally, the proportion of state 

GDP that is taken in tax varies across states from a high of I 2% in New York to a low of 5% in 

Alaska. 

On average, employment growth is twice as high in states that have "market-oriented 

labor policy," defined as being a right-to-work state and having minimum wages that are below 

average across states. The difference is statistically significant, meaning that it is unlikely to 

have occurred by chance. Similarly, GDP grows about one-and-one halftimes faster over this 

period in those states. 9 

Perhaps most compelling is that three states, Indiana, Michigan, and Wisconsin changed 

their right-to-work status during the past three years, although Wisconsin did so too recently to 

have much of an effect. The before-after comparison is striking. Before the recession, when 

right-to-work laws were absent, these states averaged slightly negative employment growth that 

was well below the national average. After passing the legislation, growth in these states was 

'Edward P. Lazear, June 23, 2015, "Why the Recovery Still Limps Along," Wall Street Journal. 

'These results are consistent with those of Arthur Laffer, Stephen Moore and Jonathan Williams in Rich States, Poor 

States: ALEC-Laffer State Economic Competitiveness Index (20 14; updated 20 16 9'' edition), published by the 

American Legislative Exchange Council. 

5 
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one-and-one half times the national average, even accounting for the rebound effect discussed 

above. 

General Growth Rather than Beggar-thy-Neighbor 

Some cross state differences reflect policies that for the nation as a whole could amount 

to a zero-sum game. For example, in sports, cities often try to attract teams. Most recently, Las 

Vegas acquired rights to move the Oakland Raiders to Nevada. Tax breaks and other concessions 

are given which may make one city better off at the expense of the other. To the extent that the 

winning city is the one that gains the most by having the team located there, the. situation is 

better than a zero-sum game. But much of the activity and resources used to win the competition 

for team location may be unproductive. 

The same is true of economic activity more generally. Giving privileges to certain firms 

to locate in a state may have a local benefit without much value for the US economy taken as a 

whole. It is important, therefore, to encourage states to adopt policies that avoid beggar-thyneighbor strategies. Low taxes and flexible labor market policies for the most part are positive 

pro-growth policies, which, especially if adopted by all states, would likely enhance economic 

development and opportunities. 

General Growth Is the Best Way to Enhance Opportunity 

It is tempting to focus policies in a geographically narrow way, wanting to help those 

regions that have been left behind. These policies are likely to be unproductive or even counterproductive for a number of reasons. 

First, sometimes the policies merely transfer jobs and growth from one region to another 

without any net job or growth creation. This is the "beggar-thy-neighbor" effect just discussed 

that has some local, but little countrywide benefit. 

Second, it is difficult to predict which areas will grow and which will decline and by the 

time the policies are implemented, the problem may have already passed. For example, back in 

2005, North Dakota had just experienced an annual growth rate of about 'h%, suggesting an 

economy that was going nowhere. Between 2005 and 2013, the state's GDP grew by an 

astounding 83%, in large part as a consequence of the energy revolution that occurred there. 

Similarly, at the depth of the recession, Nevada's unemployment rate was close 13.5%. Since 

then, its unemployment rate has fallen by 8 percentage points. 

Third, general growth helps all regions, even if not at the same pace. As the economy has 

recovered from recession, unemployment has fallen in every state. Some states have seen very 

large declines, whereas others have seen more modest gains. But as discussed above, the states 

with the largest improvements also tend to be those that were hit hardest during the recession, 

with Michigan leading the pack. 

One final point: Just as states differ in the benefits that they derive from growth, so too do 

individuals benefit differentially from growth. A rising tide lifts all boats, but unlike a tide, the 

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large and small boats do not necessarily rise by the same amount. 1 0 It is well known that the 

disparity in incomes between the rich and poor has grown over time. But it is important to 

understand the causes of this problem in order to find appropriate remedies. 

The pattern is a general one. Not only has the difference between earnings of the top I% 

grown relative to the bottom 1%, but those at, say, the earnings of the 80'h percentile have grown 

relative to earnings at the 20'h percentile. The fact that the growth in income disparity exists 

throughout the distribution, albeit most pronounced at the extremes, suggests that there is a 

common factor behind the pattern. That common factor is the value of education, which has 

risen over recent decades. The most educated earn high wages relative to the least educated, and 

the education premium has grown. This manifests itself in industries that use highly skilled 

individuals, like higher education and health, where costs have gone up along with the 

compensation of those who work in the industry. 

If growing income disparity reflects a rising return to skill, then the remedy is to enhance 

the skills of those who are benefitting the least from our economic growth. A comparison 

between wages in the US and Germany is striking. A smaller fraction of Germans attend college 

than do Americans, but most Germans without college training are enrolled in strong vocational 

training programs. The results are clear. 11 Germans with vocational training earn 92% of the 

average wage in Germany, whereas US high school graduates (let alone dropouts) earn only 70% 

of the average wage in the US. The numbers are even more striking in manufacturing. A US 

high school graduate earns less than half of a college-educated manufacturing worker. In 

Germany, that number is close to two-thirds. The German system has its shortcomings, but there 

is much to be learned about opportunity from other countries. It is essential that we provide all 

Americans with the skills necessary to perform successfully in a modern economy. 

Conclusion 

The most effective way to enhance opportunity for all Americans is to ensure that we 

have a vibrant growing economy, built on flexibility and minimal impediments. It is especially 

important that we continue to strive for a society where opportunity is available to all. 

10See Figure 6, which demonstrates that high and low earners do best in rapidly growing economies, but not at the 

same rate. 

''Edward P. Lazear and Simon Janssen, September 9, 20 !6, "Germany Offers a Promising Jobs Model," Wall Street 

Journal. 

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References 

Autor, David. H, David Dom, and Gordon H. Hanson. 2013. "The China Syndrome: Local Labor 

Market Effects on Import Competition in the United States." The American Economic Review 

103 (6): 2121-2168. 

Bureau of Economic Analysis, Regional Economic Accounts. 2016. Annual Gross Domestic 

Product (GOP) by State. Accessed at https://www.bea.gov/regional/downloadzip.cfm. 

Bureau of Labor Statistics, Local Area Unemployment Statistics. 2017. Seasonally Adjusted, 

Statewide Unemployment Rate. Accessed at https://www.bls.gov/lau/#tables. 

"Dynamism in Retreat: Consequences for Regions, Markets and Workers." February 2017. 

Economic Innovation Group. Accessed at http://eig.org/wp-content/uploads/20 17/02/Dynamismin-Retreat.pdf. 

Katz, Lawrence and Olivier Jean Blanchard. 1992. "Regional Evolutions." Brookings Paper on 

Economic Activity 1992(1 ): 1-75. 

Laffer, Arthur, Stephen Moore, and Jonathan Williams. 2016. Rich States, Poor States: ALECLaffer State Economic Competitiveness Index. Arlington, VA: American Legislative Exchange 

Council. 

Lazear, Edward P. June 23, 2015. "Why the Recovery Still Limps Along." Wall Street Journal. 

Accessed at https://www.wsj.com/articles/why-the-recovery-still-limps-alongwhy-the-recoverystill-limps-along-1435006232. 

Lazear, Edward P. and Simon Janssen. September 9, 2016. "Germany Offers a Promising Jobs 

Model." Wall Street Journal. Accessed at https://www.wlti.com/articles/look-to-germany-for-awinning-jobs-model-1473375942. 

Liang, James, Hui Wang and Edward P. Lazear. Forthcoming. "Demographics and 

Entrepreneurship." Journal of Political Economy. 

U.S. Census Bureau, Historical Poverty Tables. 2016. Table 21. Number of Poor and Poverty 

Rate, by State. Accessed at https://www.census.gov/dataltables/time-series/demo/incomepovertylhistorical-poverty-people.html. 

von Wachter, Till, Jae Song, and Joyce Manchester. 2007. "Long-Term Earnings Losses due to 

Job Separation During the 1982 Recession: An Analysis Using Longitudinal Adminstrative Data 

from 1974-2004." Discussion Paper no. 07018-16. New York, NY: Columbia University, 

Department of Economics. 

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von Wachter, Till, Johannes Schmeider, and Stefan Bender. 2016. "The Effect of Unemployment 

Benefits and Nonemployment Durations on Wages." American Economic Review 106(3): 739-

777. 

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Figure lb. Unemployment Rate by State (2009) 

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Figure lc. Unemployment Rate by State (2016) 

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Figure 2. Means and Standard Deviations of Unemployment Rates for 2006, 2009, and 2016 

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Figure 4. Mea us and Standard Deviations of Poverty Rates for 2006, 2009, and 2015 

Source,· U.S. Census Bureau, 2016 

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Figure 5. Entrepreneurship Rates in Countries with Young, Middle, and Old Populations 

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Figure 6: J>oor and Rich Do Better In growing Economies, but Not Necessal"ily at the Same 

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"The Decline of Economic Opportunity in the United States: Causes and Consequences" 

Testimony before 

The Joint Economic Committee of the United States Congress 

AprilS, 2017 

John W. Lettieri 

Economic Innovation Group 

Chairman Tiberi, Ranking Member Heinrich, Vice Chairman Lee, and members of 

the committee: Thank you for the opportunity to testifY today. 

Many ingredients that helped the United States forge the world's leading economy over the past 

century are now the subject of considerable political debate and anxiety-from international 

trade and investment, to advanced technology, to robust immigration, to even capitalism itself. 

But one thing that still seems to unite all sides is the shared belief that the United States should 

be a country in which access to opportunity is broadly available-not simply reserved for those 

who won the lottery of birth. This idea is at the very core of our national identity. 

While there are many ways to approach a discussion on economic opportunity, my testimony 

today will focus on the pervasive decline of U.S. dynamism and its implications for workers, 

markets, and regions. 

Why focus here? Because a less dynamic economy is one likely to offer fewer pathways to 

achieving the American Dream. For workers, declining dynamism means fewer labor market 

opportunities and less upward mobility. For markets, it has corresponded with an era of 

diminished competition and greater rewards to entrenched incumbents. For regions, it means 

shrinking industrial bases and more profound geographic disparities. 

I especially want to emphasize that the challenges we face related to economic dynamism are 

new, having emerged clearly in the early 2000s and then accelerated sharply with the onset ofthe 

Great Recession. The trends and consequences described later in my testimony put our 

economy-and, therefore, our policymaking efforts-in uncharted waters. We do not have a 

playbook for the current status quo. 

In short, the central economic challenge of our time is not the trade deficit, tax rates, or income 

inequality. It's dynamism. 

Dynamism in Retreat 

The economy today is suffering from too little change, not too much. I realize this is a 

provocative claim in the age of the gig economy, automation, and the dawn of artificial 

intelligence. But the fact is Americans are less likely to start a business, move to another region, 
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or switch jobs now than at any other time on record. Indeed, the U.S. economy is quickly 

becoming less dynamic in nearly every measurable respect. 1 

Why does this matter? If we believe the problem is too much change, it follows that policy 

priorities will be oriented around mitigating disruptions and hedging against risk. On the other 

hand, if we understand the economy has grown too static and too risk averse in too many areas, 

the logical response is a dynamism-boosting policy agenda-precisely what I believe is urgently 

needed. 

Dynamism can be understood, in essence, as the rate and scale of economic churn. It fuels an 

economy's process of creative destruction, enhancing our ability to adapt and allocate resources 

in a more efficient manner. Historically, the high-chum nature of the U.S. economy acted as a 

kind of shock absorber in times of economic change or trauma. 

Let's start by assessing the state of dynamism today through three important and interrelated 

measures: the startup rate, job turnover rate, and domestic migration rate. 

New firms are becoming scarce. At the core of the broad decline in economic 

dynamism is a steep drop in new firm formation. The startup rate collapsed during the 

Great Recession to its lowest point on record--dipping below the closure rate for the first 

time. Even as the broader economy has improved, the startup rate has barely budged and 

remains mired at 8.0 percent-narrowly outpacing the firm closure rate (this is important, 

as we will see below). Even in absolute terms, the economy produced 25 percent fewer 

new firms in 2014 than it did before the crisis. The decline is pervasive across all regions 

and industry sectors. 

Figure 1 Firm birth (startup! and death rates 

1 ... 

15 .. 

... 

... 

... 

--- -Deathl8ta 

1 "Dynamism in Retreat: Consequences for Regions, Markets, and Workers." Economic Innovation Group 

(February 2017). Unless otherwise cited, all statistics cited in this section and the next are from this report. 

2 
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~v'"''"'"'"Y between 3.0 percent and 3.5 

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Consequences of Declining Dynamism 

economy. 
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-t 

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GDP. 

182,000 than 

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normally average around 6 percent ofGDP, have averaged over 9 percent ofGDP over the 

recovery. Market concentration is becoming more pervasive. Two-thirds of U.S. industries saw 

an increase in concentration between 1997 and 2012, with the top firms claiming a larger and 

larger share of total revenue. 

To be clear: Some degree of market concentration is not inherently bad for consumers or the 

broader economy. However, remarkably high and persistent profits alongside pervasive 

concentration are a warning sign of economic rents. What should be temporary rewards in a 

competitive economy now resemble perpetual rewards to incumbency. And the steady creep of 

regulatory complexity only serves to strengthen incumbents' hold on the market. 

Another reason to be concerned by the graying of the business sector is its impact on innovation 

and productivity. An array of research indicates that firms tend to become more risk averse as 

they age, while new companies are disproportionately likely to bring radical innovations to 

market.5 But with the number of initial public offerings down significantly since the 1990s and 

number of acquisitions going up, much of the innovation generated by today's new companies 

simply goes to directly strengthening-instead of challenging-an incumbent. 

Rising Geographic Inequality and Concentrated Growth 

The economy has undergone massive changes in recent decades, but few are as obvious as the 

shifting geographic distribution of new jobs and businesses. The last recession and subsequent 

years have accelerated a trend towards geographic concentration after decades of decentralizing 

growth that spread economic activity to more locales. An increasingly narrow set of places are 

responsible for national rates of growth as an increasingly wide swath of places get left behind. 

While regional variations have always been a fact of life, the relationship between place and 

opportunity appears more pronounced than ever. 

As the map of economic growth and recovery has changed, so too has the nature of economic 

opportunity for millions of Americans. Consider these findings: 

The local benefits of dynamism are accruing to smaller shares of the population. For 

example, fully half of the net increase in U.S. firms from 2010 to 2014 were located in 

only five metro areas: Houston, Dallas, Los Angeles, Miami and New York. These places 

were home to only 17 percent of the country's jobs. Compare that to the 1992 to 1996 

period, in which 30 metro areas-spread throughout the entire country and housing 40 

percent of U.S. employment-produced half the net growth in firms. 

5 Huergo, Elena and Jordi Jaumandreu, "How Does Profitability of Innovation Change with Firm Age?" Small 

Business Economics 22 (3) (2004): 193-207; Litan, Robert and Carl Schramm, Better Capitalism: Renewing 

the Entrepreneurial Strength of the American Economy (Yale University Press 2012); Acemoglu, Daron and 

Dan Cao, "Innovation by Entrants and Incumbents," Journal of Economic Theory 157 (2015): 255-294. See 

also Acemoglu, Daron, Ufuk Akcigit, Nicholas Bloom, and William Kerr, "Innovation, Reallocation, and 

Growth" Working Paper 18993 (National Bureau of Economic Research 20 13), for an analysis of the 

differences in the innovation and R&D activities of new firms versus incumbents. 

7 
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lt is crucial to note: This trend is the result of most doing worse, not a few 

better than ever. For example, the New metro area produced roughly 

same in firms over the last three economic recovery periods. In other words, the 

pie itself is getting smaller and the biggest slices are going to resilient large metro areas. 

The with finns and metro areas holds true for counties and business establishments 

as welL This is impmiant because if fewer new finns were still a broad and 

distribution of growth in business establishments, the would 

less severe. Instead, we see that half ofthe net in establishments from 

to 2014 occurred in just 20 counties home to percent ofthc U.S. po:pulati<1n. 

This is again a far from the I 992 to 1996 period, which 125 counties to 

roughly a third population generated half the net growth. 

Figure 7 

Map qf rnumles accounting/Or lw.lf of1Y!C011try-tra establlshnrent gn>wth 

Counties losing business establishments have more than three 

recoveries. The percentage of counties seeing a net decline in 

during national recoveries went from 17 percent from !992 to 1996 to 59 

2010 to 2014. As a result, most U.S. counties had fewer business """u''"'""'"'" 

than they did in 2010. seeing a net establishment loss were home to nearly one 

third of the U.S. population. 

over the neediest communities. National figures arc 

a local EIG's Distressed 

that U.S. codes in bottom quintile 

saw significant of both jobs business establishments during 

four years ofthc national economic recovery. On average, saw a -6.7 percent change 

em;pl<)ytne:nt and a -8.3 change in establishments. are places spread 

<muu.e;wJu< every region housing over 50 million Americans--often adjacent to 

prosperous centers of economic growth. Meanwhile, the top quintile of zip codes 

P Finns are the 7 "The New Map AFI•'M""'"'" 

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saw employment gains of 17.4 percent and establishment growth of 8.8 pcrccnt8 These 

findings underscore the consistent disconnect between the national narrative of steady 

recovery and the deep anxiety many Americans still feel about their own local 

economics. 

Small and rural counties experienced a stunning reversal of fortune over the past 

two decades. Low-density counties went from a 16 percent employment growth rate in 

the 1992 to 1996 period to a 4.9 percent growth rate from 2010 to 2014. Worse, over the 

same period, those counties went from leading the nation with a 9.0 percent 

establishment growth rate to last place with a rate of -I .0 perccnt9 While many 

flourishing rural and small town communities remain, the landscape of opportunity and 

economic growth has clearly shifted toward higher density locales. 

x "The 2016 Distressed Communities Index: An 

"Economic Innovation (February 

Economic Innovation Group, May 23-24. 

Figure 8 

Figure 9 

of Community Well-Being Across the United 

9-12. 

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• The largest counties were the clear winners of the 2010s recovery. As fortunes have 

faded elsewhere, counties with over one million residents led the nation in employment 

and establishment growth rates for the first time. 10 This defies the conventional wisdom 

that growth rates in larger and highly developed cities are by nature slower than growth 

rates in smaller and less developed ones. 

The geographic shift in employment and business growth cannot be explained by population 

trends alone. For example, roughly one-third of the counties that lost business establishments and 

one-quarter of the counties that lost jobs during the 201 Os recovery actually saw an increase in 

population. Furthermore, populations increased in more than 20 percent of counties that lost both 

jobs and establishments. 11 

Upward Mobility 

While rumors of the demise of the American Dream have been greatly exaggerated, there are 

clear signs it is under threat or fenced off in too many American communities. Raj Chetty, 

Nathaniel Hendren, and their colleagues at the Equality of Opportunity Project (EOP) have done 

an enormous service through their research on upward mobility. Thanks to their work, as well as 

a flurry of other new research into economic mobility and geographic inequality, we understand 

better than ever just how profoundly geography impacts an individual's economic destiny. 

EIG recently merged EOP's data on economic mobility with its own Distressed Communities 

Index (DCI) data on economic well-being to examine the relationshiP: between economic wellbeing and upward mobility in communities across the United States. 2 Specifically, we studied 

counties that fell into the top and bottom fifths of prosperity nationally. We find that county-level 

economic distress weighs more heavily on children from poor backgrounds than it does on 

children from wealthier ones, who are better equipped to rise above their surrounding 

circumstances. Troublingly, 60 percent of Americans under the age of 18 are growing up in 

counties that historically exert a negative impact on the economic mobility of low-income 

children. 

Our analysis also finds a clear correlation between the degree of prosperity or distress in a county 

and the extent to which living there boosts or hinders a child's future earnings potential. 

Prospering counties are generally more likely to foster upward mobility, although exceptions 

abound (especially in the Southeast). In fact, more than a quarter of the nation's most prosperous 

counties fail to positively impact the future earnings potential of their poor children. 

Surprisingly, 10 percent of economically distressed counties still manage to promote upward 

mobility for poor children. 

10 Economic Innovation Group, May 2016: 23-24. 11 Economic Innovation Group, May 2016: 12-13. 12 "Is the American Dream Alive or Dead? It Depends on Where You Look." Economic Innovation Group 

(March 20 17). 

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We also found an important silver lining for rural economies: Prosperous rural areas 

predominantly in the Upper Midwest and Northern Plains are the country's most powerful 

engines of upward mobility. 

Figure 10 

Demographic Considerations 

Recent U.S. demographic trends are exacerbating the decline of dynamism. Population growth is 

a major driver of startup rates both nationally and regionally, so it should come as a concern that 

the U.S. population grew by only 0.7 percent in 2016-the slowest since at least the Great 

Depression. 13 Meanwhile, the median age in the United States has increased by nearly a decade 

since 1970. 14 Immigration into the United States is an obvious dynamism booster on two fronts. 

First, it helps keep population growth in positive territory and bends the median age down. 

Second, immigrants in the United States are highly entrepreneurial; research by the Kauffman 

Foundation found that immigrants were nearly twice as likely as U.S.-born individuals to start a 

13 U.S. Census Bureau National Population Totals Datasets: 2010-2016. 14 Economic Innovation Group, February 2017: 34. 

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business in 2014. 15 Not only that, but they are disproportionately likely to start high-growth 

companies. A study last year found that more than half of the current crop ofU.S.-based startups 

with a valuation of at least $1 billion were started by immigrants. 16 

Guideposts for an Opportunity Agenda 

Before discussing potential solutions, let's play devil's advocate and ask if declining dynamism 

is really a problem that can or should be solved. If the decline is inevitable, why bother with 

useless policy prescriptions? Or, if there are hidden benefits to declining dynamism, why be 

worried at all? 

Dynamism is only worth restoring to the extent that its decline corresponds with downstream 

negative outcomes. If, for example, we were seeing strong GDP growth, robust labor force 

participation, increased upward mobility, and strong wage growth, declining dynamism would be 

a moot point. Unfortunately, we see just the opposite. Furthermore, we can be certain that much 

of the current dilemma is due to policy choices and thus totally within our control. Nevertheless, 

our solutions should not fundamentally be aimed at making the economy look more like the past, 

but rather at ensuring that the benefits of tomorrow's economy are broadly shared. 

Here are five guideposts for a future-oriented opportunity agenda: 

I. Focus on new firm creation and competition. Access to opportunity suffers when 

incumbents are too powerful, markets are too concentrated, and entrepreneurs are an 

endangered species. Policymakers should rebalance the playing field with lower barriers to 

entry and greater emphasis on the unique needs of new companies. This includes, among 

other things, reforming exceedingly complex tax and regulatory regimes, which serve to 

protect incumbents from competition, and boosting access to capital and talent for new 

ventures. It also includes accelerating the pipeline of high-skilled workers into the labor 

market-both through better skills training and by fixing the truly self-defeating U.S. 

immigration system. 

2. Enhance geographic mobility and labor market fluidity. Central to any opportunity 

agenda should be empowering people to move to places of opportunity and 

efficiently develop and deploy their skills in the marketplace. Among other things, this 

means getting rid of onerous occupational licensing requirements, designing a safety net that 

does not discourage mobility, and revamping local zoning and land use regulations so that 

high-opportunity areas can accommodate more people. 

3. Invest in the future. The United States has benefitted enormously from previous decades 

of massive public sector investments in infrastructure and basic research, but we often forget 

why such investments arc critical to private sector innovation and dynamism. As we renew 

our commitment to smart public sector investments, we should also abandon 

15 Stangler, Dane and Jason Wiens, "The Economic Case for Welcoming Immigrant Entrepreneurs." Ewing 

Marion Kauffman Foundation (September 2015). 16 Anderson, Stuart, "Immigrants and Billion Dollar Startups." National Foundation for American Policy 

(March 20 16). 

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traditional economic development incentives, which too often amount to giveaways that 

mortgage the future of local communities. New approaches are needed. 17 

4. Growth is still key. The United States is in desperate need of stronger GDP growth, which 

itself would go a long way to addressing concerns about access to opportunity and upward 

mobility. A broad pro-growth agenda is necessary, but we should also be bold in 

incorporating ideas aimed at helping struggling regions regain their footing. Meanwhile, let's 

resist the temptation to feel complacent given our relatively strong post-crisis performance in 

comparison to other developed economies. Their present struggles arc a glimpse into our 

economic future unless we take action soon. 

5. We need data. It is hard enough to diagnose complex problems when data are available. 

Without sound data, we are left with little more than faith-based policymaking. The federal 

government should protect and expand its investment in the economic statistical agencies and 

allow for improvements that will make their work even more useful in the years to come. 18 

But that is not enough. In light of how little we know about solving long-standing problems 

(especially related to upward mobility), federal policies should aggressively support novel 

approaches and reward state and local policy innovation. A more experimental approach to 

policymaking alongside existing legacy programs could provide a wealth of new data on 

what works and what should be discarded. 

Conclusion 

The decline of dynamism poses a threat to economic opportunity and upward mobility for future 

generations. A country as prosperous as the United States has a moral obligation to devote 

serious resources and brainpower to ensuring that everyone--especially children from poor 

backgrounds-has a shot at a better life. This is by no means the job of government alone, but 

the public sector has a crucial role to play in organizing the necessary attention and resources. 

The good news is that we retain enormous advantages and resources as a nation-more than 

enough to meet this challenge if we choose. 

17 Lettieri, John and Steve Glickman, "New Bill Does Hard Job ofinjecting Capital into Needy Communities." 

The Hill (March 28, 20 17). 18 Schanzenbach, Diane and Strain, Michael, "America's small investment in government data has big 

payoffs." TheHi/I(March 7,2017). 

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AprilS, 2017 

The Joint Economic Committee 

"The Decline of Economic Opportunity in the United States: Causes and Consequences" 

Testimony of Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities 

Chairman Tiberi, ranking member Heinrich, it is a pleasure to once again come before this committee, 

and I thank you for holding this hearing on the state of economic opportunity in the United States. In 

our often hyper-partisan era, it is refreshing to see this joint committee coming together to think about 

ways in which public policy can enhance the opportunity, mobility, and living standards of Americans 

who've not been sufficiently reached and lifted by economic growth in recent decades. 

My testimony stresses the following points: 

--Though the US economy continues to grow steadily at moderate rates and the labor market closes in 

on full employment, many barriers to economic opportunity and mobility remain in place. 

--These opportunity barriers include high levels of income inequality, unequal access to educational 

opportunities, residential segregation by income, inadequate investments in children and certain areas, 

and a markedly slower employment recovery in rural relative to metro areas. 

--Near-term policy solutions aimed at reducing these barriers include running tight labor markets, 

infrastructure investment, direct job creation, health care and other work supports, apprenticeships, 

and more. 

--Longer-term solutions invoke policy interventions targeting inequality, inadequate housing, income 

and wage stagnation, nutritional and health support, the criminal justice system, and educational 

access. 

--Avoiding policies that keep opportunity barriers in place is just as important as the proactive agenda 

items 1 recommend. Reducing the provision of public health care, regressive tax cuts, and budget cuts to 

programs that help low- and moderate-income families would all reduce opportunity. 

Opportunity barriers and their causes 

There is no fixed definition of economic opportunity, but most will agree that it corresponds to the 

realization of personal potential. If a child faces an inadequate school system, or a toxic environment, it 

will be much harder for her to realize her intellectual, and later, her economic, potential. If a parent lives 

in a community with an insufficient quantity of jobs, or jobs that pay wages that are too low to support a 

family, or jobs for which she lacks the necessary skills, both she and her family face opportunity 

shortfalls. Such barriers can meaningfully be extended beyond schooling and jobs to housing, nutrition, 

health care, and even infrastructure. For example, consider the fact that due to toxic infrastructurelead leaching into water pipes-children in parts of our country may suffer brain impairments (though, 

importantly, such damage need not be permanent). This is a clear example of an opportunity barrier 

constructed by a public policy failure, one that should be unacceptable in an economy as wealthy and 

advanced as our own. 
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Given that framing of the problem, a clear role for policy in the opportunity space is to take down the 

barriers that get between people and the realization of their economic potential. The extent of the 

problem can be at least roughly measured through a set of proxies that indicate the existence of 

opportunity barriers. 

Labor market barriers associated with income, race, and education: Federal Reserve chair Janet Yellen 

recently noted that unemployment rates "averaged 13 percent in low- and moderate-income 

communities from 2011 through 2015, compared with 7.3 percent in higher income communities." Chair 

Yellen also noted that in majority minority areas, the jobless rate averaged 14.3 percent betwe~n 2011 

and 2015. The share of 25-54-year-old (so-called "prime age") workers in these areas was nearly 9 

percentage points lower than in non-majority-minority communities. Racial disparities exist in 

unemployment rates even controlling for education. Among white people with terminal high school 

degrees, unemployment was about 5 percent in 2015. For black people, it is twice that. Black people 

with at least BA's have unemployment rates of 4.1 percent, compared to the 2.4 percent for whites with 

at least BA' s. 

Labor market barriers associated with rural areas: My own work has documented periods of slack labor 

markets and their negative impact on the earnings and income growth of low- and moderate-income 

working families. The Economic Research Service of the United States Department of Agriculture 

recently analyzed different trends in employment in rural (or nonmetro) labor market indicators versus 

those from metro areas. 

The figure below shows employment growth in rural and metro areas, with both indexed to 100 in 

2008q1. While employment levels fell about the same amount in percentage terms in both areas over 

the Great Recession of 2007-2009, metro employment has recovered much more quickly, as the gap at 

the end of the figure reveals. In the middle of 2016, rural employment was still well below its prerecession peak. 

US employment metro and noJHilNro areas 2007-2016 (quarterly} 

Empl-l,lndex (2008 01=100) 

105 

104 

103 

102 

101 

100~~~~~~~------------~~~--~-----

99 

98 

97 

98 

98 

94P,..-,-..,..-~"TN<>te&: Data am seasonaUy adjustod. Slladad ama indicates -n period. 

Sour<:e: USDA. Economic Re"""""' Service usinu dalll !rom Bureau of Labor SllltisticS, 

LooaiArea U~llt.Sialiotico!I,.AU~--... ---------·-----' 
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labor force participation rates have been particularly slow to recover over this expansion, and while 

part of that trend is driven by the retirement of baby boomers, and thus not necessarily an indicator of 

weak labor demand, participation rates have yet to recover for prime-age workers as well. The next 

figure shows that the size of the labor force has significantly declined in rural areas, a trend all the more 

striking when compared to the labor force growth in metro areas during this same time period. Part of 

the discrepancy is due to differential population growth rates- while population grew over this period 

in metro areas, it was flat in rural places- but the rural labor force grew even more slowly than its 

population. 

US labor force, metro and nonmetro areas, 2007-2016(quarterly) 

Persons in the labor foroe, index (200$ Q1 =100) 

105 

104 

103 

102 

101 

100 

99 

99 

97 

96 

95+-~~~~~~~~~~~~~~~~~~~~7 

Notes: Data an~ S113sonally adju!lllld. Shaded area lndicales """'ssion period. 

Sour<:e: USDA. Economic Researt!l Service using dala from Bureau of Labor S1atistics. 

L~ Area tJn menl S1alostics. 

Mobility barriers associated with regional economic segregation. In recent decades, families with 

children have lived in increasingly segregated neighborhoods, a trend driven both by rising income 

inequality and by wealthier parents segregating themselves into areas with higher-performing schools, 

among other factors. As Chetty et al. and my colleagues Barbara Sard and Doug Rice have found, 

residential segregation by income exacerbates the gaps in opportunities between children from low· 

income and high-income backgrounds. Researcher Ann Owens also connects this development to 

diminished future opportunities for children: "Rising income inequality provided high-income 

households more resources, and parents used these resources to purchase housing in particular 

neighborhoods, with residential decisions structured, in part, by school district boundaries. Overall, 

results indicate that children face greater and increasing stratification in neighborhood contexts than do 

all residents, and this has implications for growing inequalities in their future outcomes." 

Education barriers associated with income: Yellen noted that close to 100 percent of children of parents 

with higher incomes and levels of educational attainment pursued higher education, and 60 percent 

earned a bachelor's degree. But among children of parents with lower incomes and education levels, 72 

percent pursued higher education and only 14 percent completed a BA. The figure below, from Chetty et 
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shows that the likelihood that a child from a wealthy family will attend an Ivy-league or similarly elite 

school is 50 times that of a child from a low-income family. 

14.5% of students from top 1% 

PI'Obability of attending an Ivy Plus co/IBgtt 

over 50 times higl!erforchikften in the top 1% 

than for childr&n in the the bottom 20% 

3.8% of students from bottom 20% 

0 20 40 60 

Federal Reserve data also show that as inequality has increased, college debt burdens have 

100 

become much lar:ggr for low- relative to high-income families. In 1995, families with education debt in 

the bottom half of the net worth (a broader definition of income, including assets minus liabilities) 

distribution had a mean debt-to-income ratio of around 0.26 {for every dollar of their net worth, they 

owed 26 cents in college debt). For families In the top 5 percent, that ratio was eight cents on the dollar. 

By 2013, the debt-to-income ratio had more than doubled to 0.58 for the bottom half (some of whom 

are poor but many of whom are middle class) while remaining unchanged for those at the top. 

Mobility barriers associated with income, inequality, and inadequate investments in children. While 

higher educational attainment is clearly associated with higher earnings, it is also the case that children 

who grow up in affluent households but do not graduate from college are 2.5 times as likely to have high 

incomes in adulthood as children who grow up poor but do graduate from college (see figure below). 

by Raj Chetty and others finds correlations between higher inequality and lower 

mobility. Chetty finds that as inequality has increased over time, one metric of mobility-the likelihood 

that adult children out-earn their parents-has fallen, and that rising inequality explains 70 percent of 

the increase. One reason this relationship might exist is that, when less GDP growth flows to lowerincome families, their abilities to overcome mobility barriers-to move to opportunity, to invest in their 

children's future, to avoid the negative externalities of difficult neighborhoods-is diminished. 
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ct.a.nc~ of Finishing In tb• TOJ> 2(1 

P•rcen~ of th41tncolll4!i Distribution 

2591. 

In fact, growing inequality is associated with less investment in children, both by parents and 

governments. In the early 1970s, high-income families spent 4 times what low-income families spent on 

"enrichment goods" for their kids (tutoring, books, trips, art supplies); in the mid-2000s, they spent 

seven times as much. Other OECD countries spend 5 times what we spend on young children, often 

through pre-kindergarten education, despite the fact that solid research shows the benefit-cost ratio of 

such spending to be more than 8-to-1. 

-Employment ond opportunity barriers associated with the criminal justice system. The National 

Employment law Project reports that 70 million people in America now have a conviction or arrest 

history that can show up on a routine background check for employment. NELP also points out that 

more employers are conducting background checks wherein these records are likely to show 

up. Research shows extensive employment and earnings disadvantages to those with criminal records, 

with serious negative spillovers to the families of those who face incarceration. The 

opportunity/mobility costs of having a criminal record are high: men with criminal records are twice as 

likely to remain in the bottom fifth of the income scale as men without records. The fact that these 

problems disproportionately affect racial minorities is partially a function of institutionalized racism 

associated with the criminal justice system, so the barrier of discrimination is germane here as well. 

The root causes of these problems are described by the barriers themselves. Discrimination, persistently 

slack labor markets, historically high levels of inequality and even higher levels of wealth inequality, 

regional economic segregation, inadequate investments in both the contemporary and future well-being 

of less-advantaged children and families (often through disinvestment in public goods), low access to 

educational opportunities, high exposure to toxic environments-all of these factors are causes of the 

erosion of opportunity for many in our society. 

Especially given the economic focus of this committee, I stress the role of our high levels of inequality as 

one of the most important opportunity barriers. A common concern among macroeconomic analysts 

today, for good reason, is that growth, particularly productivity growth, has slowed sharply over the past 
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decade {a problem seen across advanced economies). I would characterize this deceleration as one of 

the most important constraints on growth and, thereby, on aggregate living standards. But the key word 

is "aggregate." In the presence of high inequality, stronger growth is necessary but not sufficient to take 

down mobility barriers. If most of the growth flows to the top of scale, as has occurred in recent 

decades, then absent aggressive redistribution, we cannot expect to push back on the many problems 

just documented. 

How can public policy push for greater opportunity? 

A useful way to think about policies targeting opportunity is to consider those that can address nearterm opportunity barriers and those that address longer-term barriers. Near-term policies address 

opportunity deficits with negative impacts on people's economic circumstances today, like the absence 

of gainful employment opportunities, or the impact on living standards when inequality contributes to 

stagnant paychecks. Long-term interventions, like quality pre-school or improved access to higher 

education, can enhance the future opportunities of children. As I report below, considerable research 

has found that many safety net programs, like nutritional and health care support, both help reduce 

poverty in the near term and improve longer-term outcomes for children. 

Near-term opportunity enhancers 

Running a tight labor market: There is extensive evidence showing that lower-wage and minority 

workers are disproportionately helped by tight labor markets. Forthcoming research from the Center on 

Budget and Policy Priorities {CBPP) Full Employment Project shows that in both Ohio and New Mexico, 

for example, the real annual earnings of non-college educated, prime-age workers ended up in 2015 at 

about the same level as they were in 1977 {see figure below). The figure, however, reveals a strong 

response to the tight labor market of the 1990s in both states, as well as a strong pop at the end of the 

figure, in 2015 {the latest year in which data is available), that continues in a forecast that assumes 

unemployment continues to decline. 

Real Earnings for Non-College-Educated, PriMe-Age Workers 

$60.000 

$5$,000 

....... 

$45,000 

j $40,000 

~ $35,000 

$30.000 

$25,000 

$20,000 ....... ~~~~~-~~~~~~~ .............. ~ ................... 

~ ~ ~ ! i ! i ~ ! i i ! ! i l ~ ! ~ ~ ! ~ -N.wMWc* -ohiO' 
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This forecast, driven by simulating even lower unemployment than today's, implies an important role for 

the Federal Reserve: in balancing their dual mandate of stable prices and full employment, they must be 

careful not to tap the economic growth brakes (i.e., raise the benchmark interest rate they control) too 

aggressively. The recovery appears to finally be reaching some places that have thus far been left 

behind, so absent clear evidence of inflationary pressures, the Fed should proceed with caution.' It also 

implies a role for fiscal policy to help create more labor demand where it is lacking, as with my next 

policy suggestion: infrastructure investment. 

Investing in infrastructure: It is widely agreed that underinvesting in maintaining and improving the 

nation's public goods is harmful economic policy. I should note that complaints about the conditions of 

our public capital are bipartisan: both poverty advocates and Chambers of Commerce argue that 

Congress must work together to address this investment shortfall. Civil engineers have identified the 

productivity-dampening deterioration of our roads, bridges, public transit, and other transportation 

infrastructure. The Obama administration's Environmental Protection Agency argued that our water 

treatment and distribution systems need $384 billion in investments over the next 20 years. Over half of 

America's public schools need to be repaired, renovated or modernized; the average age of the main 

building of a public school today is about 44 years. Roofs, windows, boilers, and ventilation, plumbing 

and electrical systems need to be fixed, upgraded or replaced. 

Such investments fit both here and under longer-term opportunity enhancers, especially if we consider, 

as we should, investments in human capital as another dimension of investing in public goods. 

Improving water systems can yield profound long-term benefits in children's brain development, and 

upgraded school facilities have been shown to improve teacher retention and academic outcomes. 

But in the near term, infrastructure investment can create employment for blue-collar laborers, making 

it a particularly strategic investment in parts of the country with too little labor demand. Economists 

have documented that when and where job markets are slack, infrastructure investment has a relatively 

high "multiplier," meaning a bigger bang for the buck on jobs and economic activity. Economist Josh 

Bivens points out that, by boosting longer-run productivity growth, well-placed infrastructure 

investment can allow the Federal Reserve to target lower rates of unemployment, an important 

complement to my point about tight labor market policy above. 

Direct job creation: While Congress often tries to provide help to left-behind places through targeted 

tax-credits, such incentives have a poor track record. My conclusion is that these policies are simply too 

indirect, and that if we want to help places with too little labor demand, we must consider direct job 

creation policies, meaning either jobs created by the government sector or publicly subsidized private 

employment (as noted below, an alternative is to "move people to jobs," but that is an insufficient 

response to the problem). Infrastructure ideas, like renovating our stock of public schools by directly 

creating temporary jobs, fit into this space as well, but Bernstein and Spielberg (2016) elaborate a more 

ambitious approach. 

1 A key distinction here is between inflation and inflationary expectations. Higher inflation (faster price growth) 

should be expected at this stage of the recovery, especially given how low inflation has been thus far. But as long 

as price expectations remain "well-anchored," the risks of dampening recent wage and income gains should be 

heavily weighted. 
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We stress that subsidized jobs and job creation programs provide income to people who need it and will 

spend it, thereby helping to boost weak local economies, while providing opportunities to workers 

disconnected from the labor market. We also cite research showing that there can be lasting benefits 

from helping such workers overcome labor market barriers that are preventing them from gainful 

employment. 

Though our work largely focused on direct jobs to offset recessions, today many policy makers are 

legitimately concerned about places facing recession-like conditions even while other places are doing 

much better. We therefore recommend "an employment fund that supports a set of national service 

jobs on an ongoing basis and includes a flexible funding stream that can ramp up in economic 

downturns. This initiative should enable states to try different approaches to subsidized jobs, 

encouraging them to experiment to learn more about what works best and for whom." 

Health care and other work supports: Another important way to help less advantaged persons get in 

and stay in the labor force- and to tap entrepreneurial opportunities- is to ensure a solid system of 

work supports, with health care as a standout example. Extensive research shows significant, positive 

labor supply effects from the Earned Income Tax Credit (a wage subsidy for low-wage workers), and 

policies that support working parents, especially help with child care, have been shown to raise 

women's ability to join and stay in the labor force. 

Opportunities related to entrepreneurship are of particular interest to this committee. Members will 

thus be interested in the findings from two studies suggesting that employer-provided health coverage 

is a constraint on business formation by potential entrepreneurs. These studies find that people who can 

secure health coverage through non-employment sources have higher levels of self-employment and 

"entrepreneurship probabilities" than those who lack such access. Such work is consistent with 

other research by Nick Buffie showing the release of insurance-driven "job lock" as the Affordable Care 

Act has ramped up. These findings underscore a commonsense connection between access to 

affordable coverage outside of employment, the ACA, and entrepreneurial opportunities. 

Helping small manufacturers join global supply chains: The Trump administration has talked about the 

need for policy to help our manufacturers compete more effectively in the global economy. In analysis I 

did with Congressman Ro Khanna, we argued that policy should target smaller manufacturers from 

areas with displaced workers, helping such firms modernize and find their way into the global supply 

chain. We identify three policies consistent with this goal: expanding the Commerce Department's 

Manufacturing Extension Partnership, pushing back on currency interventions, and investing in new, 

high-demand industries. 

The MEP's ... mission is to "enhance the productivity and technological performance of U.S. 

manufacturing." It does not provide direct financing, but it does provide guidance, by helping 

small manufacturing firms adopt new technologies, integrate into global supply chains, 

strengthen regional partnerships and connect with national labs. According to a 2014 report 

from the nonpartisan Congressional Research Service, the 30,000 companies served by the MEP 

"reported $2.5 billion in new sales, $4.2 billion in retained sales, $1.1 billion in cost savings, $2.7 

billion in new client investment, the creation of 17,833 jobs and the retention of 46,069 jobs." 
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The program costs $130 million annually, or 0.003 percent of federal government spending ... ln 

the interest of helping small manufacturers and boosting U.S. net exports, its funding should at 

least be doubled. 

Instead, as we note in the piece, President Trump's "skinny budget" zeroes out the MEP, a 

counterproductive cut if our goal is to create more opportunity and jobs in this space. 

In this recent oped, I also suggest two measures to level the trade playing field and push back on 

currency manipulation: currency reciprocity {the ability to purchase the currency of manipulators to 

neutralize their intervention) and countervailing duties on exports from countries that use currency 

depreciation to subsidize exports. 

Invest in renewable energy: Pollin et al. find that a combination of market incentives {carbon caps and 

taxes) alongside public and private investment in renewable energy would improve both environmental 

and employment outcomes. In terms of public investment, they call for retrofitting publicly owned 

buildings, initiating green infrastructure projects {e.g., building out a "smart" grid), implementing 

procurement policy such as supplying the US military with renewable energy, and expanding federal 

research and development into renewable energy development, storage, and distribution. They 

estimate that their investment agenda (private and public) would generate 2.7 million jobs. 

Khanna and I agree and highlight a role for public investment in battery/energy storage technology. We 

also note the utility of public/private innovation centers that build connections between university labs 

and factory floors. Such multilevel workforce investments that involve everyone from research programs 

and scientists to engineers and manufacturers have the potential to revitalize communities that have 

lost manufacturers and experienced years of disinvestment. 

Apprenticeship programs: Economist Robert Lerman makes a strong case that apprenticeship programs, 

or work-based learning, can be highly effective in connecting young workers with limited prospects to 

good jobs. Public policy can help {and is doing so in some states and other advanced economies) 

through grants and credits to employers who stand up apprenticeship programs, as well as spreading 

the word to the broader employment community. Lerman writes that "expanding apprenticeship offers 

a long-term, evidence-based strategy that increases productivity by increasing skills at very modest cost 

to the government. Apprenticeships combine serious work-based learning and classroom instruction 

usually lasting two to four years, aimed at mastering occupational and employability skills, and leading 

to a recognized credential." 

Work-based, "learning-by-earning" programs can address high youth unemployment while preparing 

young people for "middle-skill" careers in potentially high demand sectors such as health care, advanced 

manufacturing, construction, and information services. Moreover, these programs can enhance 

opportunity by setting out career pathways for upward mobility, as well as including post-secondary 

education as part of their package. 

Moving to opportunity: The inequality and mobility expert Raj Chetty and various teams of researchers 

have identified a set of neighborhood correlates associated with lower and high levels of opportunity 

and mobility for children. They find that when families with young children "move to opportunity," 

those children do better as adults relative to children who stay in disadvantaged places. While Chetty et 

al.'s correlations are rigorously derived, it is important to realize that they represent correlation, not 
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causation, so we cannot assume that neighborhood factors themselves drive mobility. For example, they 

find that families with a large share of mother-only families correlate with relatively low mobility. But 

two-parent families in those neighborhoods experience the same lower mobility rates, suggesting that 

single parenthood is likely a correlate more than a cause. Also, policy makers cannot, of course, simply 

advocate leaving disadvantaged neighborhoods as a sole strategy for families there. We must apply 

policies like those noted above to help the families that stay behind. Helping people move to 

opportunity is certainly one valid strategy, but moving opportunity to people where they are is another. 

Longer-term investments in opportunity 

As discussed above, the long-term rise of income inequality has negative impacts on long-term 

opportunity and mobility through at least three channels. 

First, it makes neighborhoods of concentrated poverty and wealth more common and neighborhoods 

with more income diversity less so. Children in neighborhoods of concentrated poverty are exposed to 

more environmental hazards, lower-quality public goods, and less privileged social networks than 

children in higher-income neighborhoods. 

Second, income/wealth inequality makes access to quality educational experiences less equal, with 

strong immobility consequences. Higher-income parents can invest in more enrichment opportunities 

for their children, and children from wealthier families can attend more adequately funded schools. 

Students from privileged backgrounds can afford to attend elite universities while students from less 

privileged backgrounds often can't, and when they can, their debt-to-income ratios can rise to levels 

that generate a new set of constraints. 

Third, inequality directly undermines opportunity by subjecting some people to persistent disadvantages 

and stressors that others don't face. For example, poverty researchers note that experiences associated 

with persistent and deep poverty, such as overcrowded or unsafe housing, inadequate nutrition and 

medical care, and exposure to environmental toxins, can lead to "toxic stress" and delayed physical and 

social development, with obvious negative implications for future opportunity. 

Addressing these long-term barriers requires policy interventions targeting inequality, inadequate 

housing, income and wage stagnation, nutritional and health support, educational access, and 

environmental degradation. 

Importantly, extensive research on longitudinal data (data that tracks people or places over time) finds 

that many of our safety net programs work as long-term mobility enhancers. That is, quasi-experimental 

designs that follow children over time and compare those who received an intervention to those who 

didn't (or those who got larger "doses" of the intervention to others who got smaller doses) find that 

these programs do not simply boost consumption in the present. They work like investments, with 

lasting impacts. Consider: 

--Duncan et al. find that a $3,000 annual increase in income to poor children before age 6 is associated 

with 135 extra hours of work a year for adults between the ages of 25 and 37, with an increase in annual 

earnings of 17%. 

--Manoli and Turner find that adding $1,000 of the EITC during a student's senior year of high school 

boosts college enrollment by 0.4 to 0.7 percentage points. 
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--Cohodes et al. find that Medicaid eligibility expansions between 1980 and 1990 "had an impact 

equivalent to cutting today's high school dropout rate by 9.7 to 14 percent and raising the college 

completion rate by 5.5 to 7.2 percent." 

--Hoynes et al. find that access to SNAP in the 1960s and early 1970s decreased kids' adulthood obesity 

by 16 percent and their incidence of heart disease by 5 percent while increasing their high school 

completion rate by 18 percent. 

--Former President Obama's Council of Economic Advisors finds that every $1 spent on early childhood 

education results in roughly $8.60 of "benefits to society ... about half of which comes from increased 

earnings for children when they grow up." 

--Chetty et al. find that children in families that received a Section 8 voucher when they were younger 

than 13 under the "Moving to Opportunity'' program saw a 15 percent earnings boost in adulthood, 

while kids in families that got the voucher that had to be used in a low-poverty neighborhood saw a 31 

percent earnings increase. 

CBPP has elaborated a set of recommendations for boosting longer-term opportunities in the spirit of 

this research by strengthening and extending successful safety net programs. 

For example, bipartisan support exists for significantly increasing the value of the Earned Income Tax 

Credit for childless adults. Such workers under 25 are ineligible for the wage subsidy and, if they earn 

poverty-level wages, are exposed to payroll and income taxes that can push them into or deeper into 

poverty. Older low-income childless workers are eligible for only a very small credit; e.g., a full-time 

minimum wage worker would be eligible for a credit under $50. Proposals to significantly increase the 

value of the credit would lift hundreds of thousands of workers out of poverty and bring millions closer 

to the poverty threshold. 

Since we're talking about childless adults, proposals to significantly raise this credit may appear to 

belong in the bin of shorter-term opportunity enhancers. However, researchers argue that these 

expansion proposals could have positive impacts on longer-term labor supply, reduced incarceration, 

and higher marriage rates. 

Increasing the EITC is sometimes promoted as a substitute to higher minimum wages. But Robert 

Greenstein, CBPP's president points out that proposals to raise the minimum wage and the EITC should 

not be viewed as substitutes; their designs have several complementary attributes and it will take both 

to raise living standards and boost opportunities. 

CBPP has also argued for strengthening the Child Tax Credit, which currently excludes the first $3,000 of 

a worker's earnings from consideration, for very poor families with young children. That can be 

accomplished by either "making the current CTC fully refundable for families with a young child or by 

creating a fully refundable supplement to the CTC just for families with young children (an option that is 

more expansive because it boosts the tax credit for all families with young children that receive the CTC, 

not just those at lower income levels)." 

With respect to the findings of Chetty et al., as well as Ann Owens (on residential segregation by 

income), CBPP also views renewing and boosting the funding of Housing Choice Vouchers as an 

opportunity-enhancing policy intervention. Housing expert Barbara Sard notes that HCV has a strong 
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track record in reducing homelessness, foster care placements, and frequent disruptive moves, and has 

been associated with lower rates of "alcohol dependence, psychological distress, and domestic violence 

victimization among the adults with whom the children live." She finds that HCV "has an important, 

positive impact on minority families' access to opportunities," one that is particularly pronounced for 

minority families. But Sard also notes that relatively few families are able to use vouchers to find 

housing in low-poverty areas with access to better educational opportunities, and she suggests 

improvements that would enable more such moves, including increased incentives for state and local 

agencies to seek higher-opportunity locations; setting subsidy caps and jurisdictional rules that facilitate 

moving to opportunity; and direct assistance and encouragement both to landlords in low-poverty areas 

and to families who would benefit from moving to such areas. 

A full treatment of criminal justice reform is beyond my scope here, but there are many changes that 

could begin to reduce the harm caused by mass incarceration. For example, Mitchell and 

Leachman recommend state-level policies that can reduce the negative effects of incarceration rates: 

reducing penalties for low-level felonies, many of which fall disproportionately on minorities, 

reexamining sentencing laws, reducing sentences, and more. Congress could accelerate such progress 

with legislation allowing federal judges to impose sentences below the mandatory minimums when 

warranted. Emsellem and Ziedenberg have also written about the need for expanding "fair chance" 

hiring practices such as "ban-the-box" {which allows those with records to not reveal them in initial 

interview stages), and they find positive results in many places that are trying these interventions. They 

also underscore the importance of making background checks more reliable and accurate, and 

recommend "clean slate" or expungement laws for minor, nonviolent felonies. 

Finally, the long-term benefits of Medicaid access underscore the importance of tapping the Affordable 

Care Act's Medicaid expansion in the 19 states that have yet to do so. The expansion led to significantly 

improved coverage of low-income families in states that took it up, and Medicaid is particularly 

important to residents of rural areas, which, as shown above, have faced less employment growth in 

recent years. In this regard, recent efforts by some House Republicans to significantly cut the Medicaid 

program as part of their American Health Care Act go in exactly the opposite direction of creating more 

opportunity for less advantaged families. I now turn to that and other policies that should be strongly 

resisted in the interest of promoting opportunity. 

Policies that would diminish opportunity 

There are at least three areas where Congress and the Trump administration are in danger of taking 

steps with the potential to significantly reduce opportunities: health care, budgets, and taxes. 

Health care: I have already testified to the opportunity-enhancing characteristics of publicly provided 

health care, including how it unlocks entrepreneurial opportunities and improves the long-term health 

and educational attainment of children who receive it. Subsidized coverage, a key component of the 

ACA, also provides income relief for families whose budgets are already tight even before paying for 

health coverage. 

In contrast, the recent House health care replacement bill {AHCA) not only rolled back the ACA's 

subsidies to lower-income and older persons, it cut Medicaid funding by 25 percent in 2027. In total, as 

scored by the Congressional Budget Office, the bill would have completely unwound the coverage gains 

of the ACA, adding 24 million to the ranks of the uninsured. Based on the research cited above, such 
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ideas clearly run counter to an opportunity agenda. Instead, as noted above, I urge members to build on 

the successes of the ACA and improve its flaws. That would mean expanding Medicaid to the 19 states 

that have yet to adopt it, introducing a public option into the insurance exchanges, as President Obama 

himself suggested last year. and strengthening the risk pool by raising enrollment and marketplace 

subsidies to lower out-of-pocket costs. 

Taxes: In addition to threatening opportunity by reducing health coverage, the AHCA also did so by 

proposing about $600 billion in highly regressive tax cuts. As noted throughout this testimony, and as 

the work of Chetty and others have underscored, high levels of inequality are associated with 

immobility, wage and income stagnation, residential segregation, and diminished opportunity in both 

the near-term and, especially regarding poor children facing educational and environmental barriers, 

the long term. Yet regressive tax cuts "pile on" and exacerbate market-driven inequalities that are 

already too high from an opportunity perspective. 

As Congress moves on to tax policy, it is notable in this regard that, according to the non-partisan Tax 

Policy Center, by 2025, just short of 100 percent of the tax cuts in the House Republican tax plan go to 

the top 1 percent (see figure below). President Trump's tax plan is not quite as skewed to the wealthy, 

but it is close. In his plan, TPC analysis finds that millionaire households get an average 14 percent boost 

in their after-tax incomes, while the middle-class ($40,000 and $50,000) ends up with an average 1 

percent boost in 2025. Tax analyst Chye-Ching Huang points out that the "total tax cuts for people with 

incomes below $100,000 would be only about one-fifth as big as the tax cuts for millionaires." 

Overwhelming Share of House Republican Tax 

Cuts Goes to Top 1% 

Share of total federal tax cut by income group, 2025 

99.6% 

1.7% 1.7% 0.8% 

lowest Second Middle Fourth S0-90th 90-95th 95-99th Top1 

quintil~ quintile quintili' qllil1tilf' percent percenl percent percent 

Topquin!ile 

" posifiv{';l- :".:hM~ 

Source: Tilb!€' G from J~11Tl€'S -R. N(mM, et 01, "An Ar.lllysi:> of h'lP Hol.l'.>t>-COP TiC! X: Plnn,~ 

Tax Pohcy C~:nt01 
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Huang also reports that the House plan loses $3.1 trillion in revenues (1.3% of GOP) in the first decade 

and another $2.2 trillion (0.6% of GOP) in the second decade. Trump's plan loses $6.2 trillion in revenues 

(2.6% of GDP) in the first decade and another $8.9 trillion (2.6% of GOP) in the second decade. 2 

In other words, these plans thwart opportunity in two ways: by exacerbating after-tax inequality, a 

problem clearly associated with immobility and diminished opportunity, and by reducing revenues 

needed to support the many ideas elaborated above, ideas which would lower barriers to opportunity. 

Budget policy: President Trump's so-called "skinny budget" proposal likewise seems designed to 

buttress rather than reduce opportunity barriers. And while the president's partial proposal has been 

criticized by both Democrats and Republicans, in one important way relevant to this testimony, it merely 

exacerbates a longer-term trend: the decline in support for non-defense discretionary programs. Many 

programs in this budget category are associated with reducing the opportunity barriers discussed 

throughout this testimony, including housing assistance programs, job training programs, Head Start, aid 

for poor school districts, Pel! grants, the MEP discussed above (a program within Commerce which helps 

small manufacturers access global supply chains), and block grants that support community and 

economic development. CBPP analysis shows that NOD funding is already heading for its lowest levels as 

a share of GDP on record. Recent Republican budgets have followed a similar "architecture": large tax 

cuts that worsen after-tax inequality and spending cuts that fall mostly on low- and moderateincome households. 

Instead, I have argued that supporting an opportunity agenda in a fiscally responsible manner, while 

protecting key income and health security programs like Medicare, Medicaid, Social Security, and SNAP 

(food assistance), will require additional, not less, revenue. Meanwhile, revenue neutrality is too low a 

bar for our tax debate. In the interest of maintaining and supporting the opportunity enhancers 

discussed in this testimony, we must raise revenues, not try to break even (or, worse, use questionable 

scoring practices to claim neutrality). I have elaborated~ Congress might consider to raise 

revenues in a progressive manner, which include the closure of various loopholes that lead to lower 

effective tax rates for the richest individuals. 

Conclusion 

This testimony documents extensive barriers to opportunity and mobility stemming from income 

inequality, discrimination, residential economic segregation, low access to educational opportunities, 

inadequate job opportunities, and more. I then elaborate a set of short- and long-term policies to 

reduce these barriers. Finally, I argue that there are policies under discussion in the areas of health, 

taxes, and budgets that push in precisely the wrong direction, threatening to reinforce these barriers. 

In discussing some of the long-term benefits to children who were in families that received certain antipoverty benefits, I highlighted several rigorous analyses showing how these programs have improved 

the life chances of these recipients. This information is important both as a guide to opportunityenhancing policy and as a reminder that, too often in this town, those who oppose these programs 

wrongly claim that "nothing works." 

2 These are static scores. Dynamic scores show slightly lower revenue losses. For example, instead of losing $3.1 

trillion, TPCs dynamic~ estimate that the House tax loses between $2.5 and $3 trillion. 
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In fact, there is continuing evidence that health care policy, child-centered educational policies, antipoverty policies, and workforce policies (recall the above discussion around apprenticeships) are having 

their intended effects. If we are serious about providing Americans with the opportunities they deserve 

to realize their potential, then the policies and programs discussed in this testimony must be nurtured, 

strengthened, and improved. 
96 

1See https://www.americanactionforum.org/research/the-work-and-safety-net-effects-of-expanding-the-childless-eitc/ 2See http://thehill.com/blogs/pundits-blog/economy-budget/327666-reforming-earned-income-tax-credit-could-be-a-bipartisan 

QUESTIONS FOR THE RECORD FOR DR. KANE SUBMITTED BY SENATOR AMY

KLOBUCHAR

Earned Income Tax Credit 

There is extensive research on the benefits of the EITC, including from Dr. Bernstein, and I am a strong supporter of the EITC and the Child Tax Credit. There 

is bipartisan support for increasing the Earned Income Tax Credit (EITC) for childless individuals. This is a very interesting idea—supported by former President 

Obama and Speaker Ryan. 

• Can you discuss how increasing the EITC would help foster greater opportunity 

and lessen income equality? 

• Are there other policies that we should also consider as we look at the EITC? 

RESPONSE FROM DR. KANE TO QUESTIONS FOR THE RECORD SUBMITTED BY SENATOR

AMY KLOBUCHAR

The Earned Income Tax Credit (EITC) is one of the most effective approaches to 

alleviating poverty in the United States because it gets the work incentives right. 

Government anti-poverty programs typically offer cash or some benefit to individuals who qualify by falling below some income threshold, which by their very nature 

act as rewards for non-work and thereby establish perverse anti-work incentives. In 

contrast, the EITC was created in 1975 as a supplement to work income that phases 

in and out over a range of low incomes. In 2017, the maximum credit for families 

with one child is $3,400, while the maximum credit for families with three or more 

children is $6,318. Individuals without children can earn a maximum credit less 

than one-tenth that amount. I agree with Senator Klobuchar that expansion of the 

EITC would help foster greater opportunity, which is a worthy goal, though I would 

caution that the EITC could be made much more effective if reformed to operate 

through payrolls rather than through the complicated returns of the annual Federal 

income tax. 

I have many friends who currently and previously qualified for the EITC, who tell 

me it is a great program that works as promised. I am indebted to the legacy of 

the late Milton Friedman who was an economist at the Hoover Institution where 

I now work who championed the idea of the negative income tax which served as 

the genesis of the EITC. With 28 million Americans benefiting from the EITC, nearly 7 million experience an income boost that lifts them above the poverty line, including 3.3 million children. The problem is that the program is both underutilized 

and overutilized, meaning that roughly one-fifth of eligible families do not participate in the program (presumably because the tax code is overly complex, causing 

millions to neglect to claim the credit when filing income tax returns) while at the 

same time nearly one-third of the current claims are estimated to be in error (many 

fraudulent) according to the IRS itself. 

The program works by offering matching funds for each dollar earned, so that, 

for example, a mother of three young children who earns $10,000 a year from working will receive $4,500 from the Federal government in the form of an income tax 

refund. The matching amount varies with the number of children, from a maximum 

of 45 percent in the example above to 40 percent for two children, 34 percent for 

one child, and 7.65 percent for no children. 

I would recommend the following changes to the EITC: 

• Lower the qualifying age for childless workers from 25 to 21, double the phasein and phase-out rates from 7.65 percent to 15.3 percent, and increase the maximum credit from $503 to $1,005. This idea has been modeled by Dr. Doug 

Holtz-Eakin, Ben Gitis, and Curtis Arndt.1

• To eliminate erroneous payments, make the credit more efficient by having it 

operate directly through employer payrolls. This idea was recently recommended in an April 8, 2017, essay by Dr. Jason Fichtner and Indivar DuttaGupta in The Hill.2 Entitlement programs such as Social Security are inextricably linked to anti-poverty programs such as the EITC, so Congress would 

wisely reconcile their operations and economic effects. 

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• Expand peak credit amounts to $20,000 of earned income with the caveat that 

any expansions are to be matched 50:50 with states, giving each State the flexibility to expand as they see fit. • Give each State the right to lower its minimum wage below the Federal level, 

just as they currently have the freedom to raise it above the Federal level. 

There is little evidence that wage controls are effective, but certainly no logical 

basis for Federal sovereignty over what should be set at the State level. And 

in order to fight poverty, a fair compromise is to increase funding for the EITC 

in exchange for greater State and local control over minimum wages. 

Finally, we should recognize that there is some madness in government making 

the EITC and payroll taxes for Social Security operate in opposite directions. Americans with the lowest wage incomes pay 15.3 percent in payroll taxes (half directly, 

half indirectly by their employer) on work income. But they are also paid by the 

government a matching sum up to 45 percent. The payroll taxes are deducted immediately from each paycheck, but the EITC payments occur only once as a refundable 

credit on tax returns. Simplifying these contrary incentives would offer tremendous 

efficiencies. 

Thank you, again, for the opportunity to share my thoughts on how we can together fight poverty in America and enhance opportunity for all of our fellow citizens. 

QUESTION FOR THE RECORD FOR DR. JARED BERNSTEIN SUBMITTED BY SENATOR AMY

KLOBUCHAR

Rural Economic Recovery 

While the rural economy is doing well in many parts of Minnesota, I am still seeing challenges. Last year, we had large layoffs on the Iron Range due to steel dumping. People are just now getting back to work. We have a shortage of affordable workforce housing. In some areas, we have manufacturers who have jobs open, but can’t 

find enough trained workers. 

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

we implement that could benefit the rural economy? 

RESPONSE FROM DR. BERNSTEIN TO QUESTIONS FOR THE RECORD SUBMITTED BY

SENATOR AMY KLOBUCHAR

While both metropolitan and rural areas were hit with equally steep employment 

losses during the Great Recession, the recovery from the last downturn has been 

geographically unequal. As the Economic Research Service of the United States Department of Agriculture recently documented, rural-area employment was still 

about two percent below where it had been before the recession as of the second 

quarter of 2016, while metro-area employment was five percent above its pre-recession level. And while rural population growth is well behind that of metro areas, 

the labor force in rural areas has declined faster than rural population in recent 

years. 

One clear policy that would help people in rural areas is for states that haven’t 

already done so to adopt the Medicaid expansion, as Medicaid plays an even more 

important role in connecting residents to care in rural areas than it does elsewhere 

in the country. Having access to health care is an important work support. 

Recent economic research has made a strong case for ‘‘moving to opportunity,’’ or 

helping people move from areas of weak employment growth and high poverty to 

areas with more positive profiles along those dimensions. While this may be a solution for some families, it is certainly not one for all, and, in fact, there’s some evidence of reduced geographical mobility in recent years. Thus, my strong conclusion 

is that sound public policy must consider both helping people move to opportunity 

and moving opportunity to them. 

In this regard, direct public investments in infrastructure and renewable energy 

could potentially create jobs in rural areas while simultaneously helping to meet important public needs. Federally funded direct job creation programs in these areas 

also hold promise, as their guarantee of job availability would provide opportunities 

and incomes to disadvantaged workers likely to quickly spend their money in local 

economies, generating ‘‘knock-on,’’ or multiplier, effects. While such an intervention 

may sound far afield from contemporary economic policy, that’s not the case at all. 

During the last recession, as part of the Recovery Act, there was a robust subsidized 

jobs program with a strong record and impressive bang-for-the-buck in terms of job 

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creation. A recent, rigorous study of the history of subsidized employment programs 

shows that many of these programs have been successful. 

Earned Income Tax Credit 

There is extensive research on the benefits of the EITC, including from Dr. Bernstein, and I am a strong supporter of the EITC and the Child Tax Credit. There is 

bipartisan support for increasing the Earned Income Tax Credit (EITC) for childless 

individuals. This is a very interesting idea—supported by former President Obama 

and Speaker Ryan. 

• Can you discuss how increasing the EITC would help foster greater opportunity 

and lessen income equality? 

• Are there other policies that we should also consider as we look at the EITC? 

The EITC is a wage subsidy that pulls people into the labor force and provides 

much-needed income support to low-wage workers in low-income families; it lifted 

6.5 million people, including 3.3 million children, out of poverty in 2015, and 

brought another 21.2 million people (7.7 million children) closer to the poverty line. 

Research also shows that its benefits redound to its recipients at every stage of their 

lives, improving infant health, school performance, the chances of enrolling in college, and later adult earnings for those who receive the credit as children. 

Workers under the age of 25 without children do not receive the EITC, however, 

and workers without children over the age of 25 are eligible for only a very small 

subsidy. Making the EITC available to younger workers in this category and more 

generous for those who are eligible, as the bipartisan proposal you mentioned would 

do, would both improve these workers’ short-term prospects and potentially reduce 

their likelihood of becoming incarcerated. As shown in the figure below, the proposal 

from Senator Sherrod Brown and Representative Richard Neal would ensure that 

the updated credit kept a childless worker making poverty-level wages out of poverty (whereas under current law and the Obama/Ryan proposals, Federal taxes 

would keep such a worker below the poverty line). 

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You also mentioned the CTC, a policy that should be strengthened for very poor 

families with young children. The best way to do so would be for eligibility for the 

credit to begin with the first dollar of earnings (it is today entirely unavailable to 

families with earnings under $3,000 and only partially available to families with a 

little more than that). One way to accomplish that would be to make the CTC ‘‘fully 

refundable,’’ which would mean allowing all such families to access the entire credit. 

The minimum wage should be raised along with the EITC, as these policies are 

complementary. 

Also, my own research has shown that one of the most surefire ways to raise the 

pay of low- and middle-wage workers is to maintain very tight labor markets. As 

you have stressed, and the data on rural economies supports, even as the national 

macroeconomy is closing in on full employment, pockets of weak labor demand persist. Much of my empirical work, including this recent analysis of the employment 

rates of ‘‘prime-age’’ (25–54) men, shows that full employment significantly lifts the 

earnings and employment opportunities of workers who otherwise have too little 

bargaining power. This insight further underscores the importance of the jobs programs—infrastructure and direct job creation—touted above. 

There is much else for policymakers to tackle in this space. Criminal justice reforms that expand ‘‘fair chance’’ hiring practices for people with criminal records 

and allow Federal judges to impose less punitive sentences on people convicted of 

crimes are needed. So is an expansion of housing choice vouchers, which are an effective way to reduce homelessness. In general, policymakers who want to boost opportunity should focus on strengthening the safety net, not cutting taxes for the 

wealthy. 

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