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56–324 2010

S. HRG. 111–537 

THE ROAD TO ECONOMIC RECOVERY: PROSPECTS 

FOR JOBS AND GROWTH 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

FEBRUARY 26, 2010 

Printed for the use of the Joint Economic Committee 

( 

(II) 

JOINT ECONOMIC COMMITTEE 

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

HOUSE OF REPRESENTATIVES 

CAROLYN B. MALONEY, New York, Chair 

MAURICE D. HINCHEY, New York 

BARON P. HILL, Indiana 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

VIC SNYDER, Arkansas 

KEVIN BRADY, Texas 

RON PAUL, Texas 

MICHAEL C. BURGESS, M.D., Texas 

JOHN CAMPBELL, California 

SENATE 

CHARLES E. SCHUMER, New York, Vice 

Chairman 

JEFF BINGAMAN, New Mexico 

AMY KLOBUCHAR, Minnesota 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

MARK R. WARNER, Virginia 

SAM BROWNBACK, Kansas, Ranking Minority 

JIM DEMINT, South Carolina 

JAMES E. RISCH, Idaho 

ROBERT F. BENNETT, Utah 

ANDREA CAMP, Executive Director 

JEFF SCHLAGENHAUF, Minority Staff Director 

(III) 

C O N T E N T S 

MEMBERS

Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New York .......... 1 

WITNESSES

Dr. Richard Berner, Managing Director, Co–Head of Global Economics and 

Chief U.S. Economist, Morgan Stanley & Co., New York, NY ......................... 3 

Mr. Jeffrey Joerres, Chairman, Chief Executive Officer, Manpower Inc., Milwaukee, Wisconsin ............................................................................................... 7 

Dr. Kevin A. Hassett, Senior Fellow and Director of Economic Policy Studies, 

American Enterprise Institute for Public Policy Research, Washington, DC . 10 

SUBMISSIONS FOR THE RECORD

Prepared statement of Dr. Roger Altman .............................................................. 40 

Prepared statement of Representative Carolyn B. Maloney, Chair .................... 42 

Prepared statement of Dr. Richard Berner ........................................................... 43 

Prepared statement of Jeffrey Joerres ................................................................... 47 

Prepared statement of Dr. Kevin A. Hassett ........................................................ 64 

Article titled ‘‘Stimulus Arithmetic’’ by J. Bradford DeLong ............................... 79 

Prepared statement of Representative Kevin Brady ............................................ 81 

(1) 

THE ROAD TO ECONOMIC RECOVERY: 

PROSPECTS FOR JOBS AND GROWTH 

FRIDAY, FEBRUARY 26, 2010 

CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC. 

The committee met, pursuant to call, at 9:27 a.m. in Room 216 

of the Hart Senate Office Building, The Honorable Carolyn B. 

Maloney (Chair) presiding. 

Representatives present: Maloney and Brady. 

Senators present: Bingaman. 

Staff present: Brenda Arredondo, Andrea Camp, Gail Cohen, 

Colleen Healy, Kinsey Kiriakos, Andrew Wilson, Rachel Greszler, 

Lydia Mashburn, Jeff Schlagenhauf, Ted Boll, and Robert O’Quinn. 

OPENING STATEMENT OF THE HONORABLE CAROLYN B. 

MALONEY, CHAIR, A U.S. REPRESENTATIVE FROM NEW YORK 

Chair Maloney. The meeting will come to order. 

I am thrilled to be joined by Senator Bingaman. Congressman 

Brady will be here momentarily, but I want to start on time because votes are projected for 10:30 and I will have to leave for that. 

I first would like to thank Mr. Joerres and Dr. Hassett for their 

willingness to return to Capitol Hill and testify before the Joint 

Economic Committee. Our last meeting on February 9th was 

snowed out, and the weather continues to cause problems. Roger 

Altman, a former Deputy Treasury Secretary for our country, was 

going to testify (he’s now a leading businessman), and he has been 

snowed out and is not able to come. 

So I ask unanimous consent to put his testimony in the record. 

[The prepared statement of Roger Altman appears in the Submissions for the Record on page 40.] 

Chair Maloney. Today’s hearing continues our in-depth series 

on job creation. Today we will be examining the prospects of a 

labor market recovery from the Great Recession, which was fueled 

by the double-digit crises in both the housing and the financial sector. 

A recent op-ed by Professor Alan Blinder—which was based on 

the testimony that he was supposed to give before this Committee 

before he was snowed out—presents a clear picture of the two possible policy options to increase private sector employment: either 

increase demand by consumers and businesses, or give employers 

the incentive to hire workers. 

On Tuesday, the JEC heard testimony from Dr. Doug Elmendorf, 

Director of the Congressional Budget Office. His testimony showed 

2 

that an employer tax credit—similar to the one in my bill—is one 

of the most effective and efficient ways of spurring hiring. 

His testimony also showed that extending unemployment benefits has the biggest ‘‘bang for the buck’’ on the economy. Those benefits quickly multiply beyond the original recipients since families 

will spend all of their benefits on food and their expenses. Those 

purchases have a ripple effect throughout the economy. 

We have come a long way since last January, when the economy 

lost 779,000 jobs in that month alone, and recorded an average 

monthly job loss of over 750,000 jobs in the first three months of 

2009. 

Last month we lost 20,000 jobs. And in the most recent three 

months of the Obama Administration the average monthly job loss 

was 35,000. So we are headed in the right direction. Thanks to the 

Recovery Act, the economy is growing. 

The Bureau of Economic Analysis reported that in the final quarter of 2009, the economy expanded at a rate of 5.9 percent. 

The Recovery Act included a tax cut for 95 percent of all American families and created jobs while investing in clean energy, infrastructure, and education. While we have brought back the economy from the brink, we are not yet where we need to be in terms 

of job creation. 

Over 8.4 million jobs have been lost during the Great Recession. 

And in addition to the 14.8 million workers who are currently unemployed, there are 8.3 million workers who are currently working 

part-time but would like to work full-time. 

In the last year, Congress has enacted policies that support 

struggling families and encourage job creation. These actions include creating and extending the first-time homebuyers credit, 

boosting funding for small business loans via the Small Business 

Administration, extending safety net programs, and extending the 

net operating loss carry-back provision that will help small businesses hire new employees. 

But we need to redouble our efforts to create jobs. The Senate 

jobs bill, which passed this week, is a step forward and an encouraging sign of bipartisanship. 

It includes a scaled-down version of my employer tax credit. I am 

happy that the Senate has included this. As Dr. Blinder said in his 

op-ed, reducing costs for employers to hire new workers will create 

jobs. 

During today’s hearing we will explore other options and hear 

other ideas to help workers get back on their feet, spark consumer 

spending, and brighten our economic future. 

I am pleased that Dr. Berner was able to testify today and provide us with his forecasts of which sectors and regions of the economy are expected to grow in the coming year. 

Mr. Joerres will be giving us Manpower’s on-the-ground experience about the increase in demand for temporary workers. Job creation in the temporary help sector is a leading indicator of progress 

in the labor market. 

Since September 2009, temporary help services has added over 

247,000 jobs—52,000 in January alone. 

Finally, Dr. Hassett will be giving his views about future growth 

and the health of the labor market. 

3 

I am also pleased to see that today’s panel will touch on another 

topic discussed on Tuesday with the CBO, and that is the role of 

uncertainty about government policies on dampening economic and 

employment growth. 

I look forward to a lively discussion with the panel today, one 

that I hope will help spark bipartisan efforts to create certainty so 

that households and businesses will feel confident and will lead our 

country out of this Great Recession. 

[The prepared statement of Representative Maloney appears in 

the Submissions for the Record on page 42.] 

Chair Maloney. Thank you all for coming, and I recognize my 

colleague, Senator Bingaman. 

Senator Bingaman. Thank you all. I don’t really have an opening statement. I look forward to hearing from all of you about our 

prospects for accelerating the economic recovery and creating jobs, 

and your best suggestions as to what policies we could adopt that 

have not been adopted. Thank you for being here. 

Chair Maloney. You are in charge. 

Senator Bingaman [presiding]. Okay. Let me just start, unless 

you have some preference in the order that you would like to testify, with Dr. Berner. Have you been adequately introduced here? 

I can certainly do that. 

Dr. Berner. I am happy to proceed, Senator. 

Senator Bingaman. Let me just briefly indicate, he is the managing director and Co-Head of Global Economics, and Chief U.S. 

Economist with Morgan Stanley. We appreciate you being here. 

You direct the firm’s forecasting and analysis of the global economy 

and financial markets, and co-head the firm’s Strategy Forum. 

You have served here, of course, on the Research Staff of the 

Federal Reserve in Washington where you co-directed the Fed’s 

Model-Based Forecasting. There are a lot of other things I have 

written here that I could say about you, but I think that gives us 

an indication of your qualifications. 

We are very pleased that you would be with us today. Why don’t 

you go ahead, and let me hear from you, and then I will introduce 

Mr. Joerres. 

STATEMENT OF DR. RICHARD BERNER, MANAGING DIRECTOR, 

CO–HEAD OF GLOBAL ECONOMICS AND CHIEF U.S. ECONOMIST, MORGAN STANLEY & CO., NEW YORK, NY 

Dr. Berner. Okay, Senator. Thank you, and other Members of 

the Committee who may not be here. Thanks for inviting me to this 

hearing. 

Following the deepest financial and economic crisis since the 

Great Depression, the U.S. and global economies are starting to recover. 

In our view, however, the recovery will be moderate and job 

gains modest. In 2010 and 2011, respectively, we expect real GDP 

to grow by 31⁄4 percent, and 21⁄2 percent. 

We expect annual job growth to average about 110,000 monthly 

over that 2-year period, excluding hires for the decennial census. 

Even those job gains, however, are not a foregone conclusion. We 

have yet to see job growth in our economy, as you know. And, while 

indicators have improved, that is still a forecast. 

4 

More important, as you also know it would take stronger job and 

economic growth over the next few years to regain the 8.4 million 

payroll jobs we have lost in this Recession, or to gain the 10.6 million jobs required to restore the employment rate, or the employment population ratio to the one prevailing before we got into the 

downturn. 

Importantly, as well, our unemployment problem has become 

chronic. Two statistics I think document that fact. The median duration of unemployment has reached 20 weeks, and a record 41 

percent of the unemployed have been jobless for 6 months or 

longer. 

So my testimony today I will talk about four specific obstacles to 

hiring. Each of these has both a cyclical and a structural element 

to them. For each I will talk about policies that might help foster 

economic growth and job creation, but first I want to identify, as 

you asked me to, where job gains are likely to be over the next two 

years and why. 

We think advances in export, infrastructure, capital goods, energy, and health care-related industries likely will account for most 

of the job gains in the next 18 to 24 months. 

That echoes our views regarding the sources of growth in our 

economy. The combination of strong global growth, the lagged effects of fiscal stimulus, and improving financial conditions—thanks 

to the efforts of the Federal Reserve—will continue to promote 

growth and will promote improvement in many of those industries. 

And of course rising demand for health care services continues. 

When we think about where the regional strengths will be, that’s 

a little harder. For example, industries that likely will benefit from 

exports and other strong sectors happen to be located in regions 

that were hard-hit by regional housing problems. 

In our judgment, the Pacific Northwest, parts of the Rockies, and 

Upper Midwest, parts of the Southeast, and parts of the Southwest 

seem likely to us to be the strongest regions. 

Turning to export markets and employment, which is important, 

I expect gains in export volumes of around 10 percent to be sustained over 2010. Paced by their domestic demand, growth in many 

of our major trading partners—particularly in Asia and Latin 

America—probably will average around 6 to 7 percent this year, 

and Canada probably will grow more strongly than in the U.S. A 

little slower growth in 2011 is likely to occur as the U.S. and overseas policymakers exit from their very expansive fiscal and monetary stimulus. 

In manufacturing, some 20 percent of employment in 2006 was 

directly or indirectly related to exports, and I expect that share to 

grow over the next two years. 

Capital equipment and industrial supplies exports likely will continue to do well, while consumers will represent a rising share of 

overseas demand. 

Now let me turn to some of the obstacles to hiring. I think worries about the sustainability of the recovery are legitimate, as they 

often are, early in a recovery, and that is maybe holding hiring 

back. 

The fallout from the bursting of the housing and credit bubbles 

I think has intensified such concerns this time. So I think it reVerDate Nov 24 2008 14:30 Jul 12, 2010 Jkt 056277 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\56324.TXT SHAUN PsN: DPROCT
5 

mains essential to pursue policies oriented towards reducing housing imbalances, reducing debt, and improving the functioning of financial markets and financial institutions. 

In addition, I think there are four specific obstacles to hiring 

today: 

Rising benefit costs; 

Mismatches between skills needed and those available; 

Labor immobility resulting from negative equity in housing; and 

Uncertainty around policies here in Washington, as the Congresswoman mentioned earlier. 

I want to turn to what you can do to help the economy and labor 

markets to improve as quickly as possible. Let’s talk about the cost 

of labor. 

Thanks to high fixed costs of health and other benefits, and of 

taxes on labor to pay for the social safety net, our labor costs are 

out of line with other countries when adjusted for living standards. 

I say ‘‘fixed costs’’ because benefits do not vary with hours 

worked; they are paid on a per-worker basis. But as employers seek 

to cut the cost of compensation, these benefit costs drive a growing 

wedge between total compensation and take-home pay. 

The Recession made that wedge bigger as cost-cutting private 

sector employers cut take-home pay while leaving benefits intact. 

So relative labor costs go up in that circumstance versus other 

countries, and median pay suffers. 

The long-term solutions to this issue include comprehensive 

health care reform and innovation to boost productivity and labor 

skills. 

A short-run remedy might include the refundable payroll tax 

credit that we’ve just mentioned in the hearing, perhaps for firms 

that increase their payroll. CBO estimates that would be one of the 

most effective short-run remedies, as was just mentioned. 

The second obstacle I think is a mismatch between skills needed 

in the workforce, or work place, and what there are in the workforce. Workers’ skills have greatly lagged technical change, and the 

big changes in the structure of our economy. 

Dislocations in several industries in the Recession magnify that 

mismatch as workers who have been trained for one occupation 

lose their jobs and have difficulty taking another. And even in 

health care there is a growing nursing shortage that requires new 

training facilities. 

The long-term solution, or solutions, include policies that keep 

students in school, improve access to education, reorientation of our 

higher educational system towards specialized and vocational training and community colleges, and of course the training programs 

that firms like Mr. Joerres seek. 

The short-term remedies are a little harder. One short-term remedy might pair training and basic skills that are needed for work 

with the income support we need through unemployment insurance 

to help people bridge the gap during jobless spells. 

Two other groups seeking employment—newly minted college 

students and recently unemployed teachers—could be an ideal nucleus, in my view, for a job training corps that would empower jobseekers with new skills. 

6 

The third obstacle is labor immobility resulting from the housing 

bust. Negative equity among a Nation of homeowners, in my view, 

leads to substantially lower mobility rates—one-third lower, according to one study. 

That is leading to a wave of strategic defaults in which borrowers 

who can otherwise afford to pay decide to walk away from their 

homes. Whether through foreclosure or default, this process is undermining the economic and social fabric of communities and reducing job opportunities. And so far the policies that we have employed really have not dented the problem. 

The long-term solution of course is financial and mortgage regulatory reform which are essential to restore the health of housing 

finance. Significantly, improving financial literacy in my view is 

equally important. 

In the short run, efforts to stabilize communities plagued by foreclosure are essential, and they are worthwhile, but they are not 

enough. 

Modifying existing mortgages has not worked. Re-default rates 

following modification are between 50 and 60 percent. I think establishing a protocol for short-sales and principal reduction should 

be a useful tool in avoiding costly foreclosure and strategic default. 

The fourth obstacle is policy uncertainty. I think that is a negative for the economy and for markets. It is clear to all of us that 

we need to solve our long-term challenges, and there are many— 

health care, budget and tax reform, financial regulatory reform, retirement savings, infrastructure, the list goes on—and the debates 

around major initiatives to address those problems are obviously 

an important part of the democratic process. 

But the uncertainty that accompanies major policy change I 

think is weighing on business and consumer decisions to hire, to 

expand, to buy homes, and to spend. 

Now there is some recent work that confirms this intuition. In 

effect, the rise in uncertainty increases the option value of waiting 

as volatility in markets and the economy rises. 

Moreover, this line of reasoning suggests that uncertainty reduces the potency of policy stimulus. In effect, it raises the threshold that you have to clear to make a business choice worthwhile. 

And, conversely, as uncertainty declines, the threshold falls with it. 

I can tell you as someone who works in financial markets that 

market participants are used to thinking that political gridlock is 

good, that it prevents politicians from interfering with the marketplace. And by the way, I think sometimes that interference is essential and important. 

The financial crisis clearly exposed the flaws in that reasoning, 

however, with respect to appropriate financial regulation whose absence allowed abuses. Indeed, gridlock today is more likely to be 

bad for markets, as our long-term economic problems are partly the 

result of past policies and can only be solved with political action. 

So the long-term solutions here involve bipartisan leadership to 

tackle those complex problems one by one in steps that are fair and 

call for shared sacrifice and benefits. 

The short-term remedies are no easier. They involve, obviously, 

getting together, but they will be a tonic for growth in my view. 

Reduction of the uncertainty around the political environment here 

7 

in Washington I think would give some clarity to policies and the 

direction we’re headed, and I think that would support an improvement in our economy and our financial markets, and would pave 

the way for renewed job growth. 

Thank you very much. I will be happy to take your questions. 

[The prepared statement of Richard Berner appears in the Submissions for the Record on page 43.] 

Senator Bingaman. Thank you very much. I appreciate you 

being here, and I appreciate that testimony. 

Jeffrey Joerres is the Chairman and Chief Executive Officer with 

Manpower Inc. He joined Manpower in 1993, served as vice president of marketing, and later as senior vice president of European 

operations and global account management, promoted to president 

and CEO in 1999. In 2001 he was named Chairman of the Board. 

Again, I have more information that I could put out here explaining your eminent qualifications, but thank you for being here and 

we are anxious to hear your perspective on these questions. 

STATEMENT OF JEFFREY JOERRES, CHAIRMAN, CHIEF EXECUTIVE OFFICER, MANPOWER INC., MILWAUKEE, WISCONSIN 

Mr. Joerres. Thank you, Senator. 

Job creation is the topic that we absolutely deeply believe in, as 

every day we connect people to jobs. That is what we do for a living. 

Globally we have more than 400,000 associates on assignment at 

any given day. In 2009 we interviewed over 12 million people 

through our network of over 800 offices in the United States. We 

absolutely have a finger on the pulse of what is going on in the 

labor market. 

So what are we seeing? Companies are clearly starting to hire. 

There is no doubt about it. However, this recovery, like the recovery in the last few recessions, will be a jobless recovery. 

This is because companies are much more sophisticated in their 

ability to assess their workforce needs. Companies can determine 

exactly when they need workers to support the demand for their 

products and services. So from now on, companies will no longer 

engage in ‘‘anticipatory hiring.’’ 

They will instead wait for clear signs of an increase in demand 

before making permanent hiring decisions. As a result, we would 

expect that short-term increases in the level of job hiring will be 

driven by new businesses, or by actual demand. 

The Manpower Employment Outlook Survey looks to 28,000 U.S. 

companies to assess hiring expectations in the quarter ahead. The 

latest survey shows that twelve percent of those companies said 

they would increase their staff in the first quarter; 73 percent of 

the employers expected no change in their hiring. 

Why is that important? In the 42 years of this survey the ‘‘no 

change’’ number has never been that high. Those companies are 

really stuck in the middle of the stabilization waiting for a sign for 

them to be able to take on people. The normal number of employers 

expecting ‘‘no change’’ would be somewhere around 58 percent. 

Additionally, the national survey data shows that employers in 

mining, durable manufacturing, information, government, are expecting hiring in the first quarter versus the fourth quarter of 

8 

2009. Slight increases are also expected in nondurable goods manufacturing, transportation, utility, professional and business services. Employers in sectors, as you would imagine, like construction, 

retail, wholesale, will have a very soft first quarter, and some of 

the preliminary indications, we say, a softer second quarter as well. 

Using the seasonally adjusted data, all regions anticipate moderate quarter-over-quarter growth in their staffing levels, with the 

highest growth coming from the South and the Midwest. And you 

can see why: growth in the manufacturing jobs is where our growth 

is coming from. 

A major trend emerging from this down cycle is the number of 

unemployed workers who will be forced to find new jobs outside 

their industry-of-expertise. In our company we have labeled these 

people: ‘‘industry migrants,’’ very similar to a migrant coming into 

the country. 

They face challenges including how to adapt old skills to the new 

demand in the marketplace, and how to represent those skills in 

a brand new light. 

For example, a foreman in an auto company on a shop floor, 

might have problems fitting into a manufacturing environment. 

Another one of these major challenges that workers face in this 

recovery is the lack of mobility exacerbated by the housing crisis, 

very similar to what Dr. Berner had referred to. This inability to 

help homeowners get out from underneath their negative equity 

problems means that many jobless are unable to take jobs in different locations, when in fact there are available jobs. 

We believe that any initiative that the government implements 

to address the level of unemployment and foster job creation should 

focus on three specific areas: the individual job seeker; companies; 

and potential new businesses. 

So what can be done to assist in the individual employment? 

Training programs. Again, as Dr. Berner mentioned, these have 

very good track records. They also have some challenges associated 

with them. But workforce development programs and other forms 

of skill retooling—and I might suggest specifically focusing on these 

potential industry migrants—to enable them to leverage their existing skills, but move them into different industries. 

What can we do to assist corporations? Corporations are more 

specific than ever about their hiring needs. This is the conundrum. 

There are people saying: I have the skills. And there are companies 

saying: your skills aren’t good enough for me. That skills mismatch 

is critical. 

They have to have softer skills. They have to have flexibility, 

adaptability, intellectual curiosity, an interest in lifelong learning; 

things that we didn’t have to have before. 

Given the velocity of change in these requirements’ skills, all citizens and particularly industry migrants will need to develop them. 

Tax credits and incentives for companies to increase the size of 

their workforce will put needed money in the hands of businesses. 

However, companies have gotten smarter, in that from this recovery going forward hiring decisions will be made based on demand 

for their product and services and goods. 

9 

Offering incentives will not create new jobs, in my opinion. Rather, they will subsidize the cost of growth of companies that they 

would have hired anyway. 

This use of taxpayer monies in this incentive program is well-intended, yet at the same time will create a tax break for companies, 

which is good, but if you look at the long-term core it is not getting 

at true job creation. 

Businesses create new jobs. One of the biggest challenges of any 

Federal Government initiative is getting to the end citizen, and 

how that end citizen can participate in those programs. Programs 

to provide this group of people with access to start-up capital, 

grants, access to cheap real estate, perhaps even using some FDICowned real estate, will create jobs. 

In conclusion, I am suggesting three specific actions that should 

be considered to address the three areas of focus I just spoke about: 

One, a targeted investment aimed at new business creation. Develop a comprehensive program, breaking down the silos within 

government to support entrepreneurs to set up and establish new 

businesses. A new pipeline of businesses must be there in order to 

replace the continued productivity and efficiency. 

A program targeted on unemployment and the homeowner. 

Again, as Dr. Berner talked about. We need to create a more flexible and fluid labor market, and therefore we need to be able to 

have people continuing to pay their mortgages so they’re not 

trapped in their city when there’s a job offer elsewhere. 

A targeted program to address soft skills which will particularly 

benefit industry migrant populations. This development of these industry migrant populations. This is an opportunity to develop a 

training curriculum and program through workforce investment 

boards. Industry migrants require assessment skills, skills’ transfer 

training, and soft skills’ training. All of these can introduce the 

likelihood of this migrant moving to other industries. 

Manpower has been in the business of jobs and the job-training 

business for more than 60 years. We have seen the economic ups 

and downs. It is clear that this recession is by far the most severe 

that we’ve seen. 

It has been a privilege to share some of the thoughts that we get 

and feel from on the ground and those actions I have presented to 

this Committee. We consider that strong partnerships between government and industry will be critical for rapid progress in the recovery. 

It will also be critical that we get it right. Right means systemically so that we are not solving this same issue 18 months from 

now. The employees of Manpower and I are ready to assist in getting America back to work. 

Thank you. 

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

Senator Bingaman. Thank you very much for that testimony, 

and I will have some questions when we get to the question part. 

Our third and final witness is Kevin Hassett, Director of Economic Policy Studies, a Senior Fellow at the American Enterprise 

Institute. His research areas include the U.S. economy, tax policy, 

and the stock market. He previously was a senior economist at the 

10 

Board of Governors of the Federal Reserve System, and a professor 

at the Graduate School of Business at Columbia. He also served as 

a Policy Consultant to the Treasury Department during the Presidency of George H.W. Bush, and the Clinton Administration. 

Dr. Hassett, thank you for being here. 

STATEMENT OF DR. KEVIN A. HASSETT, SENIOR FELLOW AND 

DIRECTOR OF ECONOMIC POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, 

WASHINGTON, DC 

Dr. Hassett. Thank you, Senator, for having me. It is a real 

honor to be here in the room. Also, I commend—I have turned on 

my microphone. Is it working? The microphone is not working? 

Senator Bingaman. No, I think it works. If you will just pull 

it a little closer, that seems to be the thing. 

Dr. Hassett. How about that? 

Senator Bingaman. That’s great. 

Dr. Hassett. Okay, terrific. Thank you. 

It is really an honor to be here, especially before this Committee, 

which as you can see looking at my fellow panelists has a long tradition of inviting people who give the unbiased truth and are not 

here to make political points, but rather to help us think about 

where we are and what we need to do. 

As you know, Senator, my testimony was fairly long. And after 

listening to my two predecessors, a lot of the things they said are 

things that I agree with explicitly in my testimony. So what I will 

do is go through the parts of my testimony that offer slightly different, or alternative perspectives and not emphasize the areas of 

agreement. 

So I will begin with a brief overview of our current economic situation, discuss what I see as the most pressing challenges for employment and growth, and then describe policy changes that I 

think would address our current challenges, especially those challenges in the U.S. labor market. 

The headline of my testimony is that it is absolutely clear that 

the Recession is over, although that is not really commonly discussed, although it is certainly accepted by most economists. I 

think in the end the date of the end point, or the trough of the Recession will be probably sometime in July of last year. 

But even though the Recession is over, as was the case in the 

previous two recessions, we’ve begun with something that looks a 

little bit like a jobless recovery. The labor market is still terrible, 

and it is improving far too slowly, although it may have very subtly 

turned the corner lately. 

The fact is that we are coming out of what economists now call 

‘‘The Great Recession,’’ but I think that we need to amend that as 

we think about our policy challenges because it was ‘‘the Great Recession’’ for whites, but it has been a Great Depression for blacks. 

If you look at the differences across races in unemployment, for example, it is startling and disturbing and an urgent call to action. 

I think also the Great Depression for blacks is not over. So we 

are starting to see some signs of improvement in labor markets, 

but if you decompose the statistics and look at the different experiVerDate Nov 24 2008 14:30 Jul 12, 2010 Jkt 056277 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\56324.TXT SHAUN PsN: DPROCT
11 

ence of whites and minorities, you find that minorities are really 

trailing in a way that challenges policymakers. 

And so I think looking at the economy, we are clearly out of the 

Recession. We have had a tremendous growth quarter, but that 

growth, a lot of it came from inventories and traditionally inventory spikes are followed by weak quarters; they tend to be negatively correlated, the inventory contributions, which means that 

there is a downside risk at the beginning of this year and ample 

room for caution. 

I think that, given that, and given the state of the labor market, 

that we would be wrong not to think about additional measures to 

take. 

Now before I go on to the specific proposals that I would urgently 

encourage you to consider, I would like to talk a little bit about 

what we did last year. Because I think it is crucial to not repeat 

what we did last year, for reasons that I go into in depth in my 

testimony. 

Now the CBO report released just this week provided estimates 

of the impact of the stimulus, and they offer broad ranges in the 

report when estimating the economic effects which are intended to 

encompass most economists’ views, and thereby reflect the uncertainty involved in such estimates. 

As you know, Senator, the estimates were then actually fairly favorable, giving ranges, you know, well above a million, or two million jobs. My view is that the CBO report is incorrect. And I make 

these observations here not to make political points about what we 

did last year, but rather just to emphasize that it is crucial that 

we look elsewhere now. 

Now why do I disagree with the CBO report? Well, the CBO 

analysis relies on large-scale Keynesian macro forecasting models 

that were mostly discarded by the economics profession a long time 

ago. 

The CBO analysis concludes that we got lots of jobs created and 

that the broad range of economists’ views would support that, but 

I disagree. That is not my read of the literature. 

A sign of how far off the CBO analysis is comes from the comparison of their broad range to the analysis in a Wall Street Journal article, also written this week, by Robert Barro of Harvard. 

Professor Barro has been one of the primary contributors to the 

macroeconomic times series literature that has tried to estimate effects from observed economic data, rather than assume the facts, 

as is often done by the Keynesian models. 

I should note that Barro is perhaps Harvard’s most famous 

macroeconomist, is a virtual lock to win a Nobel Prize, and his 

work is not out of the mainstream. It has been followed by the 

work of many others who have made similar findings. 

The key point is that Barro estimated that the government’s 

spending multiplier for the first year of the Stimulus 2009 was 

about .4 percent, pretty small; and the multiplier for year two 

would be about .6 percent, a little bit bigger, but both of these estimates fall well short of the bottom of the range of CBO multipliers, 

because the CBO chose to ignore the literature that relies on experience rather than Keynesian speculation. 

12 

I believe that the correct position for policymakers as we now 

look ahead at what to do is to adopt skepticism concerning these 

effects, and openness to different approaches. 

I guess the last point from my testimony that I would like to emphasize is that it is worth adding that we need to be particularly 

wary of big job creation estimates precisely at this moment. 

One reason job creation lags the cycle is that businesses hoard 

labor and have excess capacity when times turn sour. As the economy recovers, they are able to ratchet up production without making new hires. 

Even if the Stimulus did have an outsized effect on output, one 

would not expect to see a large impact on hiring at the beginning 

of a recovery. The large job-creation claims just do not add up. 

So what should we do, if we’re not going to do what we did last 

year? Well, I highlight a number of things in my testimony which 

I am going to have to give a kind of helicopter view of, as I am 

running out of time. 

The first thing is that I think that we should recognize that we 

have a serious opportunity, if we can get our house in order. As Mr. 

Berner emphasized, uncertainty about future policy and about the 

course of U.S. prices and the value of the dollar is certainly having 

a depressing effect on the U.S. economy. 

The good news is that there have been many countries in the 

past that have been in circumstances similar to our own. The literature suggests that those countries that then get their house in 

order, by having something like the bipartisan commission that 

was proposed in the Senate recently to reduce the deficit in the 

long run, well they have seen even near-term economic booms in 

part, I believe, because the uncertainty about what future policy is 

going to be is removed. 

So I think the first thing we need to think about is not to sharply 

cut back government spending, for example, in this year, which 

would certainly have some negative effects on the economy, but 

rather recognize that we have a near-term opportunity to remove 

the uncertainty about future policy by getting our house in order 

in the long run. 

Such a fiscal consolidation I believe would be a very beneficial 

policy going forward. It would give people reason for confidence as 

they make their plans about the future. 

The second policy that I emphasized in my testimony is something known as job sharing, which is really a very smart and clever 

idea that has been floating around for years and perfected somewhat by some European nations. 

Again, as I’m running short, I will summarize it in this way. 

Right now we have unemployment insurance. And if a firm lays a 

person off, then they will have a reduction in their wage bill in 

what they have to pay, and the person who is laid off will get some 

unemployment insurance. 

What job sharing is is a kind of fractional unemployment insurance. So you could reduce a worker’s hours by say 20 percent, and 

then they could get 20 percent of their unemployment insurance. 

The experience of such programs is really remarkable. In some 

European nations like Germany they have had GDP declines very 

similar to our own, and yet the unemployment rate has barely gone 

13 

up at all. And many analysts attribute this to their job-sharing program. 

I think it would be very cost effective to adopt one now, and it 

is important to note that it is not too late, even if we are in the 

first stages of a recovery. The fact is that each month four million 

or so jobs are created and destroyed, so there is job creation out 

there, but there is still a lot of job destruction out there. 

If we can use job sharing to slow job destruction, say even 10 

percent, then that might add up as much as 400,000 to the net job 

numbers that you see in the top line employment report. 

I then go on to discuss the idea of creating jobs directly, which 

is not something that I would naturally choose to do if asked, but 

given the state of the labor market we need to really be creative 

about how we do it. And the good news is that the few programs 

that we’ve seen that have tried to create jobs directly have done so 

at an astonishingly cost-effective way compared to things like the 

Economic Stimulus. 

So, for example, one jobs program that H.R. 4564 is seeking to extend maybe created jobs at a cost of about $10,000 to $20,000 a 

job, which is, even by optimistic estimates if we accept President 

Obama’s numbers, about one-tenth the cost of creating jobs 

through the Stimulus. 

And the final thing that I mentioned is that, if we want to give 

people reason for optimism, we can resolve uncertainty through a 

fiscal consolidation, but we have also got to give America’s businesses a break. 

The rest of the world has been reducing its corporate taxes for 

years, and the idea is that now the average for our OECD trading 

partners is about 10 percent below what our current corporate tax 

rate is. And so if you are a big multi-national firm deciding where 

to locate your activity, are you going to locate it in the U.S. where 

you have to pay 10 percent more of your profits in taxes? Or are 

you going to choose another location that has lower taxes? 

The literature on this is clear. When your corporate tax is as far 

out of whack as ours is with the rest of the world, then the revenue 

costs are really extreme from having the high rate and you can reduce the rate without losing much revenue, if at all. 

Indeed, I even have references that are listed in my testimony 

that suggest that the cost of reducing the corporate tax rate might 

actually be nonexistent. It might actually raise revenue because 

we’re on the wrong side of the corporate tax Laffer Curve. That is 

actually an opportunity right now. 

We are looking for something to do that will not cost much revenue because we do not have much revenue to give, and the corporate tax area is one that both is harming our competitiveness 

and, too, can be fixed without having a big budget cost. 

Thank you very much for your attention, Senator, and that concludes my prepared remarks. 

[The prepared statement of Kevin A. Hassett appears in the Submissions for the Record on page 64.] 

Senator Bingaman. Thank you all very much for your excellent 

testimony. Let me at this point put an article in the record that 

relates to some of the same issues that Dr. Hassett and the rest 

of you testified to. This is an article entitled ‘‘Stimulus Arithmetic,’’ 

14 

by J. Bradford DeLong, a Professor of Economics at UC Berkeley, 

discussing Dr. Barro’s analysis of the American Fiscal Stimulus Act 

and its effect on jobs. 

[The article titled ‘‘Stimulus Arithmetic’’ appears in the Submissions for the Record on page 79.] 

Senator Bingaman. Let me start, Dr. Berner, with a few questions to you. I think your testimony is very useful, particularly in 

that you organized it in terms of the short term and the long term. 

That is obviously the reality that we are faced with here in trying 

to make policy for the country here in the weeks ahead, and the 

months ahead. 

One big debate that I think I hear all of you taking a position 

on is, we have got some here in the Senate who are taking the position that we should not be spending any more for unemployment 

insurance, any of these job creation initiatives, payroll tax holidays, 

these types of things, unless we offset that spending by cuts elsewhere, or by, I guess presumably by increased taxes. But some way 

or another we need to pay for any continuation of the job creation 

provisions that we have in law today, or the job maintenance provisions that we have in law today. 

I guess I would be interested, if I am understanding your position, Dr. Berner, your position would be that that is not the right 

policy in the short term? That is probably the right policy in the 

long term? That there is a distinction we need to keep in mind here 

about what we do now versus what we do with regard to the long 

term deficit and fiscal situation in the country. 

Is that accurate, or not? 

Dr. Berner. Yes, Senator, that is accurate. 

I think there are two things that are important. In the short 

term I think what we are all saying is we need to be smarter about 

the way we implement programs, and the way we use taxpayer 

money to implement them. 

We are all interested in getting the maximum bang for the buck 

out of those programs. Income support, for example, is really important in a period of great stress for American families and workers. But as I suggested in my testimony, for example, it might better be paired with training and other things that would make it 

more productive in use. 

And Kevin and Mr. Joerres also talked about ways that we could 

spend our money more effectively in short-term programs. But I 

think what we are talking about here—and here is where I would 

join Dr. Hassett in this—we need a credible plan to get our fiscal 

house in order, and we have not seen that yet. 

I think markets would derive great benefit from that. Not only 

would we reduce uncertainty, but I think that people would understand that, while it is going to take some time because we have got 

difficult problems to solve and big challenges to address, a credible 

plan to resolve our fiscal problems over time I think would be enormously beneficial to markets and to the economy. 

Senator Bingaman. So the Deficit Reduction Commission that 

the President is establishing is the right thing to be doing for the 

long term, but continued support for job creation initiatives now is 

also the right thing to be doing? Is that what I understand? 

15 

Dr. Berner. It is, Senator. It is the right thing to be doing as 

long as we do it in a way that is both creative and where we get 

the most bang for the buck. 

Senator Bingaman. This suggestion that Dr. Hassett is making 

about work sharing, job sharing, is that something you have looked 

into, Dr. Berner? Does that make sense as a policy option we ought 

to explore or adopt? 

Dr. Berner. Senator, I have not looked into that but it does 

sound like something we could explore. After all, I do not think we 

ought to leave any stone unturned. We should explore all options. 

And the appeal of what Dr. Hassett is talking about is that if you 

have people who have their hours significantly cut back, that there 

is a level of income support there for those people. That builds an 

automatic stabilizer into the system so that we do not while at the 

same time reduce hours we also reduce wherewithal for spending 

and create a problem for consumers where we get into them saving 

in a precautionary way if there is a lot of uncertainty out there. 

So that sort of support could be useful. But I think we ought to 

also look at other—the other kinds of creative ways to both support 

demand and to get our economy going to support job creation. 

Senator Bingaman. Mr. Joerres, did you have thoughts on any 

of these questions that I have just posed to Dr. Berner here about 

what short-term policies make sense for us to consider here in Congress? 

Mr. Joerres. Well any time you can get somebody back to work 

instead of sitting at home makes a big difference. So whether it be 

some form of job sharing, or the industry that Manpower is in, 

makes a tremendous amount of difference, because there is an 

awful lot of research that says the longer you are unemployed, the 

longer it takes for you to get to a long-term employment situation, 

even if you just do comparisons between the U.S. and Europe on 

the long-term unemployment rate. A lot of that has to do with not 

getting people back to work fast enough. 

There are two forms of safety net that must be employed now, 

because we are in a period where you have to have safety nets. In 

almost all cases, safety nets do not create jobs. But if we serially 

look at the connection between safety nets and creating jobs, we 

are going to see an S-curve environment where you’re really going 

to have that dropoff again. There must be some parallels in order 

to do that. 

To your point earlier, this all costs money, thus we are going to 

have to make some choices. Are we interested in true, long-term 

systemic job creation, which is really new businesses filling in the 

slack of mature businesses continuing to enhance efficiency? 

Say I have 5,000 employees and reduce it to 4,500. A new business must come up underneath to 500 people just to maintain 

those jobs. Right now, the pipeline of new businesses we so desperately need is not there. 

So I would suggest to be very clear about safety net services, 

short-term job creation, or really more short-term job preservation, 

and then longer term programs in order for us to start this pipeline 

of new jobs. 

Senator Bingaman. All right. Dr. Hassett, maybe you could 

just comment on the general question that I posed to Dr. Berner 

16 

as to, as I understood your testimony, you say we have a near-term 

opportunity to get our long-term house in order, and that is the 

Deficit Reduction Commission, or at least that is one way to try to 

begin to address that problem, and you believe that is a good step 

to be taken? 

Dr. Hassett. Yes. I am not sure about the Deficit Reduction 

Commission, although I have a great deal of respect for the folks 

who have been charged with setting it up. The fact is that we have 

got tough choices to make. And as you know, Senator, there have 

been many more failed commissions in the past than successful 

ones, and I wish that we were a little more ambitious in this regard. 

I also would highlight the part of my testimony where there is 

a chart for this that looks at the U.S. debt situation, external debt 

situation, and points out that we really are pushing the envelope 

in terms of our debt. 

And again I am not here to point fingers on who is to blame; it 

certainly is something that started about a decade ago that we 

began running up bigger deficits; but the fact is that right now our 

external debt relative to GDP is worse than the external debts we 

saw for Latin American countries that have defaulted over the last 

few decades. 

And so if you were to say the U.S. is just like another Latin 

American country, then I guess I would respond to that: You wish. 

Actually, it would be a big improvement from where we actually 

are. 

And so I think that, given that that is the circumstance, we need 

to be very wary of expanding things without thinking about how 

we are going to pay for them. But we do not have to time them 

so that they all happen this year. 

So, for example, if you could find—and I know that this is something that politicians often refer to but it never really exists, or it 

never really happens—lots and lots of money that we can save from 

reducing waste three years from now, or some program that we are 

actually going to cancel, and the present value of that cancelled out 

all of our jobs programs, then I think the panelists would all agree 

that that would be a policy that would have a significantly better 

effect than one that just added to the uncertainty about how we are 

going to fix this mess. 

But the good news—you know, in some sense it is depressing to 

think about our fiscal situation, but I think that there is a twist 

on it that one could think of as good news, in the sense that if 

you’re a person who like me likes to watch the sort of medical mystery style TV show, then if somebody shows up and they’ve got a 

knife in them, then it is kind of good news in the sense that you 

take the knife out, you sew them up, and then they go home. But 

if somebody comes in and they’ve got a high fever and you don’t 

know why, then it could be really bad news. 

The fact is that we have got some knives in us that we know how 

to take out and sew up, and so we can fix this thing. It is not a 

mystery how. And I think the question is just how do we generate 

the political will; it is not how to design the policy. 

Senator Bingaman. Let me also ask, your endorsement of direct job creation I think is very interesting. Because again we get 

17 

into a real ideological discussion around here whenever we try to 

appropriate money for direct job creation. And folks take the position that that is a terrible thing, that is government expanding, we 

should not be doing that, we should be doing some other indirection 

action through some tax provision to incent someone else to create 

jobs, instead of directly creating jobs. 

But I understand you to be saying that direct job creation seems 

to be a more successful way to get jobs created at a reasonable 

cost? Am I understanding you right? 

Dr. Hassett. Thank you for pointing that out, Senator. I would 

add that the thought that started leading me in this direction was 

that if we had spent the Stimulus last year by just hiring people 

and paying them the median wage of $38,000, then with the original Stimulus estimate I calculated that we would have created 21 

million jobs. 

I think with the new-hire CBO number it is climbing to something like 23. And I am not saying that that is something that we 

really would have wanted to do, but it puts in perspective the notion of, you know, when is a multiplier a multiplier? 

If you just actually create the job directly, then it turns out to 

be a lot more cost effective than to design some big public works 

program that is going to create some jobs. 

I think that in addition the idea that creating jobs directly means 

big government is incorrect, because I think one could easily envision a program that I would probably want my colleague to the 

right of me to design where we arranged for firms that hire someone who is unemployed to get a fraction of their salary for the first 

few months for that person in terms of a wage-sharing or something contribution. If you did that, then the firms would have access to the cheaper labor, so their profits would go up, which would 

make them want to buy machines, and so on. We would get someone back into the labor force before they are lost forever, as my colleague on the panel mentioned—if people stay out of the workforce 

for a year or two, then very often they have a hard time ever returning. We have got to send a lifeline to these folks. 

So I think that, given all of these concerns, especially if it focused on private job creation, it seems like people of both parties 

should agree that it is a much more cost-effective way to create 

jobs than anything else, or many of the other things on the table. 

Senator Bingaman. Dr. Berner, I would be interested in your 

comment on this proposal that Dr. Hassett has about reducing corporate tax rates, and indicating that we are at a competitive disadvantage because of the top marginal corporate tax rate here 

being so much higher than it is in many OECD countries. 

My impression is that, while the tax rate is higher, the effective 

taxes paid by corporations are not out of line for corporations operating here versus corporations operating in Europe. Am I wrong 

about that? Do you have any thoughts on this? Or is this something you have looked into? 

Dr. Berner. Senator, I have not looked into that comparison, but 

I think your intuition is probably correct. Because many of our 

largest corporations are global in scope and they think about their 

tax liability in the way that they structure it in a global perspective. 

18 

But in my testimony I identified something else that on a crosscountry comparison basis I think is really important. That is, the 

role of health care in the workplace. 

I think that is one area where we are out of line with other countries. Even though those benefits are a tax deduction because they 

are compensation for employees, nonetheless they do represent in 

my view a fixed cost that, when hours are reduced, still persists. 

They put our cost structure out of line, our compensation cost 

structure out of line with those of other countries. And a different 

approach to the way that we deal with health care and the health 

care benefit provision I think would make us more competitive. 

Senator Bingaman. Okay—— 

Dr. Berner. So I think that is a really important issue. 

Senator Bingaman [continuing]. Let me throw out a radical 

view of things here. Sort of three of our problems are, one is shortterm job creation; a second is eliminating uncertainty for the long 

term; and third is getting our fiscal house in order for the long 

term—if those are the three big challenges, it would seem to me 

that a major reform of our health care system accomplishes all 

three, or holds out promise for progress on all three. 

Because it does hold out promise for job creation in the near 

term. There are direct jobs being created in the proposals we have 

been talking about. One of the uncertainties, I think you referred 

to in your testimony, Dr. Berner, that businesses look at is the uncertainty about what is going to happen with health care reform. 

And then I believe CBO and most economists are in agreement 

that over the long term if we cannot reduce the growth in the cost 

of health care we can’t get this debt problem fixed. We can’t get 

our fiscal house in order. 

So it would seem that doing something significant on health care 

ought to be a priority, as it has been for the President. Do you 

agree with that, Dr. Berner, or not? 

Dr. Berner. I do strongly agree with that, Senator. I think that 

the three things that are important in health care are costs, access, 

and quality. And many people view them as in conflict with each 

other. 

I actually think that if we do it right, then we can actually 

achieve a lot of those objectives, and the objectives that you just 

mentioned. Namely, reduce the cost of health care for businesses 

and for consumers; improve the quality; increase the access; and 

because that’s such a big part of our fiscal problem going forward, 

and is only growing over time under current law, that fixing that 

is imperative right now to get our fiscal house in order. 

Senator Bingaman. Mr. Joerres, did you have a perspective on 

this, whether or not this is an important policy initiative for us to 

try to deal with? Or whether we can put this off and deal with it 

down the road? What’s your thought? 

Mr. Joerres. Well, because of the complexity, it is difficult to 

put off to down the road. Having said that, in the U.S. we have 

over 200,000 clients, many of them small- and medium-sized businesses telling us, in their exact words, ‘‘I’m not hiring a person 

until I find out what that is.’’ 

Senator Bingaman. Till I find out what? 

Mr. Joerres. What that cost of that health care—— 

19 

Senator Bingaman. What the health care costs are going to be 

associated with that hiring? 

Mr. Joerres [continuing]. Right. So right now, those small- and 

medium-sized businesses are not going to make a move unless they 

absolutely have to. Then they can do the math. Because when you 

take 10 people and move it to 12 and put an additional 30 percent 

burden on top of a pay rate, or 10 percent, it is too much money 

for them. 

So they are holding out and stopping. So while we need to address it, this process of addressing such a complicated issue during 

a period of time when you want hiring is creating a stumbling 

block. Once that legislation is passed, after something is passed, it 

will require some time for digestion. Because, as an employer, sifting that legislation down to my additional burden cost over pay is 

going to take awhile. 

So while it needs to be addressed for the long term health, portability of jobs, movement of jobs, health care solves a lot of that. 

And the more we allow for portability of jobs back and forth, the 

more vibrant our economy will be. The challenge is we are in the 

middle of a time where we are really vapor-locking small businesses, and they are saying ‘‘I am not moving unless I have to.’’ 

I think that becomes the biggest issue right now. 

Dr. Berner. Senator, if I could just add? 

Senator Bingaman. Surely. 

Dr. Berner. Mr. Joerres has pointed out something really important. That is, that there are lots of Americans who are staying in 

their jobs essentially to keep their health care benefits. 

That frustrates the mobility that we have in our workforce, the 

dynamism of our economy. I think that when you make policy you 

have to consider that that is going to be an important benefit to 

health care reform, that it is going to actually make our workforce 

and our labor markets much more efficient and dynamic and free 

labor mobility. 

Mr. Joerres. And there are some very good examples of that. 

It’s a smaller example, but if you were to study what happens in 

Singapore between the portability of health care and the portability 

of your pension scheme, it allows a high velocity, which is required 

in a smaller environment. 

Even now in a larger environment, what is happening is that talent needs to move quickly and companies need to move talent. But 

without the portability of pension scheme, and without the portability of health care, you are really shortening the ability to really 

create a robust economic and job creation environment. 

Senator Bingaman. Dr. Hassett, did you have a perspective on 

this? 

Dr. Hassett. Thank you, Senator. 

I think that I understand that the political clock and the economic clock, you know, sometimes they are in harmony and sometimes they are not, and I understand why health care was addressed this year, but I agree that it was probably the wrong time 

and that health care is best folded into the fiscal consolidation. 

We need to build a process for fiscal consolidation, and it will not 

work without addressing health care. And so I think that many of 

20 

the facts about our long-run objectives that, even though I agree 

with specific policies, that those facts are unassailable. 

I would just like to make one last aside, Senator, about the corporate tax issue. 

You absolutely are correct that if we look at corporate taxes in 

the U.S. that the actual raw number, the sort of average tax that 

a firm will pay, is not the highest on earth. It is the corporate tax 

rate that is. But that is precisely because there is this Laffer Curve 

in the data. 

The fact is that these firms are rocket scientists at locating their 

profits and low tax jurisdictions. They move the profits around to 

reduce their global tax rate. And that involves moving stuff out of 

the U.S. 

So that is why, if we lowered our rate, we should not expect to 

lose a lot of revenue because we sort of lost that revenue already, 

it is just going to somebody else. There is a real opportunity to 

make us a more attractive place to do business, without losing a 

lot of revenue I think in the corporate tax, and I think we would 

be wrong at this time to ignore it. 

Mr. Joerres. I—— 

Senator Bingaman. Mr. Joerres. 

Mr. Joerres [continuing]. Must jump in on that, because 85 percent of our business is outside the U.S., going to 95 percent. $20 

billion in our companies, $2 billion right now are in the United 

States. 

None of that is outsource jobs. Our two largest competitors are 

a Swiss-based company, and a Dutch-based company. In our current environment we have $120 million deficit disadvantage because of taxation with our Swiss-based competitor. So that means 

we have to do $120 million more of productivity in order to just 

maintain a competitive position with this company. 

None of those jobs have been offshored. None of those jobs are 

coming back. I am growing markets in Vietnam, in China, and in 

others. So when I look at taxation, taxation within the minimizing 

the effective tax rate can be done very, and much more effectively, 

in a manufacturing environment through the use of transfer pricing. 

That is not done within the services industry. I recognize that is 

not what this is about, but it is a very serious issue. 

Senator Bingaman. All right. Well, I am informed that Chair 

Maloney is on her way back and will be here in about 15 minutes 

and would like us to recess for a short period, and then she would 

like to ask some questions. If you folks have the time on your 

schedule, we would put the Committee in recess at this point and 

she will reconvene the Committee. 

Thank you all very much for being here. I think this is very useful testimony. 

[Brief recess.] 

Chair Maloney [presiding]. This Committee is called back into 

order, and I regret and apologize that we had hearings right in the 

middle of it, and I will be looking at the tapes of this hearing to 

hear your testimony. 

21 

Mr. Brady is on his way back and will be here in a moment, but 

I would like to ask the witnesses something that I always ask at 

the monthly hearings of the Bureau of Labor Statistics. 

Do you see any bright spots for job growth in our economy? Anyone who would like to give any positive news about job growth in 

our economy? 

Mr. Joerres. I think I can do that. As you had mentioned earlier 

in some of your remarks, there is a very traditional flow of what 

happens in the economy. When there is some uncertainty but demand, we are the ones who come back first. 

On a weekly basis, the number of people that we are adding, and 

the additional people that are out on assignment that we are adding, says that this is clearly recovery. The majority of those jobs 

are going in manufacturing, and they are spread across the entire 

U.S. 

We have not seen a growth rate like this since 1993. So, yes, it 

is happening. We, like you, have questions: is it sustainable? How 

long will it be? Is it inventory replenishment? Sure, in some cases. 

But I would say right now our field of some 800 offices in the U.S. 

are feeling like, ‘‘Wow, it might be over; we’re on our way.’’ 

Chair Maloney. Well, could you tell us some of the things we 

could do for the people that have been unemployed, or under-employed, for a long period of time? Do you have any ideas in that 

area? 

Mr. Joerres. It is something we have worked on for a long time. 

We have organized programs in the under-employed and unemployed. We spend a lot of time on training and development in 

order to put them in jobs. 

What we have found is that work readiness is becoming more 

and more of a difficult issue. And of course work readiness for the 

longer and long term unemployed—— 

Chair Maloney. That is important, Mr. Joerres, because 40 percent of the unemployed have been unemployed for over 6 months, 

and their skills are deteriorating, and this is a problem. 

Do you have any ideas for programs to put in place to reduce 

long-term unemployment? 

Mr. Joerres [continuing]. Well the programs, unfortunately, 

that we have seen—and I say unfortunately; they work, they have 

good efficacy, but they take time—that is, to get them back into 

some type of training, training that is tied to a job. Not training 

that is just for training’s sake. 

So the things that we have done in that area, we work very 

closely at a community level with a workforce investment board to 

say: Where are the jobs? Where are the people? And try to do surgical training updates to get people into a job quickly. 

Chair Maloney. Would anyone else like to testify about the 

green shoots or bright spots that they see in the economy now? 

Dr. Berner. Sure. You know, I think that we are starting to see 

some advance-indicators. We do actually a survey of all of our industry analysts where I work, and hiring plans—and I think this 

echoes what Mr. Joerres was saying—hiring plans reported by 

those companies are up back where they were before the Recession 

began. 

Chair Maloney. Wow. Good news. 

22 

Dr. Berner. Those are hiring plans, however, and they haven’t 

materialized yet into action. And I think the discrepancy between 

the plans and the action has something to do with the uncertainty 

point that you made, and that we all referred to in our testimony. 

But just coming to the issue that you raise about the long-term 

unemployed, in both of our prepared remarks Mr. Joerres and I referred to training. 

The history of training programs is, to some extent, a checkered 

one but I think the importance of training cannot be denied. The 

importance of education. So there is a short-term component and 

a long-term component to that. 

In the short term, for example, I propose that we pair the unemployed who are getting income support, which is very much needed, 

with a pool of unemployed, for example, newly minted colleges students, perhaps some teachers who have been laid off, and get them 

together in a training program that can give people some basic job 

skills. 

That way, you are giving people important things to do while 

they are looking for a job. And I think we all agree that when you 

have long spells of joblessness, that erodes the chance that you are 

going to get a new job; it erodes your skills; and it erodes your ability to find a new job. All those things are really important. 

Chair Maloney. Dr. Hassett, do you see any bright spots? 

Dr. Hassett. Yes, thank you, Mrs. Maloney. 

I think that first of all an interesting chart, which in questions 

and answers we always follow up hearings with those, I’ll be happy 

to include, is one that shows the geographic distribution of the economic recovery. Because you can see that there are some states 

that are actually starting to really look pretty solid again, and 

other states that are still in deep trouble. 

In particular, one correlation that I have seen in some of the 

work I have done is that if you want to organize them, the states 

that had the real estate markets that you read the most about are 

the places that still are even going in the wrong direction, and 

maybe are not even seeing recovery yet. 

So there are some—— 

Chair Maloney. Well, where are we seeing recovery? Which 

states? And which regions? 

Dr. Hassett [continuing]. One state that comes to mind—I wish 

I had the chart with me, because it has been about a month since 

I have looked at it—but one state that I remember was Texas 

seems to be doing pretty well. Maybe Mr. Joerres has some other 

detail on that. 

The other thing I would say that is a bright spot—and the opportunity that motivates me to be so psyched about job sharing—is 

that there is always a lot of job creation and destruction going on. 

That number you see in the Labor Report is very often one-tenth, 

or one-twentieth of the actual growth flow in that month. 

So in November there were more than 4 million jobs created, but 

there were more than 4 million jobs destroyed. And so the destruction was still winning. But I think that it is important to remember 

that our economy is a place where there is always creation and destruction going on, and what we need to do is create the circumstances where the creation can overwhelm the destruction. 

23 

Chair Maloney. Thank you. My time has expired. 

Mr. Brady. 

Representative Brady. Thank you, Madam Chair, for calling 

this hearing. 

Mr. Joerres, I was just on a teleconference back to the Woodlands, Texas, participating in an economic outlook conference. On 

the panel with me was your regional representative, Mr. Arkless, 

I believe? 

Mr. Joerres. Arkless, David Arkless. 

Representative Brady. Yes. So apparently a lot of people are 

interested in what Manpower has to say these days. And I agree 

with you, I think that the corporate tax rate the U.S. has to shoulder does put us at a competitive disadvantage internationally. And 

the proposals to raise $120 billion more on top of that from our 

U.S. companies that are trying to sell American products around 

this world, to compete, I think will be even more damaging to us. 

Dr. Hassett, I am not an economist. I am a Chamber of Commerce executive by trade and work with small businesses. It seems 

to me the economic models on the Stimulus are outdated. They 

seem to be one dollar in of government spending generates this 

much of output, period. 

But back home, you listen to our small business consumers, their 

behavior is modified because they know increased spending leads 

to new debt, and new taxes. The business community, small, medium, and large, looks at cap and trade, health care mandates, 

spending, taxes, international tax provisions, and they are frightened by it. The uncertainty. 

One of them said, look, it’s tough enough to predict the market; 

trying to predict the market and you guys? I’m not going to do it. 

I’m holding my money. And I think that is affecting those older 

economic models. 

My question to you is: Thinking about the study that John Cogan 

and Tobias Cwik and others did examining the forecasts of Christine Roemer and others on the Stimulus, they were using sort of 

the old Keynesian forecasting models instead of the ones that really sort of deal with those expectations, rational expectations of people, businesses, consumers, and others. 

Looking at CBO, who does a terrific job on things, but based on 

your extensive research and knowledge of macroeconomics, were 

the CBO’s fiscal multipliers used too high? Were there estimates of 

the Stimulus impact perhaps a little larger than you see? 

Dr. Hassett. Thank you, Mr. Brady. 

I am a big fan of the CBO, and an especially big fan of its current director, who I think has been in the tradition going back to 

Alice Rivlin, exactly what we expect of directors. But the thing is, 

the infrastructure that has been built up to analyze these things 

has kind of been there since day one. 

Too often in Washington proof proceeds by induction. If you remember your math, that if something is true today, it was true yesterday. And so if we adopt a model in the 1970s that tells us how 

policies affect the economy, then it is very unlikely the government 

agency will ever stop using the same darn model. 

But the fact is that the literature has moved on. One metric— 

and I was trying to think of the most vivid way I could describe 

24 

this—but the place where these big, large macromodels were really 

developed, pushed perhaps the farthest, was the University of 

Pennsylvania. 

Larry Kline got a Nobel Prize for it. Albert Ando, who is a close 

friend and a mentor of mine, designed the model for the Federal 

Reserve that was a large Keynesian macromodel. Those were developed in the 1970s. I started graduate school in the mid 1980s. And 

when I was in graduate school at the University of Pennsylvania, 

they did not teach these models. Because already they had been rejected by the literature. 

And yet, these are the models that are creating the sound bites. 

I think though that does not mean that we know—we think that 

it hurt growth last year, or that we know precisely that the Stimulus was a failure and made things worse. What it does mean is 

that we should have a great deal of skepticism that we know what 

the right thing to do is. 

And so, especially going forward, I think that we have seen some 

success of some programs that I highlight in my testimony, and 

that we should try to trust evidence more than models, I think, and 

be skeptical about what the models say, especially when the model 

predictions are so at odds with what we see in the literature. 

Representative Brady. You know, my gut feel is that the economy has changed; that those models are not as reflective. And I 

think stimulus almost always arrives after the recession has 

peaked, and is slow. And I think that today we downplay the economic boost from a lower after-tax cost of capital, lowering corporate income taxes, and on a permanent basis where businesses 

can count on it, not a gimmick, but where they can count on that 

rate of return and the ability to invest. 

Your thoughts? 

Dr. Hassett. I think that you are right, Mr. Brady. And again 

the way I like to think about it is, not that the Stimulus again 

made the economy worse last year; I think that there is no question that growth was higher last year because of the Stimulus. It 

had to have been. The question is how much. 

But the problem is that, as we see when we consider that the job 

measures that I mentioned in my testimony could have created jobs 

for maybe one-tenth the cost of the Stimulus, when you consider 

that, and when you consider that we spent an enormous amount 

of money on it and did not repair the broken policies like the corporate tax that could have made people optimistic about the long 

run, I view it as something of a squandered opportunity. 

Representative Brady. Right. I appreciate all the panelists 

today. Thank you. 

[The prepared statement of Representative Brady appears in the 

Submissions for the Record on page 81.] 

Chair Maloney. Thank you. 

Dr. Berner, do you agree with Dr. Hassett on the CBO model 

used to estimate the effects of the stimulus? 

Dr. Berner. Well thank you for your question, Congresswoman. 

As a former model builder and one who ran the forecasting models 

at the Federal Reserve, I just point out that we were constantly 

changing our methodology, and constantly adapting it to reflect 

25 

new considerations, whether it is structural change in the economy, 

globalization, and a variety of other things. 

The models that we use, and we do not rely exclusively on models because I am old enough to use judgment and experience as my 

key model, but the models that we use explicitly incorporate the 

role of expectations, whether it is expectations in financial markets, or for inflation, or the kind of uncertainty that we are talking 

about that affects business decisions so importantly. 

So, you know, I think that that is really important in thinking 

about how to use those models. And, quite frankly, I think that is 

something that people often overlook. 

Chair Maloney. Can you tell me, in your opinion, and I am asking all of you this question, the number one thing that can be done 

to stimulate job creation in the short run? Could you give the number one thing you think we could do? Of course it’s a combination 

of things, but if you had one thing that you feel could stimulate job 

creation in the short run, what would it be? Dr. Berner? 

Dr. Berner. You know, Mr. Joerres talked about the role of 

small business and new business is what we really mean by small 

business. When we think about what their main problems are, 

small businesses are telling us in the surveys that we have that 

their problems are poor sales, access to credit, and the cost of employee health care. 

So we need to continue to use policies that improve the functioning of our financial system, that get people access to credit on 

reasonable terms. We need to address in the short run and over 

time the cost of health care and reduce the uncertainty around 

that. And we need to have policies that will continue our ability to 

access global markets, because that is the key source of growth 

that I indicated in my testimony. 

Exports and the access to global markets are going to be a key 

driver for our economy. 

Chair Maloney. Mr. Joerres. 

Mr. Joerres. Well I would really like to do two. One, because 

I think where we are right now is we are in a critical spot. So I 

do not want to underestimate what we need to do in some form of 

what we call safety net, or stop some things happening now. 

That is not job creation. That is stopping the slide. And I think 

we need to do that. I have spoken before, and—— 

Chair Maloney. So how do we stop the slide? 

Mr. Joerres [continuing]. Well we stop the slide in some ways 

of giving some additional visibility of what will be coming and not 

coming. We have some limited opportunities to do that. 

It is difficult to say that we have long-term and short-term objectives. But in order to do that, it comes down to confidence. Hiring 

is confidence and demand combined. 

Those two combined. We are starting to see the demand. Now is 

the demand inventory-replenishment? Does the demand start to 

level off? We don’t know that. But I can feel very confident in saying the demand may not level off as much if we give them confidence that we are not going to create policies that get in the way 

of expanding their business. 

Small business must create jobs to back up the efficiency that 

will be driven out by job deterioration in large businesses. 

26 

Chair Maloney. Thank you. 

Dr. Hassett. 

Dr. Hassett. Thank you, Mrs. Maloney. 

You know, I hate to waffle and say two things, but I think that 

reducing the corporate rate is urgent if we want to create the context that is necessary for long-term growth to really ignite. 

But I think that if we were to adopt a job sharing proposal that 

we could see a response right away, right away. I would expect 

that the reduction in the corporate rate would have benefits that 

would be spread out over many years. I think that a job sharing 

program could slow job destruction almost immediately, if it were 

a generous one, and we could see a turnaround in labor markets 

a few months after the proposal became law. 

Chair Maloney. Thank you. My time has expired. 

Mr. Brady. 

Representative Brady. Mr. Joerres, is that uncertainty among 

your clients real? Do businesses look at—and again, the efforts like 

on targeted tax credits, or payroll—are sincere efforts to try to 

help—are small businesses responding to that? But is that uncertainty an issue with your clients in their hiring practices? In their 

ability to either rehire, hire new, or buy that new warehouse and 

make an expansion plan? 

Mr. Joerres. The number one discussion that we have with our 

small clients is the amount of uncertainty. Their business is growing. So when the business is growing at a pace where uncertainty 

is overcome by demand, then of course they’ll do that. 

But as the demand is somewhat tepid, the uncertainty is their 

diver. So they are really looking at the tax rate. What is the additional burden on top of an additional person? 

I can’t emphasize enough that if I’m going to add an additional 

person, and I don’t know what that person’s cost is, plus the other 

10 percent that I have on existing staff, or if it is going to have 

an additional 30 percent increase in burden over the cost of pay? 

That slows down employment decisions. No doubt about it. 

Representative Brady. Looking at job opportunities, it seems 

to me because so many of the world’s customers live outside the 

United States, because other regions are recovering in some ways 

faster than us, it is important not to just buy American but sell 

American, sell our products throughout the world, every corner. 

Sometimes we can do it with a company from here. Other times 

they have to have—they are headquartered here, and they have to 

have a presence overseas to sell our goods and services. Today 

there is almost an attitude of Benedict Arnold if you are out—if 

you are large and you are out there competing. You know, if a company expands into another state we say ‘‘go get ’em; way to go.’’ A 

company that expands into another country to get those customers 

somehow is viewed by some as, you know, some bad actor. 

Yet, in almost every study it shows those jobs create stronger 

headquarters here. A lot of the research and development technology—we have an energy company in Houston that has a project 

in Algeria. It has 40 workers on site. It has 400 in Houston, monitoring, operating, doing all the services tied to it. So it is a huge 

help. 

27 

Shouldn’t we be, as lawmakers, encouraging rather than discouraging companies that are finding new customers in every quarter? 

Is it outsourcing of jobs? Or is it looking for opportunities to sell 

more of our products and services? 

Mr. Joerres. Because all of these have some complications, I 

think it would be easiest for me to talk about my specific situation. 

We are headquartered in Milwaukee. We are 62 years old. We have 

had three CEOs in those 62 years. Each one of them was born in 

Milwaukee. So we think Milwaukee is a good place. Ninety percent of our $20 billion business is outside the U.S. In 

six to seven years, it will be 96 to 97 percent of our business. While 

the U.S. is growing, the Chinese market is growing fast. None of 

this is outsourcing. We are putting thousands of people into jobs 

in China, in Vietnam, in the Middle East, in Qatar, in Abu Dhabi. 

Because of the success in the last 10 years of growing our busi- ness from an $8 billion business to a $22 billion business, we have 

built a brand new building in downtown Milwaukee that has 

400,000 square feet that employs 1200 people. 

The mayor of the city was all in favor of it, and we have re-energized a park downtown. We could not have done that without our 

expansion overseas. 

Our two largest competitors on a global basis are foreign companies. Their tax rates are anywhere between 8 and 15 percent less 

than ours, which puts us right now at a disadvantage annually of 

between $60 and $120 million compared to our two European competitors. 

Representative Brady. And my guess is that there isn’t that 

big of a margin. You’ve got to compete in a pretty tight market, I 

would imagine, with our competitors? 

Mr. Joerres. 3.5 percent net margins. We do a lot of work for 

a little money, but we love what we do. 

Representative Brady. Great. Thank you for your story, appreciate it. We need more of you, by the way. 

Chair Maloney. That is an amazing story. Congratulations on 

your success. 

Dr. Berner, Greece and its financial problems are very much— 

I just came from the Floor, everyone’s discussing it, everyone is 

looking at it, we are all concerned. And I am concerned about the 

potential impacts to the United States if Greece ends up defaulting 

on its debt. 

Dr. Berner, I know that you have previously reported that the 

impact to the U.S. of slow growth in the European Union is relatively small. I believe that you said that a one percentage point 

reduction in growth in Europe would shave only 0.2 percentage 

points off of U.S. growth, but that you were worried about financial 

contagion. Can you speak about the crisis in the European Union 

and Greece and financial contagion? 

Dr. Berner. Yes, I can, Congresswoman. 

Very briefly, I think the big problem is that you have the potential for what’s happening in Greece to spill over into other countries in the periphery of Europe—Portugal and Spain, for example—and that it is important for Greece to be able to refinance its 

debt over a long period of time, because they have a huge fiscal 

problem. 

28 

They are having difficulty rolling over that debt on terms that 

they can afford, and they just postponed an auction of 10-year debt 

this week, as you may have heard, so that they can cool off and 

get better terms on that debt. 

One way or another they are likely to get assistance from their 

partners in the European Union, That assistance will come with 

strings attached, of course, because the other members of the European Union do not want to pay for the mistakes that Greece made. 

But one way or another, that assistance is going to have to come 

or else they will all—as Ben Franklin was fond of saying—hang together. 

And so that is the real problem that the Europeans have. And 

because of the fiscal consolidation, and because of the increased 

cost of financing the debt which will spill over into the core of Europe and the increased cost of funding for European banks, all that 

is going to slow down the European economy. 

So we have been pretty pessimistic about Europe to begin with. 

These developments make us more pessimistic about prospects for 

Europe. But one of the things we talked about earlier—namely, 

coming up with credible plans to fix fiscal problems—is also important here. 

If Greece and the European Union can fix these problems that 

are prevalent now in the periphery of Europe and do them in a way 

that reinstills confidence in investors bringing down the cost of 

debt for Greece, for its people, for the banks in Europe, that is 

going to reinvigorate the Greek economy and the European economy. 

The key is to come up with a credible plan to do that. As we 

think about—you know, to your question—as we think about the 

potential for this contagion, if you will, to spill over into other 

economies, the point is that people are drawing parallels now between what is happening in Greece, and they are saying where is 

the next Greece. 

It is kind of like during the financial crisis people were saying, 

after Bear Stearns, where is the next Bear Stearns? And there are 

some parallels there. So we need to think about the way that, while 

there are many, many differences between what is happening in 

Greece and in Europe and what is happening in the United States 

and around the rest of the world, there are some parallels. And I 

think the thread that draws them together is that lawmakers 

around the world need to think about how they are going to deal 

with fiscal problems, and to articulate how they are going to come 

up with a game plan to do that in a way that reinstills confidence 

among investors. 

Chair Maloney. Can you tell whether the impact of the reduction in the export sector will be spread across the U.S., or whether 

certain sections of the country will be particularly susceptible to 

any reduction in exports to Europe or Greece? In particular, I am 

concerned about the Greek-American community that I represent, 

and I am concerned that they may have a burden on them and 

bear a disproportionate share of this burden. 

Dr. Berner. You know, Congresswoman, I have not really done 

the work on that so I will be pleased to get back to you, if I can, 

to try to uncover the answer to that question. 

29 

Chair Maloney. And additionally, can you estimate the impact 

to employment in New York City if the financial contagion in the 

EU spreads to the U.S.? 

Dr. Berner. That is a difficult task, but I will do my best and 

try to get back to you on it. 

Chair Maloney. And lastly, Mr. Joerres, you mentioned that 

your growth—and I am amazed—is 92–96 percent in foreign markets. Do you have offices in Greece? 

Mr. Joerres. Yes, we do. We have an operation there. 

Chair Maloney. And can you tell us something about what is 

going on on the ground, information on employment with your organization’s employees there? 

Mr. Joerres. Right. So our operation in Greece is no doubt feeling the effects of this. Things have kind of grinded to a halt as 

companies are, needless to say, very concerned about what might 

be happening. 

I can also say that in markets like France, Italy, Germany, Netherlands, the Belgian market, they are not on the ground feeling it 

at all. We are still seeing improved trends. So, as there is plenty 

of speculation about what Merck will do, or what others might do 

to generate recovery, we think that the employment numbers within Europe will have more of a knock-on effect further down than 

what they have now. Our Greece operation is facing a very challenging environment right now. There is no doubt about it. 

Chair Maloney. Thank you. My time has expired. 

Representative Brady. Thank you, Madam Chair. 

Dr. Berner, exports are one result of successfully selling American products and services throughout the world. And as you point 

out, one out of five manufacturing jobs is tied to that. And then 

with service companies like Mr. Joerres’, we have a huge surplus. 

So when we compete and sell overseas, it has huge economic impacts. 

We are looking at three pending trade agreements in markets in 

Colombia, Panama, and a major one in South Korea. We are seeing 

other countries stepping in ahead of us from Canada, the EU, and 

others to get in line ahead of us and put us at another competitive 

disadvantage. 

Do you support passage of those trade agreements and opening 

those markets for U.S. service and production companies? 

Dr. Berner. Mr. Brady, thanks for your question. 

I support in general the idea that we should have free and open 

trade, and also the idea that it has to work both ways. 

Representative Brady. Yes. 

Dr. Berner. So that, you know, when we open our markets to 

companies in other countries and to other countries, we also want 

to make sure that we have access to their markets and that we 

have intellectual property agreements and other things that make 

sure that we have a level playing field, to the extent that that is 

possible, in which our companies can compete. And so it does work 

both ways. 

Representative Brady. I think it is important—you know, we 

are such an open economy in the United States. Panama and Colombia, for example, have one-way trade, almost duty-free and 

quota-free trade, but we have obstacles when we try to do two-way 

30 

trade. Clearly agreements like that give us a chance to compete on 

a level playing field and in every other case have worked beautifully for us. We have doubled, or tripled our exports. 

NAFTA, which I’ve worked on for many years, we’ve turned a 

trade deficit into a trade surplus. We even have a manufacturing 

surplus with our NAFTA countries, as well. 

Let me ask you this. Unrelated to exports but related to sort of 

your view going forward, I notice in your testimony your GDP 

growth percentages are higher than the Blue Chip this year, but 

lower next year, and much lower next year than what the White 

House forecasts. 

Is there a reason for that? I know there’s always a range, but is 

there a reason why you see significantly lower economic growth 

next year than Blue Chip or OMB? 

Dr. Berner. Thanks for your question, Congressman. 

Yes, there is a reason. And to make it explicit, up until very recently we have been assuming that the tax cuts, the Bush tax cuts, 

would probably sunset as scheduled on January 1st, 2011. If that 

is not the case and some of those tax cuts are extended, we would 

see somewhat faster growth in our forecast. 

In addition, we are thinking that our massive Treasury borrowing needs will combine with a return of private credit demand, 

as the economy comes back, and that will result in a significant increase in interest rates. 

So it is a combination of those two things: sunset of the tax cuts, 

as well as the rise in interest rates would give us somewhat slower 

growth. 

Representative Brady. So continuing the tax cuts helps boost 

our economy, in other words? 

Dr. Berner. It would have a modest positive effect. 

I would say, however, as I did in my testimony, that the most 

important policy decisions that are out there right now are not so 

much around taxes, but they are around foreclosure mitigation and 

coming up with a credible plan to do something about our fiscal situation. 

If we were to do that, then our forecast for long-term interest 

rates, U.S. Treasury Rates, would be somewhat lower and you 

would see that in the marketplace right away. And that would 

have a short-term beneficial impact on growth. So coming up with 

a plan, if it is credible, would make a material difference to the 

outlook. 

Representative Brady. Can I go back to why the Bush tax cuts 

are so good for America—I’m kidding. I’ll stop with that one. 

Dr. Hassett, consumer demand. It’s always hard to know what 

families are thinking about. Obviously they’re looking at their own 

pocketbook, worried about their jobs, lots of things going through. 

The thing I hear back home, and it may be an intangible from 

an economic issue, but the debt, and the spending is a number one 

concern of consumers. 

Does that weigh on the decisions that a family makes in purchasing a new TV set, or making an economic decision? 

Dr. Hassett. Sure. Thank you for the question, Mr. Brady. There 

is a great deal of scholarship in this area that goes back to Milton 

Friedman’s basic observation that the reason why temporary tax 

31 

cuts like the ones that we observed last year do not have a really 

big effect is that people know that they are going to have to pay 

for them with future higher taxes. And so they are sort of skeptical 

about the fact that if you take a dollar from them next year and 

give it to them this year that you are really making them better 

off. 

And indeed I could add that if they are not skeptical about it and 

they think they are better off, then they are going to regret it next 

year when they get the tax. So it is not kind of clear that this is 

a point that argues for the policy, even if you disagree with it. 

The fact is, though, if you look at the numbers of future taxes 

associated with things like the Stimulus, they are really mind-boggling. So for example if we divide the Stimulus last year up 

amongst all taxpayers, the 110 million or so taxpayers, then the 

cost of just the Stimulus last year—we are not talking about the 

deficit—is about $8,000 per taxpayer, a little bit less. 

But remember that about half of taxpayers do not pay taxes. And 

so what that means is that if you are someone who does pay taxes, 

if you actually had a positive number on that tax return when you 

mailed it to the IRS, then your number is about expected to be double that. 

So if you are someone who paid taxes, then your bill just for the 

Stimulus will be maybe about $16,000. If we raise the monies for 

the Stimulus, according to the distribution of the income tax that 

we now observe, then for people with incomes in the hundred, or 

two hundred, or five hundred thousand dollar range, the small 

businesses maybe that have a little bit more money, their bills for 

just the Stimulus are enormous. 

For someone with an income between $200,000 and $500,000, the 

Stimulus bill will average about $41,000. If we then factor in the 

debt that we have to pay off, then we are talking about future tax 

liabilities that are mind-boggling. And I think that American consumers should expect those taxes, if we do not see a big reduction 

in government spending, they should expect those higher taxes, 

and they should wisely plan accordingly. 

And one reason why we see a spike in the savings rate and lower 

consumption, I believe, is the expectation of future taxes. Some of 

them are, as Mr. Berner just referred to, kind of, people thought, 

baked in the cake. The expiration of the Bush tax cuts is an example of that. 

Representative Brady. So people may not know the amount 

they are going to owe, but they know someone is going to pay. 

Dr. Hassett. They know that their taxes are going up and are 

consuming accordingly, I would add. 

Representative Brady. Thank you. 

Chair Maloney. I would like Dr. Hassett and Dr. Berner to 

react to a proposal that one of my constituents, Wilbur Ross, a 

businessman, put forward through the New York City Partnership. 

His idea was to take the unemployment, which many economists 

say is important not only in terms of helping the unemployed and 

their families, but this money is plowed back into the economy, 

therefore driving more goods, more spending, more services, but to 

take the unemployment and tie it to job training, and tie it to job 

32 

hiring. Give it to a business that will hire an unemployed person 

and have their employment run through that business. 

Could you, or Mr. Joerres, any of you, could you comment on this 

idea, or any new ideas that you might have on how we could help 

job development in our country? 

Dr. Berner. Congresswoman, thanks for the question. 

As I indicated in my testimony, that is one of the four things 

that I thought would be very helpful. And specifically, if we look 

at training programs, and I think we all agree that education and 

training, training job skills, are extremely important, if you pair 

training with income support, which we all agree is so necessary 

to help American workers and families in this time, that that is 

going to give them the skills they need to acquire—to go out and 

look for jobs, to be able to perform in jobs when those jobs are 

available. 

And we have a skills’ mismatch in America that is profound. I 

just read the other night, for example, that Microsoft built a development facility in British Columbia because they could not find the 

skilled workers that they needed in the United States—at the right 

price. 

And also, you know, they ran out of room under their H1B visa 

program. So that is I think just one little anecdote that supports 

the idea that we need to improve the skills of American workers 

and maybe doing that through the income support unemployment 

insurance programs would help. 

It would also help I think to look at newly minted college students, unemployed teachers, retirees, people who have experience 

and skills who can train others in basic job skills to link them up 

in a partnership that would help them acquire those skills. 

Chair Maloney. Any other comments? 

Mr. Joerres. Yes. We have a fair amount of experience in this, 

as we have worked with several WIBs across the United States, as 

well as in other countries. 

What we have found is that when there is a disconnect between 

the job training program and finding the job, it is much less effective. When the trainer and the end employer are two different organizations, the training organization is essentially training for 

government dollars, if I could be so bold. 

When corporations almost sponsor or take on the individual as 

they are going through their training program, the chances of that 

person getting hired have dramatically improved. 

I am sure you have heard many times, Congresswoman, that the 

companies are saying: you’re not giving me the skills I need. You’re 

not doing this. Well what we have said is we have said: ‘‘Then get 

in the game. Get in the game and bring these people all the way 

through.’’ 

So I would ask for a connection between job training and job 

placement, as opposed to a hand-off. Because that hand-off is a 

very dangerous hand-off. 

Chair Maloney. It sounds like a very good bipartisan effort. 

Dr. Hassett. 

Dr. Hassett. Madam Chair, in fact in the break a number of the 

staff and I were actually discussing a very related point; that the 

Unemployment Insurance Program that we have was kind of deVerDate Nov 24 2008 14:30 Jul 12, 2010 Jkt 056277 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 C:\DOCS\56324.TXT SHAUN PsN: DPROCT
33 

signed for the old-fashioned economy where people took a break in 

August, or something, and got laid off. 

And now we have got an economy that requires moving between 

jobs a lot of time, and search costs are really high, and a really important factor for firms and so on, and it is urgent that we redesign 

the Unemployment Insurance Program allowing for things like job 

sharing maybe through the Unemployment Insurance Program, 

and I would encourage you to consider having a hearing where you 

ask the best minds, the people who have spent their careers studying it, for proposals. 

Because as we analyze the sort of low-hanging fruit right now, 

given the terrible job market, it seems like all of them are kind of 

mutations of revising Unemployment Insurance. 

Mr. Joerres. I’m sorry. I know the time is limited, but I have 

such anecdotal evidence here that is compelling. We have about 

2500 accountants in one of our organizations that we own. 

There are people who have been unemployed in the finance industry. We have been able to find them jobs, put them in jobs, that 

would be contract jobs. In other words, they might work for three 

months. They have refused those jobs because if they take that job 

their Unemployment compensation goes away and they are not 

sure really what is going to happen. 

When in fact, about 50 percent of all the people we put out on 

an assignment get hired by the company that they are placed in. 

So there is something wrong here in not having these hand-offs 

right that the individual is put in this poor position of either sitting 

home working on job boards and getting paid, or possibly improving their skills. So it is almost like a job sharing environment that 

you could consider it not just job sharing but ways of splitting the 

Unemployment dollars that they might be getting less, paid for by 

them, getting work experience, and then getting hired. 

Dr. Hassett. And just to follow, there are two spikes in re-employment from workers who are on Unemployment Insurance. 

There is one at the beginning, and there is one near the end. And 

it is exactly because of that. 

Sort of once you are in, then if you go take a job then you are 

sort of giving up a big spell of Unemployment Insurance that is 

costly. And so people tend to be very cautious about which jobs 

they accept once they get into the spell. 

Chair Maloney. Thank you. My time has expired. 

Mr. Brady. 

Representative Brady. I know there have been past proposals 

on job training where they create not a voucher but a lump sum 

for workers where they could continue their training, or retraining, 

take job opportunities if they got that full-time job, they weren’t penalized for the money they were given. In fact, even part-time jobs, 

as long as they were continuing the education and skill building, 

too. We need to be innovative like that. 

At a time when business investment is scarce, why aren’t we repatriating more of our foreign investments back to the U.S.? Because of our Tax Code, in 2005 a number of us pushed for a provision successfully in the American Jobs Creation Act to address the 

issue of stranded U.S. profits, our Tax Code, 35 percent HCI, to 

bring it back. So we proposed for one year to lower it to a fairly 

34 

minimal 5 percent, let that investment flow back to the United 

States. 

Even with some restrictions I didn’t think belonged there, $300 

billion came through that year. Today it’s regenerated. We have 

$600 to $800 billion stranded U.S. profits outside the United States 

too expensive to bring back. 

Why are we not lowering the gate again for a year to bring back 

that type of investment? It is the size of the Stimulus outside the 

United States waiting to find a home. Right now, finding a home 

in another country. 

Why aren’t we—and I know the government can’t direct that investment. You know, it’s got to go straight into the marketplace in 

decisions that benefit the companies, and hopefully the workers, 

but do any of you have any thoughts on why we would not be encouraging bringing back those investments? 

Mr. Joerres. Well I won’t speak from a political view because 

on this I don’t have it. I can speak purely from a mathematical 

view. 

Our largest operation in the world is France where we produce $7 to $8 billion a year in that organization, generating somewhere 

between $250 and $300 million of free cash. We have never repatriated that cash because it is a pure CFO, chief financial officer, calculation. 

The only time we will use that cash is when we were able to use 

that cash to buy assets in the same denomination. In other words, 

Euro denominated. 

Two weeks ago we bought a company in Houston for $431 million, a very good IT contracting staffing company. We decided to 

use half cash, half stock because we can’t get the pull from France 

to convert it into dollars. 

So this is just pure math. This is not about whose tax code, or 

what tax code. When we look at a transaction like this, we look at 

it purely from an efficacy of the dollars and return to shareholders. 

Representative Brady. Thank you. 

Dr. Hassett. Mr. Brady, the one thing I would add, though, is 

that the reason this mess is happening is that our tax policies are 

out of whack. It’s a symptom, and it is something that happens 

when our corporate tax rate is so high that people have to locate 

their profits overseas in order to compete. 

And so the problem I have with this proposal—and it is not one 

that I have ever come out and combatted—but I have two problems 

with it. 

One is that it is salve on the wound. What we really need to do 

is fix the wound that’s driving the problem in the first place. 

The second problem is a temporary holiday creates all sorts of 

uncertainty about, you know, when is the next time they are going 

to have one of these, that is going to make people not repatriate 

in the income. And so I think that—— 

Representative Brady. To bring the gate down permanently? 

Dr. Hassett [continuing]. You’ve got to bring the gate down permanently. I mean, again, as an economist it is obvious that that 

is the right answer, and I understand budget constraints and so 

forth, but I think that rather than focus on that gate what I would 

do is I would focus on reducing the corporate tax rate. 

35 

Representative Brady. Got it. Great. Thank you. 

Chair Maloney. Thank you. One effort where we do have bipar- tisan efforts is our effort to cut the debt. Currently it is about $12 

trillion, or about 85 percent of annual GDP. 

I want to know, how are we comparing to other countries? Do 

you know what percentage of annual GDP in debt Greece, and say 

France, or England, or Spain have? Anyone who can answer that? 

Dr. Berner. Congresswoman, I don’t have the statistics right in 

front of me, but I think what is important is that our debt is growing rapidly. As you know, at the end of Fiscal 2008 our debt held 

by the public, you referred to the gross debt statistics, the debt 

held by the public, which is now about $7.2 trillion, was then 48 

percent of—sorry, 41 percent of GDP at that time, and here we are 

in 2010 and by the end of this fiscal year it will be about 61 percent of GDP. 

So it has risen rapidly, obviously because of the Recession. Other 

countries have gone through a recession. The point here is that 

we’re just on the cusp, as you know, of seeing a major increase in 

our deficits. And whether you look at CBO’s forecast adjusted for 

realistic assumptions, or the Administration’s forecasts, we’re going 

to be looking at deficits of 5 or 6 percent of GDP for quite some 

time to come. 

So our guess is that by, in the next 10 years we will be looking 

at debt held by the public at 87 percent of GDP. And there’s no 

magic threshold in my view, although some economists think that 

there is—Ken Rogoff thinks it is 90 percent, for example, in his recent book—where investors start to question the fiscal sustainability of your policies. 

Personally, I think that they are already starting to question 

that. We haven’t seen it in our interest rates. They are low. And 

they are low because other countries are in many cases in worse 

shape. And so they look to us still as the broadest, deepest, and 

most liquid financial markets in the world, and the benchmark 

against which others are judged. 

If we want to maintain that status, then we have to think seriously about making the tough choices to get our fiscal house in 

order. 

Chair Maloney. Okay. And in making those tough choices, how 

much can we reduce the deficit by cutting discretionary spending, 

say by 10 percent? 

Dr. Berner. You know, as you know, Congresswoman, the discretionary spending is not the real story here. The real story—— 

Chair Maloney. Okay, how much by cutting government spending that is actually discretionary and how much that is mandatory, 

such as Medicare? 

Dr. Berner [continuing]. Well right now, if we look over the next 

ten years and we take Medicare, Medicaid, and Social Security, 

they will account for half of all federal outlays. And they are growing very rapidly. And that Medicaid portion assumes that state and 

local governments will get back on their feet and be able to pay 

their share of the Medicaid burden. 

If they aren’t, then what we will see is the Federal Government 

being asked to pick up an increasing share of that tab, which will 

make Medicaid grow even faster. And that is the fastest growing 

36 

health care plan that we have. And so that percentage will likely 

rise even further. 

Chair Maloney. Well on that note, the state and local governments are facing enormous budget shortfalls. We have had states 

come to the Federal Government and ask for bailouts and total 

support. 

At the same time, the swelling ranks of the unemployed are putting further pressures on the budget. I would like to hear your 

ideas—any of the panelists—about two problems: the short-run 

problem in the states and local governments and the potential impact on employment, and how do we deal with the long-run problem of these budget problems in the states? 

As you said, if Medicaid can’t be assumed by the states, then it 

is a tremendous pain, or a tremendous problem going forward. 

Your comments further on these two points? 

Dr. Berner. Well from a federal perspective, we obviously have 

a system of federalism which is not working. Medicaid is one of the 

key issues in that system. So we all know that when we go into 

a recession, particularly the deepest Recession we have had in 70 

years, the ranks in the Medicaid grow dramatically, and that puts 

an enormous burden on states that they really can not pay. 

In my state, your state, the State of New York for example, it 

is 50 percent shared. In Mississippi it is only 22 percent at the 

state level. Either way, it is an enormously growing and 

unsupportable burden. 

So the grants to state and local governments for FMAP assistance, or to offset the cost of Medicaid, have been in the very short 

run necessary without making cuts to those programs. 

But in the longer run, part of health care reform, it seems to me, 

has to involve fixing the way that we share Medicaid, and the way 

that the Medicaid program is in fact designed. 

At the state and local level, we have enormous fiscal problems 

that need to be addressed. Obviously the governance there is at the 

state and local level. They vary tremendously by state. 

There are 50 different kinds of problems in 50 different states, 

and thousands of different problems in local governments as well. 

Ultimately, tough choices are going to have to be made there because, like it or not, we have been making promises for health care, 

for pension benefits, and other promises that haven’t been funded 

and that can’t be kept. And we are going to have to make a lot of 

tough choices around those areas, as well. 

Chair Maloney. I could listen to this panel all day long. All of 

you have been inspiring and insightful. You have given us a great 

deal to think about, but I am told that it is impossible to get back 

to New York; that the planes are not running, and if we don’t 

watch out the trains won’t be running. 

So we are going to have to call an end to this. I hope you will 

come back to testify again. You have given us a tremendous session 

today. And the truth is, we will have a slow, long climb to get 

where we need to go in terms of creating jobs in this economy, but 

we are beginning to see glimmers of opportunity, and certain strategies in certain sectors, and this will help us on an upward trend 

toward future growth. 

37 

My goal is to work with my colleagues in a bipartisan way to develop and enact effective policies that will create jobs immediately 

and in the long term that ensure that we are getting the most 

value for our dollars, and helping our economy move permanently 

in the right direction. 

I want to thank all of you for the tremendous work that you do 

in your lives to help employ and move our economies forward, and 

we really appreciate your time here today. Thank you very, very 

much. 

Dr. Berner. Thank you. 

Mr. Joerres. Thanks for having us. 

Dr. Berner. Thank you. 

Chair Maloney. Thank you for being here. 

[Whereupon, at 12:55 p.m., the hearing was adjourned.] 

(39) 

SUBMISSIONS FOR THE RECORD 

40 

PREPARED STATEMENT OF ROGER C. ALTMAN, CHAIRMAN, EVERCORE PARTNERS

Madam Chair and Members of the Committee, thank you for inviting me here 

today to testify on the labor market and policies for strengthening it. 

It seems to me that there are two overarching economic policy issues facing this 

Congress and the Administration. One is our topic today: jobs and how to improve 

the difficult outlook which faces American workers. The other is the threatening fiscal deficit, as outlined in the President’s proposed fiscal 2011 budget. I might note 

that the two issues are linked. The deficit, if not tamed, will raise interest rates 

and put downward pressure on overall growth and on job growth. Indeed, the Clinton years demonstrated that deficit reduction can coincide with strong employment 

growth. 

Let me begin with a quick review of the outlook. By historical standards, it is a 

slow and difficult one. The latest Bloomberg survey of private sector forecasts average 3.0% real growth rates for both 2010 and 2011. The related forecast for unemployment rates is 10.0% and 9.1%, respectively. 

Such growth rates are far below those which the U.S. would typically realize in 

the years immediately following a severe recession. A historically normal rate for 

2010, for example, might approximate 6–7%. We saw that in 1983, the first year 

of recovery following that deep recession. 

But, the downturn of 2008/2009 was caused by rare balance sheet factors. Not the 

traditional dynamic of overheating and monetary response. History and academic 

research tell us that the negative growth and employment impacts of recessions following financial crises are especially deep and prolonged. 

In this case, that reflects: (1) the over-stretched balance sheets of American households and the diminished consumer spending, especially discretionary spending, 

which results from it; and (2) the still shrinking balance sheets of our banks and 

the reduced lending which that causes, which we saw in the FDIC data earlier this 

week. It is difficult to achieve a healthy recovery when both consumers, whose 

spending represents 70% of GDP, and banks are retrenching. 

Through BLS data revisions, we recently learned the real number of jobs which 

actually have been lost since the so-called Great Recession began. That number is 

a staggering 8 million jobs, which means that an entire decade of job creation has 

been lost. In other words, the number of American jobs today is approximately the 

same as it was ten years ago, despite our population growing by thirty million over 

that period. 

The unemployment rate, of course, is 9.7% today, and job losses have continued 

through last month. The underemployment rate, perhaps a better measure of true 

unemployment, is 16.5%, and this translates into 25.3 million Americans. This includes those who are looking for work and those who have given up and are no 

longer looking. Further, the employment-to-population ratio has fallen to 58.2%, 

down from 64.6% ten years ago. This is the lowest level in 26 years. 

With our population continuing to grow, America needs around 2% real growth 

to hold our unemployment rate stable. This is why the 3.0% growth rates forecast 

for 2010 and 2011 will only lower it modestly. 

Let me turn then to strategies for creating jobs, starting with lessons we can 

learn from the Clinton years. Those were remarkable ones in terms of employment 

growth. Over the eight years spanning 1993–2000, America saw 22.7 million new 

jobs. This equates to an average monthly gain of 237,000 jobs, the fastest job growth 

on record. 

Those years also saw strong income growth across the board. Real family income 

increased almost 3% annually over this period, and all income groups participated 

rather fully in this growth. In contrast, during the following eight Bush years, real 

income growth for the bottom 99% of families reached only 1.3%. 

The question, then, is what explains the powerful labor markets of the Clinton 

years? I do not have all the answers, but here are a few factors which played important roles: 

• The U.S. experienced relatively high levels of savings and investment during 

these years. The net investment share of GDP rose from 2.1% to 4.4% under 

President Clinton. By 2008, it had fallen back to 2.5%. There is nothing which 

promotes job growth more effectively than strong investment. It expands the capacity of our economy, and that requires more employment. 

• One reason for these high savings rates, of course, was the balanced budgets 

and subsequent surpluses of that period. These meant that both the federal sector and the private sector were saving at once. And, it is savings which finances 

investment. 

• My very large generation—the baby boomers—were in prime working ages and 

this contributed to high employment rates. 

41 

• The boom in technology and technology investment also was a key contributor. 

The Clinton years saw record amounts of venture capital raised and invested, 

record amounts of capital raised through technology IPOs and large scale hiring 

in the tech sector and those businesses serving it. 

• Manufacturing employment was stable, and the dollar value of industrial production grew 40%. In contrast, since 2000, the manufacturing sector has shed 

almost 400,000 jobs a year, and industrial output has been flat. 

• The American export sector added 500,000 jobs a year over the Clinton period, 

but only one fifth of that rate over the following eight years. 

• The U.S. stock market rose almost uninterruptedly over those years. The Dow 

Jones Industrial Average stood at 3,300 when President Clinton took office and 

10,400 when he left it. There is no stronger impetus to consumer and business 

confidence than steadily rising equity prices, especially when matched with fiscal balance. 

• Interest rates also remained low. Today, absolute rates also are low, but economic conditions would typically mandate even lower rates. 

The natural questions, then, are: (1) which of these factors can be replicated to 

improve the employment outlook now?; and (2) what other policy initiatives could 

be taken? 

Overall, the Clinton years provided a climate of stability and consistency to our 

private sector. Employers will tell you, when they run small businesses or large 

ones, that consistency of policy is important to them and uncertainty is anathema. 

But, right now, Washington is inadvertently promoting uncertainty. And, that must 

change, in order to spur investment, growth and jobs. 

A central uncertainty relates to the deficit outlook. By any measure, it is threatening and undermines confidence at all levels. The idea that, over ten years, deficits 

will not fall below 4% of GDP and that debt will exceed 80% of GDP is not acceptable. Indeed, it won’t materialize. Either Congress and the Administration will act 

proactively to rectify it or, at some medium term point, global financial markets will 

revolt, perhaps through the foreign exchange markets, and impose a solution on the 

U.S. If the latter scenario results, the solution will be a punitive one. 

We all know that 2010 is not the year for deficit reduction. Our economy is still 

too weak to absorb those contractionary impacts. But, it is not too soon to formulate 

a plan, beyond the Obama budget, for deficit reduction after this year. In particular, 

it is important that, later this year, the recommendations of the new Deficit Reduction Commission be taken seriously and given a true vote in the Congress. 

A second major uncertainty concerns health care legislation. This is a giant and 

transformative undertaking with large economic implications. It will affect a high 

proportion of employers and they need to know whether it will move forward or not. 

The longer that this uncertainty persists, the slower will be the recovery in confidence levels. Passing health care legislation will not only help dissolve the uncertainty currently surrounding it; it may assist in reigning in our long-term deficits, 

since the growth in health care costs is the most significant factor affecting the future of the federal balance sheet. 

Then, there is the question of new initiatives, both short term and long term. In 

the first category, President Obama is proposing $280 billion of additional stimulus. 

That would come on top of the $787 billion package which was adopted last year. 

The same four components in the 2009 program—extended benefits, state fiscal assistance, infrastructure and tax cuts for middle income Americans and small business—are included in the new proposal. 

I support the concept of additional stimulus. The growth and job markets outlooks 

are too weak. Moreover, last year’s amounts, in the context of this economic weakness and the sheer size of our economy, was too small. But, the spend-out rate on 

the 2009 stimulus was not as rapid as it should have been. Only 34% of last year’s 

total was dispensed in calendar 2009. This is surprising because the greatest stimulus should have been applied in the weakest year. The explanation partially lies 

in the infrastructure component. Despite countless promises to the contrary from localities, this spends out very slowly. 

It would seem wiser to design the new package to take effect more quickly. In 

turn, that would require maximum emphasis on steps which put money directly into 

the pockets of middle and lower income Americans. Perhaps, a greater focus on extended benefits and targeted tax cuts, and a lesser one on infrastructure. In addition, the earlier cash for clunkers initiative was an effective one. The homestead 

provision in the Senate jobs bill, which would use the same principle and extend 

it to appliances, makes eminent sense. 

42 

Next, there is the question of longer term strategies for strengthening the labor 

markets. Beyond deficit reduction, which I regard as paramount, here are five areas 

which deserve this Committee’s attention: 

• Investing in science and technology. Historically, these have generated new industries, from information processing to the internet, and substantial job creation. While most technology businesses aren’t large scale employers, their 

products generate growth, e.g., the iPhone. The new Obama budget recognizes 

this by increasing federal commitments to basic research. It also emphasizes energy technology, which would seem a clear opportunity. 

• More effective education policies at all levels of government. Jobs and wages are 

becoming more polarized by education level. The urgency of raising high school 

and college education rates, therefore, is greater than ever. 

In New York City public schools, for example, the high school graduation 

rate hovers just below 60%. Given the polarization trend, how can America 

achieve its labor market goals without raising such graduation rates? 

The most important steps which America could take would center around 

raising teacher quality and increasing the amount of time during which 

kids are in school. Recent data makes clear that teacher effectiveness is the 

most important ingredient for student success, together with the sheer 

amount of quality teaching which kids receive. 

• Build stronger connections between education and specific job markets. This is 

important because the days when certain levels of education assured good employment have receded. It is increasingly important that schools provide the 

more specific skills which today’s workplaces demand. Including skills required 

by markets adjacent to those schools. 

One way to do this may be to strengthen the community college system in 

this country. In turn, this could involve subsidies to businesses which provide part-time employment to students in those schools. The more a student 

acquires skills during school, the more employable he or she is. 

• Reduce the constraints on H1B visas. Today, only 85,000 visa are reserved each 

year for highly skilled workers. But, consistent with reasonable national security tests, we should want every single such worker who wants to come here. 

They tend to be highly entrepreneurial and foster innovation, start-ups and job 

formation. Duke University has estimated, for example, that 52% of Silicon Valley start-ups over the past ten years were initiated by foreign born workers. 

• Reform the U.S. disability system. Right now, too many older workers who find 

themselves jobless are moving onto permanent disability status because they 

cannot find work. The percentage of American males aged 40–54 who are on 

the disability program has reached nearly 5%. That is testimony to our difficulty in redeploying older workers. We should learn more about the approaches to re-training and re-employment which other nations use, including 

Germany. 

It is difficult to overstate the labor market challenges which America faces in corning years. We are going to need all of these initiatives, and more. 

PREPARED STATEMENT OF CAROLYN MALONEY, CHAIR, JOINT ECONOMIC COMMITTEE

I would like to start by thanking Mr. Joerres and Dr. Hassett for their willingness 

to return to Capitol Hill and testify before the JEC after our Feb. 9th hearing was 

cancelled due to the snow. 

The weather continues to wreak havoc with this hearing. 

The Honorable Roger Altman, former Deputy Treasury Secretary, had to cancel 

his appearance before this Committee because of the snowstorm in New York. 

I ask for unanimous consent to include his written testimony in the record. 

Today’s hearing continues our in-depth series on job creation. Today, we will be 

examining the prospects of a labor market recovery from the Great Recession, which 

was fueled by the double blow of crises in both the housing and financial sectors. 

A recent op-ed by Professor Alan Blinder, which was based on the testimony he 

had planned to bring before this committee before the snow shut down DC, presents 

a clear picture of the two possible policy options to increase private sector employment: either increase demand by consumers and businesses; or give employers the 

incentive to substitute workers for equipment. 

On Tuesday, the JEC heard testimony from the Honorable Doug Elmendorf, Director of the Congressional Budget Office. 

43 

His testimony showed that an employer tax credit—similar to the one in my bill— 

is one of the most effective and efficient ways of spurring hiring. 

His testimony also showed that extending unemployment benefits has the biggest 

‘‘bang for the buck’’ on the economy. 

Those benefits quickly multiply beyond the original recipients since families will 

spend all of their benefits on food and other expenses. Those purchases have a ripple effect throughout the economy. 

We’ve come a long way since last January, when the economy lost 779,000 jobs 

in that month alone and recorded an average monthly job loss of 753,000 in the first 

three months of 2009. 

Last month, we lost 20,000 jobs. And in the most recent three months of the 

Obama administration, the average monthly job loss was 35,000. So we’re headed 

in the right direction. Thanks to the Recovery Act, the economy is growing. 

The Bureau of Economic Analysis reported that in the final quarter of 2009, the 

economy expanded at a rate of 5.9 percent. 

The Recovery Act included a tax cut for 95 percent of American families and created jobs while investing in clean energy technologies, infrastructure, and education. 

While we have brought the economy back from the brink, we are not yet where 

we need to be in terms of job creation. 

Over 8.4 million jobs have been lost during the ‘‘Great Recession.’’ 

And in addition to the 14.8 million workers who are currently unemployed, there 

are 8.3 million workers who currently work part-time, but would like to work fulltime. 

In the last year, Congress has enacted policies that support struggling families 

and encourage job creation. These actions include: 

Creating and extending the first-time homebuyers credit, boosting funding for 

small business loans via the Small Business Administration, extending safety net 

programs, and extending the net operating loss carry-back provision that will help 

small businesses hire new employees. 

But we need to redouble our efforts to create jobs. 

The Senate jobs bill, which passed this week, is a step forward and an encouraging sign of bipartisanship. 

It includes a scaled-down version of my employer tax credit. I’m happy that the 

Senate has included this—as Alan Blinder said in his op-ed, reducing costs for employers to hire new workers will create jobs. 

During today’s hearing, we will explore other options and hear other ideas for 

helping workers get back on their feet, spark consumer spending, and brighten our 

economic climate. 

I am pleased that Dr. Berner was able to testify today and provide us with his 

forecasts of which sectors and regions of the economy are expected to grow in the 

coming year or two. 

Mr. Joerres will be giving us Manpower’s on-the-ground experience about the increase in demand for temporary workers. 

Job creation in the temporary help sector is a leading indicator of progress in the 

labor market. 

Since September 2009, temporary help services has added 247,000 jobs—52,000 

in January alone. 

Finally, Dr. Hassett will be giving his views about future growth and the health 

of the labor market. 

I am also pleased to see that today’s panel will touch on another topic discussed 

on Tuesday with CBO—the role of uncertainty about government policies on dampening economic and employment growth. 

I look forward to a lively discussion with the panel today—one that I hope will 

help spark bi-partisan efforts to create certainty so that households and businesses 

will feel confident and will lead our country out of the Great Recession. 

PREPARED STATEMENT OF RICHARD BERNER, CO-HEAD OF GLOBAL ECONOMICS AND

CHIEF U.S. ECONOMIST, MORGAN STANLEY & CO. 

Chair Maloney, Ranking Member Brownback, and members of the Committee, my 

name is Richard Berner. I am Co-Head of Global Economics and Chief U.S. Economist at Morgan Stanley in New York. Thank you for inviting me to this hearing 

on Prospects for Jobs and Growth. 

Following the deepest financial and economic crisis since the Great Depression, 

the U.S. and global economies are beginning to recover. Thanks to aggressive monetary stimulus, support from strong global growth and from fiscal stimulus, the U.S. 

economy is now growing again. 

44 

1Source: International Trade Administration, Department of Commerce. 

In my view, however, the recovery will be moderate and job gains modest. The 

financial system, while improving, is still burdened by the legacy of bad lending decisions. Imbalances in housing persist. In 2010 and 2011, we expect real GDP to 

grow by 31⁄4% and 21⁄2% (Q4/Q4 change), respectively. We expect annual job growth 

to average 1% (110,000 monthly) over that two-year period, excluding hires for the 

decennial census. Even those modest gains are not a foregone conclusion. Job losses 

have abated, and some labor-market indicators have improved, but employment has 

yet to turn up. 

More important, we would need persistently strong economic and job growth over 

the next few years to regain the 8.4 million payroll jobs lost since December 2007, 

not to mention the 10.6 million jobs required to restore the employment rate (employment-population ratio) prevailing before the start of the Great Recession. 

Moreover, as you are aware, our unemployment problem has become increasingly 

chronic. Two statistics document that fact: The median duration of unemployment 

has reached 20 weeks, more than twice the peak in the deep 1981–82 recession, and 

a record 41% of the unemployed have been jobless for six months or longer. 

In my testimony today, I will identify four specific obstacles to hiring. Each of 

these hurdles has a cyclical and a structural dimension. For each, therefore, I will 

discuss policies that might help foster economic growth and job creation both in the 

immediate future—the cyclical dimension—and for the longer run—the structural 

part. But first, I want to identify where job gains are likely to be over the next two 

years and why. 

Where will the jobs be? What sectors of the economy are likely to grow in 2010 

and 2011, and by how much? How will employment growth vary in different regions 

of the country? What will be the likely state of the export market over the next two 

years, and the resulting impact on employment? 

Strong sectors. Advances in export, infrastructure, capital goods, energy, and 

health care related industries likely will account for most of the job gains in the 

next 18–24 months. That forecast echoes my views regarding the sources of growth 

in our economy. The combination of strong global growth, the lagged effects of fiscal 

stimulus, and improving financial conditions will promote improvement in many of 

those industries. And rising demand for health care services continues. In contrast, 

employment in residential and commercial construction, retailing, and financial 

services likely will remain soft as those industries continue to restructure. 

Strong regions. Identifying regional strengths and weaknesses is difficult. For 

example, industries that likely will benefit from exports and other strong sectors are 

located in regions hard-hit by regional housing woes. Conversely, some regions that 

fared relatively well in the downturn, like the Midwest, are now doing less well. In 

our judgment, the Pacific Northwest, parts of the Rockies and Upper Midwest, parts 

of the Southeast, and parts of the Southwest seem likely to be the strongest regions. 

Export markets and employment. I expect gains in export volumes of around 

10% to be sustained over 2010. Paced by their domestic demand, growth in many 

of our major trading partners in Asia and Latin America likely will average 6–7% 

this year, and Canada probably will expand at a faster pace than the U.S. Somewhat slower growth seems likely in 2011 as the U.S. and overseas policymakers exit 

from stimulus. 

In manufacturing, some 20% of employment in 2006 was directly or indirectly associated with exports, and I expect that share to grow over the next two years. 1

Capital equipment and industrial supplies exports likely will continue to do well, 

while consumer goods will represent a rising share of overseas demand. 

Obstacles to hiring. Worries about the sustainability of recovery are legitimate 

and probably are holding hiring back. Such concerns are characteristic early in recovery, but this time they are worse because of the lingering fallout from the bursting of the housing and credit bubbles. As a result, it remains essential to pursue 

policies oriented towards reducing housing imbalances, reducing debt, and improving the functioning of financial markets and financial institutions. 

In addition, I think there are four obstacles to hiring that magnify the normal, 

early-recovery hesitation: Rising benefit costs, mismatches between skills needed 

and those available, labor immobility resulting from negative equity in housing, and 

uncertainty around policies here in Washington. Each has both a long-term structural and a shorter-term cyclical element. For each, I’ll first discuss the problem and 

the long-term solutions. Then I will turn to what policymakers can do to help the 

economy and the labor market improve as quickly as possible. 

Obstacle 1. Cost of labor resulting from escalation in benefits. The problem: 

Thanks to the high ‘‘fixed’’ costs of health and other benefits, and of taxes on labor 

to pay for the social safety net, our labor costs are out of line with other countries 

45 

2See Sarah Reber and Laura Tyson, ‘‘Rising Health Insurance Costs Slow Job Growth and 

Reduce Wages and Job Quality,’’ Working paper, University of California at Los Angeles, August 

2004. 3See Congressional Budget Office, ‘‘Policies for Increasing Economic Growth and Employment 

in the Short Term,’’ February 2010. 4See Bridget M. Kuehn, ‘‘No End in Sight to Nursing Shortage: Bottleneck at Nursing Schools 

a Key Factor,’’ JAMA 2007; 298:1623–1625. 5http://www.teachforamerica.org/mission/missionlandlapproach.htm. 6See Fernando Ferreira, Joseph Gyourko, and Joseph Tracy ‘‘Housing Busts and Household 

Mobility,’’ forthcoming in the Journal of Urban Economics. 7 Efforts by the Federal Reserve and others are especially encouraging. See http:// 

www.federalreserve.gov/consumerinfo/foreclosure.htm and http://www.mymoney.gov/. 

when adjusted for living standards. I say ‘‘fixed’’ costs because benefit costs don’t 

vary with hours worked; they are paid on a per-worker basis. But as employers seek 

to cut the cost of compensation, these benefit costs drive a growing wedge between 

total compensation and take-home pay. Unlike in other countries where health care 

benefits are not directly part of compensation, these rising costs likely have intensified employers’ efforts to boost productivity by cutting payrolls. 2 The recession made 

the wedge between compensation and wages bigger, as cost-cutting private-sector 

employers cut take-home pay while leaving benefits intact. So relative labor costs 

go up versus other countries and median pay suffers. 

Long-term solutions include comprehensive health care reform and innovation to 

boost productivity and labor skills. Health care reform to expand access and control 

costs will reduce the soaring costs of health care for employers and employees alike. 

Policies that boost worker productivity will reduce labor costs in what will be a winwin for employers, employees and overall living standards, because real wages will 

rise. 

Short-run remedies: A refundable payroll tax credit, perhaps for firms that increase their payroll, would be among the most effective short-run remedies. CBO estimates that a well-designed credit could boost employment by about 9 years of fulltime equivalent employment per million dollars of budgetary cost. 3

Obstacle 2. Skills mismatch. The problem: For years, employers have complained 

that they don’t find the skills they need in today’s workforce. Worker skills have 

greatly lagged technical change and tectonic shifts in the structure of our economy. 

Immigration restrictions and massive dislocations in several industries in recession 

have magnified that mismatch as workers who have been trained for one occupation 

lose their jobs. And even in health care, an oasis of job growth, there is a growing 

nursing and nursing skills shortage that requires new training facilities. 4

Long-term solutions include policies that keep students in school and improve access to education, reorientation of our higher educational system towards specialized 

and vocational training and community colleges, and immigration reform. 

Short-term remedies: Our current unemployment situation demands income support through unemployment insurance for those seeking but unable to find a job. 

Jobless spells degrade worker skills, just when workers need re-training. One remedy would pair training in basic skills that are needed for work with such income 

support. Two other groups seeking employment—newly minted college students and 

unemployed teachers—could be an ideal nucleus for a Job Training Corps that 

would empower job seekers with new skills. As is the case with Teach for America, 

the Job Training Corps would build a pool of training advocates who then go on to 

work in other occupations with the perspective and conviction that come from helping others to acquire needed skills. 5

Obstacle 3. Labor immobility resulting from the housing bust. America’s workers 

have always been footloose. Even in the Great Depression, they looked for work 

wherever it was. Today, however, about one in four homeowners is trapped in their 

house because they owe more than the house is worth, so they can’t move to take 

another job. Unlike in the Depression, when homeownership was less prevalent, 

negative equity among a nation of homeowners leads to substantially lower mobility 

rates. Owners suffering from negative equity are one-third less mobile according to 

one study. 6 That is leading to a wave of ‘‘strategic defaults,’’ in which borrowers 

who can otherwise afford to pay decide to walk away. Whether through foreclosure 

or default, this process is undermining the economic and social fabric of communities and reducing job opportunities. 

Long-term solutions: Financial and mortgage regulatory reform are essential to restore the health of housing finance. Significantly improving financial literacy is 

equally important. 7

46 

8See http://www.stablecommunities.org/ for examples. 9See, for example, Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang, and Eileen 

Mauskopf, ‘‘Designing Loan Modifications to Address the Mortgage Crisis and the Making 

Homes Affordable Program,’’ Brookings Institution, October 2009. 10See Nicholas Bloom,‘‘The Impact of Uncertainty Shocks,’’ Econometrica, vol. 77(3), pages 

623–685, 05, May 2009. 

Short-term remedies: Local efforts to stabilize communities plagued by foreclosure 

are essential, but they are not enough. 8 It is essential to reduce debt, writing off 

bad loans while not destabilizing the financial system. Modifying existing mortgages 

seems appealing, but policies aimed at mitigating foreclosures under the Home Affordable Modification Program (HAMP) have not worked because they attempt to 

modify mortgage payments and not the amount of debt owed; re-default rates following modification are 50–60%. Efforts to establish a protocol for short sales and/ 

or principal reduction should be a useful tool in avoiding costly foreclosure and strategic default. 9

Obstacle 4. Policy uncertainty is a negative for the economy and markets. America’s long-term challenges—health care, budget and tax reform, financial regulatory 

reform, retirement saving, infrastructure, education, energy, and climate change— 

are not new. Solving them is imperative. But while the debates around major initiatives to address them are an important part of the democratic process, the uncertainty that accompanies major policy change is weighing on business and consumer 

decisions to hire, expand, buy homes and spend. 

Recent work confirms this intuition, underlining how uncertainty produces negative growth shocks. Nicholas Bloom shows how a rise in uncertainty makes it optimal for firms and consumers to hesitate, which results in a decline in spending, hiring and activity. In effect, the rise in uncertainty increases the option value of waiting as volatility rises. Moreover, this line of reasoning suggests that uncertainty reduces the potency of policy stimulus. 10 That’s because the uncertainty can swamp 

the effects of lower interest rates, transfers or tax cuts. In effect, uncertainty raises 

the threshold that must be cleared to make a business choice worthwhile, and as 

uncertainty declines, the threshold falls with it. This notion squares with our longheld view that policy traction from easier monetary policy, improving financial conditions and fiscal stimulus was lacking through much of last year, but improved as 

uncertainty fell. 

I can tell you as someone who works in financial markets that market participants are used to thinking that political gridlock is good, that it prevents politicians 

from interfering with the marketplace. The financial crisis clearly exposed the flaws 

in that reasoning with respect to appropriate financial regulation, whose absence allowed abuses. Indeed, gridlock today is more likely to be bad for markets, as our 

long-term economic problems are partly the result of past policies and can only be 

solved with political action. 

Long-term solutions involve bipartisan leadership to tackle these complex problems one-by-one, in steps that are fair and call for shared sacrifice and benefits. 

That means setting priorities, making hard choices, communicating the game plan, 

and getting buy-in for it in advance. I would encourage you to look to the National 

Commission on Fiscal Responsibility and Reform—the deficit reduction commission—for leadership. 

Short-term remedies: Reducing policy uncertainty now could be a tonic for growth. 

That won’t be easy or come quickly, given the political backdrop in this election 

year. But even some incremental clarity on policies in any of these areas would offer 

investors a chance to assess the fundamentals again—fundamentals that we still see 

as improving. 

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1Who argued that the stimulative effects of expansionary fiscal policy were, as long as interest rates were at more-or-less normal levels, ‘‘certain to be temporary and likely to be minor’’— 

but who agreed that the stimulative effects on production and employment were there. 2http://online.wsj.com/article/SB10001424052748704751304575079260144504040.html? 

3http://www.project-syndicate.org/commentary/feldstein20/English. 

STIMULUS ARITHMETIC

(By J. Bradford DeLong, Professor of Economics, U.C. Berkeley Research Associate, NBER; February 25, 2010) 

In The Wall Street Journal on February 23, Robert Barro made an intelligent argument against the American fiscal stimulus—the ARRA. It is a great relief after 

wading through the works of those who claim, one way or another, that the basic 

principles of economics set out by Say and Bastiat make it impossible for government decisions to spend. (They would, if they thought about it for even a minute, 

realize that their arguments also entail the conclusion that nobody else’s decisions 

to spend can alter the flow of economic activity either, and hence that recessions 

simply do not happen. Which raises the question of why the unemployment rate has 

risen from 5% to 10%, but I digress.) Barro is, thankfully, not one of that crew. So 

my first desire is to wind up Barro and turn him loose to deal with those who 

stopped reading the economics literature before 1890, and not only never understood 

Milton Friedman 1 but never understood Friedman’s predecessors like Irving Fisher 

and Knut Wicksell. 

However, I think Barro has gotten some key things wrong. First, I believe that 

Barro makes an error of logic in assessing how his own view of the situation applies 

to the question of what macroeconomic policy should be. 

Barro writes, in ‘‘The Stimulus Evidence One Year On,’’ 2 that he: 

estimate[s] a spending multiplier of around 0.4 within the same year and 

about 0.6 over two years. . . . [T]he [tax] multiplier is around minus 1.1. 

. . . [Thus] GDP would be higher [because of the ARRA stimulus] than otherwise by $120 billion in 2009 and $180 billion in 2010 . . . 

and by $60 billion in 2011. 

That is roughly 1.3 million more people employed in America in 2009, 1.9 million 

more people employed in 2010, and 0.7 million people employed in 2011. Suppose 

that what the government spent money on is worth to us on average 2⁄3 of what 

private-sector spending is worth. Then according to Barro we spent $600 billion on 

the ARRA and got $400 + $120 + $180 + $60 billion = $760 billion worth of goods 

and services in return, for a net social profit of $160 billion. And it is not as though 

that $160 billion would have been offset by a loss of leisure time on the part of those 

who are not but would have been employed. The cyclically-unemployed do not place 

a high value on their lost leisure. 

Only if you think there are additional large costs lurking down the road—that the 

ARRA has destabilized price expectations and set in motion a damaging and destructive spiral of deflation, or that the ARRA has used up America’s debt capacity 

and so interest rates have spiked and amortizing the debt will be very costly—does 

the social profit turn negative. And neither of those things have happened. As the 

London Economist’s ‘‘Demcracy in America’’ correspondent wrote on Wednesday: 

You can argue that private actors will spend the money in ways that generate more employment than government. . . . It’s pretty hard to make this 

argument at a time when banks are not lending . . . because they see few 

promising opportunities. . . . You can argue that government programmes 

generally take years to get underway, and by the time the spending gets 

going, the economy will already be in recovery . . . this argument looks 

much weaker now than it did a year ago: the recession has been far deeper 

than expected, we seem to be having a jobless recovery, and unemployment 

looks set to stay above the 5% ‘‘full employment’’ level for many years . . 

. 

The long-term nominal and real Treasury rates continue to be absurdly low, so 

much so that I rub my eyes whenever I see them. Just today the Treasury auctioned 

$32 billion more of seven-year notes at a yield of 3.08% per year. And the market 

forecast of inflation—the spread between TIPS and normal Treasuries—remains extremely well behaved. As Martin Feldstein wrote yesterday, the market continues 

to expect consumer price inflation to average only 2.5% per year over the next several decades.3

Thus I really do not understand the logic behind Barro’s last paragraph in his 

op-ed, in which he claims: 

80 

4http://muse.jhu.edu/journals/brookingslpaperslonleconomiclactivity/summary/v2009/ 

2009.2.hall.html. 

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake . . . 

Second, I think Barro makes an error of analysis in reading the current situation. 

I think Stanford’s Bob Hall 4 has a better read on what is going on with respect to 

the current sizes of multipliers: 

With allowance for other factors holding back GDP growth during those 

[years of total] wars, the multiplier linking government purchases to GDP 

may be in the range of 0.7 to 1.0 . . . but higher values are not ruled out. 

. . . Multipliers are higher—perhaps around 1.7—when the nominal interest 

rate is at its lower bound of zero, as it was during 2009 . . . 

The problem, I think, is that Barro tries to use the total war years of the twentieth century to 

realistically evaluate the stimulus . . . the main results come from fluctuations in defense outlays associated with major wars such as World War I, 

World War II and the Korean War . . . 

Because 

the defense-spending multiplier can be precisely estimated . . . 

This suffers from the standard economist’s problem of looking for one’s lost keys 

under the lamppost because the light is better there. Yes, the total war defensespending multiplier can be relatively precisely estimated. But we are not interested 

in what the multiplier is when the unemployment rate is 3%, we are interested in 

what the multiplier is when the unemployment rate is 10%. And we are not interested in what the multiplier is when the government is taking all kinds of other 

steps to diminish consumption and boost private savings via rationing and patriotism-based bond drives, we are interested in what the multiplier is under more normal conditions. 

Third, Barro characterizes the stimulus bill as a two-year $600 billion increase 

in government purchases. But about half of the stimulus money spent to date is on 

the tax and transfer side, and about a quarter is direct aid to states which enables 

them not to raise taxes during this recession. It seems to me that Barro should be 

weighted-averaging his spending multiplier of 0.6 and his tax multiplier of 1.1 to 

get an ARRA multiplier of 0.9—in which case our social profit is not $160 billion 

but rather $340 billion, and we should certainly do this again, and again, and again. 

(Until, that is, there are signs that additional stimulus may start to threaten pricelevel or debt-management stability, or until unemployment falls far enough to make 

Barro’s multipliers overestimates.) 

Fourth, Barro complains that because Christina Romer has ‘‘not [carried out] serious scientific research . . . on spending multipliers . . .’’ he ‘‘cannot understand her 

rationale for assuming values well above one . . .’’ To say that policymakers should 

rely only on their own personal research to formulate policy seems to me simply bizarre. 

Fifth, Barro assumes that spending in 2009–2010 is then offset by levying equal 

taxes in 2011–2012, claiming that ‘‘the timing of future taxes does not matter.’’ But 

it does. It matters very much. At the moment the U.S. Treasury can borrow at a 

real interest rate of zero for five years—and shove all of five-year inflation risk onto 

the lender at that. Time preference means that the $600 billion addition to the debt 

today that Barro sees as the cost of stimulus is—because of the easy terms on which 

the Treasury can finance things right now—not nearly as burdensome as a demand 

to pay $600 billion now would be. We get the goods now. But the costs are delayed 

until later, when we will in all likelihood be richer and feel the costs less severely. 

Sixth, when future taxes will be levied to amortize the added debt induced by the 

stimulus, they will be levied at a time at which nominal interest rates will not be 

stuck at their current floor of zero. The Federal Reserve will then be able to ease 

monetary policy—reduce interest rates—to offset the fiscal drag. There will be no 

lost production and employment through Keynesian channels. So I do not see why 

Barro believes that, although the stimulus boosts employment now, amortizing the 

stimulus must inevitably reduce employment at some point in the future. 

81 

PREPARED STATEMENT OF REPRESENTATIVE KEVIN BRADY, SENIOR HOUSE

REPUBLICAN

I am pleased to join in welcoming Dr. Berner, Mr. Joerres, and Dr. Hassett before 

the Committee this morning. 

This is not a good time for American workers and their families. While there are 

some positive signs in the labor market—the rate of job losses has slowed and temporary services firms have begun to hire more workers in recent months—the unemployment rate is elevated and job openings remain scarce. 

President Obama signed the American Recovery and Reinvestment Act on February 17, 2009, promising that it would jump start economic growth, create jobs, 

and reduce the unemployment rate. At the time, two of the Administration’s top 

economists predicted that Obama’s stimulus plan would keep the unemployment 

rate below 8.0 percent. 

A year later, the Administration’s rosy predictions remain unfulfilled. Since the 

Obama stimulus plan passed, the United States has lost more than 3 million payroll 

jobs. The unemployment rate is 9.7 percent. 

At first, Administration officials tried to claim Obama’s stimulus plan was creating or saving hundreds of thousands of jobs based on reports filed by stimulus 

fund recipients. However, the news media uncovered so many errors in the tabulation of these ‘‘jobs created or saved’’ that Administration claims became the butt of 

jokes by late night television comedians. 

On Tuesday, the Congressional Budget Office entered the fray with its estimates 

of how much the Obama stimulus plan contributed to real GDP growth and employment during the fourth quarter of 2009. The CBO used fiscal multipliers to make 

these estimates. Unfortunately, the CBO’s methodology prejudges the outcome and 

causes it to overstate the likely economic benefits from Obama’s stimulus plan. 

First, the CBO derived its fiscal multipliers from three macroeconomic forecasting 

models that use historical relationships among demand-side factors to predict the 

near-term performance of the U.S economy. These models ignore many supply-side 

factors. For example, business investment is treated largely as a function of aggregate demand and the real interest rate. Thus, a business tax cut does not affect directly investment by reducing the cost of investing and increasing the after-tax return on capital. Instead, a business tax cut affects investment indirectly through 

higher aggregate demand as business owners consume a portion of the payouts received from their businesses. 

The CBO even acknowledges that the models’ demand-side orientation biases its 

calculation of fiscal multipliers. Quoting from the CBO report, ‘‘Because they emphasize the influence of aggregate demand on output in the short run, the macroeconomic forecasting models tend to predict greater economic effects from demandenhancing policies such as ARRA than other types of models.’’ 

Second, two of three macroeconomic forecasting models used by the CBO are ‘‘old 

Keynesian’’ models that do not allow for rational expectations. This creates a strong 

upward bias in the CBO’s calculation of fiscal multipliers. Consequently, the CBO 

ignores what I see occurring in my district in Texas: people are saving more and 

businesses are investing less in anticipation of paying higher taxes in the near future to service the enormous debts from stimulus spending, ‘‘cap and trade,’’ and 

new health care entitlements. Last year, John Cogan, Tobias Cwik, John Taylor, 

and Volker Wieland found that about 5⁄6ths of the real GDP growth benefits and 

almost all of the net job creation benefits of stimulus spending disappear when a 

‘‘new Keynesian’’ model that allows for rational expectations is used. 

For these reasons, the CBO’s fiscal multipliers are biased. The CBO simultaneously overstates the likely economic benefits from stimulus spending and temporary tax rebates and understates the likely economic benefits of business tax cuts 

designed to reduce the after-tax cost of making job-creating business investments. 

Therefore, we should take the CBO’s claims that Obama’s stimulus plan increased 

real GDP by between 1.5 percent and 3.5 percent and increased the number of people employed by 1.0 million to 2.1 million with a pound of salt. 

I am interested in hearing what the private sector experts here today have to say 

about job creation. I look forward to hearing their testimony. 

Æ