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25–154 PDF 2006

S. HRG. 109–271

THE EMPLOYMENT SITUATION: SEPTEMBER 2005

HEARING

BEFORE THE

JOINT ECONOMIC COMMITTEE

CONGRESS OF THE UNITED STATES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 7, 2005

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

JIM SAXTON, New Jersey, Chairman

PAUL RYAN, Wisconsin

PHIL ENGLISH, Pennsylvania

RON PAUL, Texas

KEVIN BRADY, Texas

THADDEUS G. MCCOTTER, Michigan

CAROLYN B. MALONEY, New York

MAURICE D. HINCHEY, New York

LORETTA SANCHEZ, California

ELIJAH E. CUMMINGS, Maryland

SENATE

ROBERT F. BENNETT, Utah, Vice Chairman

SAM BROWNBACK, Kansas

JOHN SUNUNU, New Hampshire

JIM DEMINT, South Carolina

JEFF SESSIONS, Alabama

JOHN CORNYN, Texas

JACK REED, Rhode Island

EDWARD M. KENNEDY, Massachusetts

PAUL S. SARBANES, Maryland

JEFF BINGAMAN, New Mexico

CHRISTOPHER J. FRENZE, Executive Director

CHAD STONE, Minority Staff Director

(III)

C O N T E N T S

OPENING STATEMENT OF MEMBERS

Statement of Representative Jim Saxton, Chairman ........................................... 1

Statement of Representative Carolyn B. Maloney ................................................ 2

Statement of Senator Jack Reed, Ranking Minority ............................................ 5

Statement of Representative Ron Paul .................................................................. 11

Statement of Representative Loretta Sanchez ...................................................... 12

WITNESS

Statement of Philip Rones, Deputy Commissioner, Bureau of Labor Statistics,

accompanied by John Greenlees, Associate Commissioner, Offices of Prices

and Living Conditions; and John M. Galvin, Associate Commissioner, Employment and Unemployment Statistics ............................................................ 3

SUBMISSIONS FOR THE RECORD

Prepared statement of Representative Jim Saxton, Chairman ........................... 16

Prepared statement of Representative Carolyn B. Maloney ................................ 17

Prepared statement of Senator Jack Reed, Ranking Minority ............................ 49

Statement of Deputy Commissioner Philip Rones, Bureau of Labor Statistics,

together with press release USDL 05-1946 entitled, ‘‘The Employment Situation: September 2005’’ ........................................................................................ 18

(1)

THE EMPLOYMENT SITUATION:

SEPTEMBER 2005

FRIDAY, OCTOBER 7, 2005

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

The Committee met, pursuant to call, at 9:30 a.m., in room 1334,

Longworth House Office Building, the Honorable Jim Saxton,

Chairman of the Joint Economic Committee, presiding.

Representatives present: Representatives Saxton, English,

Paul, Maloney, and Sanchez.

Senator present: Senator Reed.

Staff present: Chris Frenze, Robert Keleher, Colleen J. Healy,

John Kachtik, Brian Higginbotham, Chad Stone, and Matt

Salomon.

OPENING STATEMENT OF HON. JIM SAXTON, CHAIRMAN,

A U.S. REPRESENTATIVE FROM NEW JERSEY

Representative Saxton. Good morning. I would like to welcome

Deputy Commissioner Rones, from the Bureau of Labor Statistics,

and his colleagues before the committee this morning to discuss the

September employment data. As we all know, both the household

and establishment measures of employment in September have

been affected by Hurricane Katrina. The catastrophic impact of

Katrina on the Gulf Coast has caused a tragic loss of life and widespread destruction of property and businesses. Many of the affected

businesses either have been unable to reopen or have only partially

recovered and do not have the resources to continue to meet payrolls at previous levels. As a result, employment was essentially

unchanged in September as measured by both employment surveys.

According to the establishment survey, payroll employment

shows an apparent decline of 35,000 in September, but this is not

a statistically meaningful number. Household survey employment

was also statistically unchanged. The unemployment rate edged up

by two-tenths of a percent in December. It is likely the effects of

the hurricanes will affect the employment data for the next several

months. The hurricanes will also temporarily reduce the rate of

economic growth in the second half of 2005.

According to the Congressional Budget Office, the hurricanes will

reduce the rate of economic growth by about a half a percentage

point in the second half of the year. Some forecasters expect that

reconstruction in the Gulf region will boost economic activity in the

next year. The National Association for Business Economics survey

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projects that the economy will still grow at a rate exceeding 3 percent in both 2005 and 2006. Unfortunately, the upward trend in

employment growth was disrupted in September and may take a

few months to fully recover. Nonetheless, the data reported today

demonstrate a resilience in the U.S. economy in absorbing yet another severe shock.

The Federal Government has responded to the hurricanes by providing $62 billion in disaster aid in addition to other Federal assistance triggered under a variety of programs. Others have sought

as much as $250 billion in disaster aid, an amount viewed as excessive by many, including the Washington Post editorial page. The

Congress will devote much time in the coming months to finding

the right policy mix needed for the recovery of the Gulf Coast. Tax

and regulatory relief for the employers and employees devastated

by the hurricane should certainly be a part of the response.

Mrs. Maloney, do you have an opening statement?

[The prepared statement of Representative Saxton appears in the

Submissions for the Record on page 16]

OPENING STATEMENT OF HON. CAROLYN B. MALONEY,

A U.S REPRESENTATIVE FROM NEW YORK

Representative Maloney. Yes, thank you very much. I know

that Senator Reed is voting, and he will be here and he does have

a statement. I would like very much to welcome Deputy Commissioner Rones and his staff.

I know that you must have been faced with an incredible challenge in producing this month’s jobs report. It must have been incredibly hard. I commend you for overcoming the difficult circumstances you must have encountered.

This month’s employment report is obviously very dominated by

Katrina, and it is impossible to know what it would have looked

like without the hurricanes. The net loss of 35,000 jobs is well

below what many analysts were predicting, so I am wondering if

we have yet seen the full impact of the hurricanes in our job loss

and in our job data.

I do know that prior to Katrina, American workers were still

waiting to see the benefits of the economic recovery. Job growth

was sluggish, there was hidden unemployment, real wages were

stagnating, and wage and income inequality was on the rise, which

I find tremendously troubling.

I believe this trend is very bad for our country, and I would welcome any comments by you on what we can do to try to adjust it.

I hope the Bush administration is paying attention to these trends

and will begin to address the growing economic insecurity that is

felt by many American workers.

I thank you for your time, and I really look forward to your statements. Thank you.

[The prepared statement of Representative Maloney appears in

the Submissions for the Record on page 17]

Representative Saxton. Mr. Rones, we are anxious to hear

your report this morning, so why don’t you go ahead?

3

STATEMENT OF PHILIP RONES, DEPUTY COMMISSIONER,

BUREAU OF LABOR STATISTICS

Mr. Rones. Mr. Chairman, and members of the committee,

thank you for the opportunity to discuss the September employment and unemployment statistics that we released this morning.

Commissioner Utgoff was under the weather this week, and she

sends her regrets.

Nonfarm payroll employment was little changed. It was down

35,000 in September, and the unemployment rate increased from

4.9 to 5.1 percent. September labor market developments reflected

both the impact of Hurricane Katrina and ongoing job market

trends. Over the 12-month period prior to September, nonfarm employment increased by an average of 194,000 per month, and the

unemployment rate trended down from 5.4 to 4.9 percent.

Before looking at the data in greater detail, I would like to briefly review the extraordinary efforts that the Bureau of Labor Statistics, the Census Bureau and our State partners undertook to obtain

information from our sample establishments and households in the

areas affected by Hurricane Katrina.

The hurricane struck the Gulf Coast on August 29th, prior to the

reference periods for our September surveys. The severity and

scope of the damage led us to carefully evaluate our data collection

and estimation procedures. As a result, we modified some aspects

of survey operations, and we announced those changes 2 weeks

ago. We did not alter the concept or the definitions for either survey. In the payroll survey, employed persons are those who receive

pay for any part of the pay period that includes the 12th day of

the month. Therefore, people who were on payrolls in the aftermath of Hurricane Katrina were counted as employed even if they

were absent from work. In the household survey, employed persons

include those who are temporarily absent from their jobs, whether

they were paid or not. To be classified as unemployed, persons

must be actively looking for work and be available to take a job.

In the establishment survey, BLS and our State partners worked

especially hard to contact respondents in hurricane-affected areas

in September. We also modified our estimation procedures so that

businesses that were closed following the storm, as well as firms

that were still operating, would be better represented in the estimates. In the household survey, Census Bureau interviewers

worked under difficult conditions to interview sample households in

the Gulf Coast. Interviews were not conducted in the two parishes

that were under mandatory evacuation orders. These extra steps

undoubtedly helped us to get a better picture of the national labor

market situation for September.

Turning to the data from our payroll survey, one way to roughly

gauge the impact of the hurricane on job growth in September is

to compare the over-the-month employment change with the

monthly average for the prior year. The change recorded for September, a loss of 35,000 jobs, is about 230,000 less than the average monthly gain over the previous 12 months. Using this simple

approach to gauge the hurricane impact assumes that in the absence of the storm, employment growth would have followed its recent trend. To test that assumption, we constructed a rough estimate of the change in payroll employment from August to SepVerDate 03-FEB-2003 11:31 Mar 02, 2006 Jkt 025154 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 D:\JEC\25154.TXT SSC2 PsN: SSC2
4

tember, excluding all the sample units in the disaster areas. This

exercise showed that total nonfarm employment would have increased by an amount in line with the prior year’s average. We will

know more about the hurricane’s impact when local employment

estimates become available later this month.

As we look at the official September data for specific industries,

I would note that job losses in the storm-related areas may have

been offset or exacerbated by developments in the rest of the economy. In September, retail trade employment overall was down

88,000. There was a particularly large employment decline in food

and beverage stores. Much of this decline reflects industry restructuring and associated store closures unrelated to the hurricane. In

leisure and hospitality, the job total fell by 80,000 in September in

part due to the hurricane. There were large losses in food services

and drinking places, and in amusement, gambling, and recreation

establishments.

Employment in professional and business services increased by

52,000 over the month, with a large gain in temporary help services. The employment increase in temporary help services for September was more than twice as large as the average monthly gain

for the prior 12 months. It is possible that some of the September

growth was due to the hiring of workers to assist in post-hurricane

recovery efforts.

Health care added 37,000 jobs over the month, continuing its

long-term growth. Employment also continued to trend up in financial activities.

In the goods-producing sector of the economy, construction added

23,000 jobs in September, equal to the average monthly gain for

the prior year. Manufacturing employment was down by 27,000.

Much of the decline reflected a strike in the aerospace industry

that took 18,000 workers off payrolls.

Turning to some of the major labor market indicators from our

household survey, the number of unemployed persons rose by

270,000 over the month, and the jobless rate increased from 4.9 to

5.1 percent. Most of the increase in unemployment occurred among

job losers, and the labor force participation rate held at 66.2 percent in September.

In summary, payroll employment was little changed in September, and the unemployment rate rose to 5.1 percent. It is clear

that Hurricane Katrina adversely affected labor market conditions

in September. However, we cannot quantify precisely the overall effects of the disaster and its aftermath on the September employment and unemployment figures. We hope to get additional insight

as more data becomes available.

Of course, my colleagues and I would now be glad to answer any

of your questions.

Representative Saxton. Thank you very much, Mr. Rones.

[The prepared statement of Mr. Rones appears in the Submissions for the Record on page 19]

Representative Saxton. Senator Reed was delayed by a vote in

the Senate this morning, so he has asked that he be granted some

time here to give his opening statement. So we will proceed with

your opening statement.

5

OPENING STATEMENT OF HON. JACK REED, RANKING

MINORITY, A U.S. SENATOR FROM RHODE ISLAND

Senator Reed. Thank you, Mr. Chairman, very much. Again I

apologize. We had a vote on the defense appropriations bill, which

is something that no one can miss.

Thank you again, Mr. Chairman. This is a very important hearing because it is our first look at the jobs data that begins to reflect

the impact of Hurricane Katrina. I want to commend Deputy Commissioner Rones and all of the members of the Bureau of Labor

Statistics for producing this month’s employment statistics under

truly extraordinary circumstances. Thank you very much.

Obviously, this month’s employment report is dominated by the

devastating impact of Hurricane Katrina on the gulf coast. The

human costs were tragic and the property losses staggering. For

the economy as a whole, the net job losses in September were

35,000. That is substantially below what markets were expecting,

which may reflect the difficulty we face in getting a clear picture

of the impact of the hurricane on employment.

We don’t know what this month’s employment report would have

looked like without Katrina, but we do know that prior to Katrina,

the labor market was still feeling the effects of the most protracted

job slump in decades. The growth in payroll and employment since

job losses peaked in May 2003 has been modest by the standards

of most economic recoveries, and we haven’t seen very many

months of truly healthy job growth.

Although the unemployment rate has come down, it is still considerably higher than the 4 percent rate achieved in the expansion

of the 1990s. There is evidence of hidden unemployment, with labor

force participation and the fraction of the population with a job still

at depressed levels.

And finally, of course, there is the disappointing performance of

wages. The typical worker’s earnings are not keeping up with their

rising living expenses. Gasoline prices have been high, and home

heating costs are expected to be substantially higher this winter

than they were last winter. The real wage gains we have seen in

the past year or so have been concentrated in the upper reaches

of the wage distribution, while real earnings in the middle or lower

portions of the distributions are falling.

I am troubled by the fact that President Bush wasted little time

exercising his power to lift a Federal law governing workers’ pay

on Federal contracts in the hurricane-ravaged areas. That provision, known as the Davis-Bacon Act, requires Federal contractors

to pay the prevailing or average wage in the region. According to

the Department of Labor, the prevailing wage for construction

labor is about $10 an hour in New Orleans, where last year the

overall poverty rate was about 2 percentage points higher than the

national average, and 25 percent of children lived in poverty.

It is certainly hard to take seriously the President’s rhetoric

about wanting to lift families out of poverty while legitimizing subpar wages for workers rebuilding their communities on the gulf

coast. The Davis-Bacon wage protection for workers should be restored immediately.

The American economy is resilient and forecasters expect that reconstruction efforts in the wake of the gulf hurricanes will stimuVerDate 03-FEB-2003 11:31 Mar 02, 2006 Jkt 025154 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 D:\JEC\25154.TXT SSC2 PsN: SSC2
6

late the recovery in jobs from the depressed levels we see in this

month’s job report. I hope they are right. But I also hope that

President Bush knows that many American workers do not feel

they are part of the economic recovery. That was reflected in the

Conference Board’s consumer confidence index which dropped by

17.9 percent last month, its largest decline since October of 1990,

and the University of Michigan’s index of consumer sentiment,

which posted its largest drop since December 1980. Economic insecurity is not just growing, it is becoming palpable.

I look forward to Deputy Commissioner Rones’ statement and

further discussion of the September employment situation. I thank

the Chairman for allowing me these words. Thank you.

Representative Saxton. Thank you, Senator.

[The prepared statement of Senator Reed appears in the Submissions for the Record on page 50]

Representative Saxton. Mr. Rones, when I received word of

the announced data this morning, I was somewhat surprised. I anticipated that there would be significant loss of employment due to

the hurricanes, which I believe goes without saying, actually occurred. Yet we saw a loss of employment nationwide of only 35,000

jobs which is, as I noted earlier, statistically insignificant.

The question is this: If we lost hundreds of thousands of jobs,

then what accounts for the mild, statistically insignificant measure

of job losses?

Mr. Rones. The best way to look at the job loss is not just looking at that net loss of 35,000. It is really looking at the difference

between that and what we would have normally expected to get

based on recent trends.

A simple calculation of that tells us that we were about 230,000

below the normal trend. That is probably a better measure of the

hurricane effects. We also have to keep in mind that there were

quite a number of particularly larger companies that continued to

pay people. So even though those people were displaced from their

jobs, by our definitions they were still employed because they were

still on employer payrolls. Clearly, we are seeing a substantial hurricane effect in our data.

Representative Saxton. And while we are seeing a substantial

hurricane effect, what could be said about the job growth picture

or job loss picture nationwide?

Mr. Rones. What we were able to do is run our employment

data, leaving out the establishments from the hurricane-affected

area. So basically we are looking at what happened in the rest of

the country as kind of a baseline. In fact, the employment grew

right on trend, roughly 200,000 or so for the month of September,

which was pretty much what we were getting before the hurricane.

Representative Saxton. Is the level of September payroll employment statistically different from that of August?

Mr. Rones. The level is not. That is, the decline of 35,000 is not

statistically significant. Again, in this special circumstance, I would

look at it differently. I would say that compared to what we would

have gotten—and again our estimate for the rest of the economy

gives us a good foundation for that—we were about 230,000 down.

A change like that would clearly be statistically significant.

7

Representative Saxton. The same could be said about the

household employment levels?

Mr. Rones. The household employment is essentially unchanged.

Representative Saxton. Does the data reported today suggest

that the underlying trend in job growth continues, if one were to

set aside the temporary effects of the hurricane versus a follow-on

to my original question?

Mr. Rones. Yes. I think that is definitely the case. I think that

is what we see in the remainder of the country, a continuation of

recent trends.

Representative Saxton. Were you able to see any data that

give any insight into the continuing effects of the hurricanes in the

region affected?

Mr. Rones. Certainly in the employment data that we have on

hand, we see effects across the industry range. When we get the

State data, which will be available in 2 weeks, we will have a much

better view of the geographically isolated effects.

We were able to take a cursory look at the firm-specific data in

this region, and clearly we are seeing disemployment effects across

the industry range.

Representative Saxton. Have you been able to look at it on a

state-by-state basis—I suspect that Louisiana and Mississippi were

the States with the most difficult situation—and talk a little bit

about that for us?

Mr. Rones. Again, the official data for the States won’t be available for 2 weeks. The State analysts have spent some time reviewing all the data for their States specifically. But from our national

sample, we are able to take a cursory look at the State data. Again,

it is clear that the weakness is isolated in those States. I am talking specifically about our payroll employment data.

Representative Saxton. Could you highlight industry data in

today’s report that seem to have been significantly affected by the

hurricane?

Mr. Rones. When we do that exercise where we look at the rest

of the economy, that is, geographically, the rest of the Nation, as

compared to the hurricane-affected areas, we see declines across

the board. Some of things that show up in the national statistics

that I talked about in my statement would be, for instance, the leisure and hospitality industry might be partly a result of that.

On the flip side, some of the growth in temporary help might be

the first signs that some temporary workers are on duty in Louisiana and Mississippi doing some of the recovery work.

Representative Saxton. Thank you. One more question. Have

you noticed on an industry-by-industry basis the effects on the oil

and gas extraction industry?

Mr. Rones. Let me get those numbers for you.

Representative Saxton. Sure.

Mr. Rones. Employment in oil and gas extraction was up 1,000.

That may be partly due to the payment status of employees, even

on those rigs that were closed, many of those people may have been

paid.

Representative Saxton. So you don’t really know whether that

1,000 gross is a real number or whether it is because people have

just remained on payrolls?

8

Mr. Rones. Right. It doesn’t necessarily reflect how many people

are actually on duty. What it does reflect is their payment status.

Representative Saxton. Thank you. Mr. Reed.

Senator Reed. Thank you very much, Mr. Chairman.

And again, Commissioner Rones and your colleagues, you are

doing an exceptional job under very difficult circumstances, and I

thank you for that.

I just want to probe, if I could, some of the methods you had to

adopt to come up with these statistics and see what biases might

be included in that approach. As I understand it, businesses that

did not respond to the payroll survey were treated as having zero

employment. What bias might that lead to in terms of over- or

undercounting?

Mr. Rones. The businesses that would have been treated that

way are just those in the most affected areas: The places that were

under water, the places that were evacuated, the places that had

extreme damage. So our assumption was that those people were

not working, even if we didn’t get a report. It seemed like quite a

reasonable assumption. We didn’t carry that assumption to the remainder of the disaster counties or other areas in those States. So

while the bias from that would be a potential upward bias, we did

as much as we could to contact those firms. If we were unable to

do that, we tried to actually get secondary sources, even through

the Internet, as to whether those companies were working or

whether they were paying their employees. So despite the potential

bias that you mentioned, I think we were probably able to do a

pretty good job of estimation.

Senator Reed. Going to a related issue, there are some businesses that were keeping people on the payroll at least temporarily, although there was no work because of the conditions in

their company. And those workers might not ultimately go back to

work, but at least in the short run they are being kept on the payrolls.

That could understate the negative job impacts of the storm, and

that is another potential bias. How have you tried to deal with

that, Commissioner?

Mr. Rones. We have maintained our concepts, so in these data,

we are reflecting the payroll status. What you will see is, in coming

months, those effects will show up. As an example, we have had

some announcements from some of the government entities in the

New Orleans area, where they have kept people on payrolls, that

they will cut back. So we will pick that up in future months.

Senator Reed. So in this situation, these numbers will potentially get worse as companies who, in the immediate shock of the

storm, maintained employment, now are realizing they can’t, and

New Orleans is a good example?

Mr. Rones. It will definitely go both ways. At the same time

that people are being let go because their companies or the government agencies can’t pay them anymore, other companies will be

coming back on line as their electricity comes back and services are

restored. So how that washes out, it is hard to predict. But there

will be factors that go both ways.

Senator Reed. Now, with respect to the household survey, you

indicated very clearly that you could not conduct interviews in JefVerDate 03-FEB-2003 11:31 Mar 02, 2006 Jkt 025154 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 D:\JEC\25154.TXT SSC2 PsN: SSC2
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ferson and New Orleans Parish. And the procedure to make up for

that lack of information was to survey in other parishes?

Mr. Rones. No. What we did in our household survey was basically keep with our normal estimation procedures. And it doesn’t

work particularly well for this disaster because the way it works

is, other people who did report end up representing those who

didn’t.

In the payroll survey, we were able to make reasonable assumptions about the status of people. We talked about if a firm is shut

down in a disaster area that is under water, we can say that they

weren’t employed. That is a reasonable assumption. But the household survey concepts make it difficult for us to do that. So if you

lost your job down there, how are we going to classify you next

month? Are you unemployed? Well, we don’t know whether you are

looking for work because we don’t know where you are. And you

have to be actively looking for work to be classified that way.

Chances are many of those people at the time of the survey

would have been out of the labor force; that is, they were taking

care of family business or taking care of household problems. They

were not actively looking for work. They were not available for

work. And finally, others may have viewed their job loss as temporary, so they expect to be recalled. Under our concept, those people would have been employed.

So we just had no good basis to simply assign a labor force status

for the people that we didn’t get information for.

Senator Reed. So for the household survey, you are much less

confident about the accuracy versus the payroll survey?

Mr. Rones. I think that is a fair statement. What I would suggest, though, for those who are interested in unemployment, is to

look at the unemployment insurance claims data. Now, normally

we would say that the claims are far more restrictive a concept

than our total unemployment. That is always the case.

But the Department of Labor has expanded its eligibility requirements for people who might not otherwise have qualified for unemployment insurance. And, in fact, what we see is, that leading up

to the hurricane we had weekly claims of about 320,000 each week,

and it was pretty stable. If you look at the last 4 weeks, the Department of Labor data showed that claims have been at least

300,000 higher than we would have expected. And so that is a reasonable gauge of unemployment, probably a better gauge than we

can get from our household surveys.

Senator Reed. And with that gauge, what would be the unemployment rate—do you have it off the top of your head?

Mr. Rones. Well, if there was an increase of 300,000 in unemployment, it would raise the rate two-tenths

Senator Reed. So that number would be 5.3?

Mr. Rones. Well, we are reporting 5.1, but we are probably picking up some of that unemployment. So perhaps it could have gone

up a tenth, but that is speculation on our part.

Senator Reed. Let me just quickly turn to another issue. I know

this is an employment hearing, but the BLS also is collecting price

information. One of the questions that the Chairman alluded to is

the effect of the storms not just on employment in the energy sector, but on energy prices. It is my assumption and presumption

10

that energy prices were accelerating well in advance of Katrina,

and I would sense—I would ask if that is accurate.

And second, what is your notion of how Katrina will affect these

energy prices overall.

The final point, how will that contribute to the CPI? If you have

any thoughts.

Mr. Rones. I will ask Dr. Greenlees to answer that.

Senator Reed. Thank you.

Dr. Greenlees. Well, on the question of whether energy prices

were accelerating prior to the hurricane, that is certainly correct.

The most recent data in the Consumer Price Index, which is our

most broad measure of inflation, are for August. We will publish

the September CPI data on October 14th.

But through August of this year, energy prices facing consumers

have been increasing at a seasonally adjusted annual rate of 25.7

percent. So that is significantly higher than in recent years.

On the question of whether increases will result from the hurricane, we don’t have a direct method of determining any subsequent

increase in energy prices or gasoline prices in the CPI that would

be attributable to the hurricane as opposed to anything else. We

wouldn’t be doing that sort of analysis. But the question is, do we

expect to see further energy price increases? Well, the answer

would be, again, yes.

There are data for September that are published by the Energy

Information Administration of the Department of Energy that suggest that there have been significant increases in gasoline prices

during September. And we would expect those to show up in the

Consumer Price Index. The weight of gasoline, for example, in the

CPI is such that if, for example, there was a 10 percent increase

in gasoline prices, that would raise the CPI by about five-tenths of

a percent by itself.

Senator Reed. Thank you very much, Dr. Greenlees. Thank you

very much, Commissioner.

Representative Saxton. Senator, I can’t resist the opportunity

to follow up on Senator Reed’s last question and Dr. Greenlees’ remarks. I think the hurricane situation has demonstrated full well

the vulnerability that this country faces in terms of its energy supply and disruptions in the energy supply.

It seems to me that while we are going to vote on the energy bill

later today, that we continue to ignore the basic elements of finding

other ways, through creativity and using different types of science,

to develop efficient ways to fuel our economy, literally fuel our

economy—other than petroleum. It is a frustration to me to have

watched this go on over these many years and for our bills that we

are considering today—which I don’t intend to vote for—continue

along the same lines when, in fact, technology exists to get us away

from petroleum.

I would just say to my companions here on the dias, you may

check out a couple of bills that I have introduced that I call ‘‘Set

America Free’’ legislation, which would move us toward alternative

fuels. It would move us toward biofuels. It would move us in transportation toward hybrid automobiles. Again, these technologies already exist. They are already being produced. We are just not

using them.

11

Mr. Paul.

Representative Paul. Thank you, Mr. Chairman. I have just

one brief question. So far today, we have heard that the hurricane

is very important in affecting the unemployment statistics. We talk

about other events like 9/11 and oil shocks and how this will affect

the economy and unemployment.

I am wondering if any of you give consideration to monetary policy and its effect on the business cycle, and thus affecting the unemployment rate? How often do you take that into consideration,

and do you consider it very important issue?

Mr. Rones. We have a strict rule in the Bureau of Labor Statistics that we avoid policy analysis so that you can be in a position

where you can trust that the statistics and the analysis that we

put out are unbiased. So on that basis, I would say that I really

don’t have an opinion on the effect of monetary policy on employment.

Representative Paul. So you are saying you don’t have an

opinion that monetary policy could have on it? I am not saying

what the effect is or what monetary policy you should advocate, but

do you think there is a connection?

Mr. Rones. As a trained economist, I would certainly grant you

that there is a potential effect of monetary policy on the economy.

Representative Paul. Thank you.

Representative Saxton. Thank you. Ms. Maloney.

Representative Maloney. Thank you, Mr. Chairman, and I intend to look at your ‘‘Set America Free’’ bill. I agree with you completely that we should be moving to hybrid cars and alternative energies. We should have done it a long time ago. So I may be joining

you in that effort.

I am very concerned, Mr. Rones, about the reports of the growing

gap between the haves and the have-nots. This is not good for anyone. I just would like to ask what has happened to the average

hourly earnings of wage and salary workers since the economy finally started to create jobs in May of 2003; and, specifically, has

the increase in wages over that period been less than the increase

in the cost of living?

Mr. Rones. The average hourly earnings of production workers

rose from 15.31 in May 2003 to 16.15 in August 05. Those are seasonally adjusted figures. That is an increase of 5.5 percent. So over

the same period, the CPI rose by 7 percent.

Representative Maloney. So wages have really lagged far behind the growth in productivity over the past 4 years, would you

say?

Mr. Rones. We have certainly experienced strong productivity

growth in recent years. Output per hour in our nonfarm business

sector rose more than 14 percent from the second quarter of 2001

to the second quarter of this year. Over the same period, the average hourly earnings for production workers rose by 10.7 percent, so

definitely less than the increase in productivity.

Representative Maloney. Is that an unusual trend? Productivity increases so much over wages?

Mr. Rones. In the long term, there tends to be a relationship between productivity and wages. In relatively short periods of time,

you can see them going in directions that aren’t consistent with the

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long-term trend. So I would say it is unusual, but it is not typical

of the long-term trend.

Representative Maloney. The Bureau of Labor Statistics publishes data on the usual weekly earnings of full-time workers, including some information about the wage distribution; is that correct?

Mr. Rones. That is correct. That comes from our household survey.

Representative Maloney. Our staff has calculated that from

the fourth quarter of 2000 to the fourth quarter of 2004, median

earnings have increased by just .2 percent per year after inflation.

Does that seem about right to you?

Mr. Rones. Yes, that is very close. I think our calculations for

that period are .15 percent, which could round to .2, so that is

about right.

Representative Maloney. Over that same period, hasn’t there

been widening inequality, with growth at the top of the distribution

but a decline at the bottom?

Mr. Rones. So over that same 4-year period that you asked

about in the previous question, the way we look at this is we look

at deciles. You take the earnings distribution of the population and

break it into tenths. So if we look at the ninth decile, which is the

highest earners, their earnings went up 13.7 percent over that period. If you go to the bottom end of the distribution, it is somewhat

less; it is 8.5 percent.

Representative Maloney. Quite a bit less. Hasn’t that inequality gotten worse in the most recent four quarters, with the real

growth only at the top, the 90th percentile, and declined elsewhere;

and the largest decline at the very bottom, the tenth percentile?

Mr. Rones. Over the past year—so the most recent data we are

looking at would be the second quarter. Over that year, weekly

earnings at the ninth decile—again, those are the highest earners—are up about 3.1 percent in nominal terms. Earnings at the

first decile are up just 1 percent.

So given that the CPI is up 3 percent over that period, we would

say that in the ninth decile there is a very, very slight increase in

real earnings, where at the bottom of the distribution there is a decline in real earnings.

Representative Saxton. Thank you very much.

Ms. Sanchez.

STATEMENT OF HON. LORETTA SANCHEZ,

A U.S. REPRESENTATIVE FROM CALIFORNIA

Representative Sanchez. Thank you, Mr. Chairman. Thank

you, gentlemen, for being before us.

I have several questions and they go along two lines. One, I

would like to talk a little bit about what is going on with Katrina,

if you can; and secondly, just overall, what I see looming on the horizon for the economy and things that are worrying me.

If you were a victim of Katrina, where would you go—where

would you go to file unemployment? I mean, were there—could you

go if you were a refugee in Texas and do that? So have you seen

any of the real impact on people who are—I know that you said

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that some people stayed employed, like with the city. But yesterday

the city announced half of its workers would go off.

So I am wondering about the logistics so we can figure out when

we will really see the impact of something like Katrina.

Mr. Rones. I think we are seeing the impact, because one of the

first things the Department of Labor did was to make sure that the

people in the area had a way to file for unemployment insurance

benefits.

There were special grants given to the affected States to increase

their capacity to accommodate this flow of claimants. The Department of Labor has contracted for—I think it is 150 counselors—to

work at employment centers, not only in Louisiana, Alabama, Mississippi, but in all the States surrounding it that got substantial

numbers of refugees, to help people in their transition to jobs in

those areas. I think that is a system that worked pretty well.

When I say that the unemployment insurance claims were more

than 300,000 above what they would have been under a normal situation, that would be a substantial portion of the people who are

displaced from jobs.

Representative Sanchez. You know, I am also worried about

this prevailing wage rollback by the President. The biggest reason

is, of course, people who are used to making $18 or $36 an hour

now may make $8 or $9 an hour. How do you think that will affect

these people?

Have you guys looked at the prevailing wage reduction in a construction area like that? I ask this question because I am assuming

that with the Federal moneys coming in, that construction will at

some point start to pick up in that area and we will see a significant number of new jobs created because of rebuilding after

Katrina. But what I have seen in my particular area is people

maybe not being unemployed but being underemployed. In other words, they used to have a $36-an-hour job with benefits and now they have two part-time jobs, one at $7 an hour and one

at $8 an hour, neither of which carry benefits.

Would you anticipate that type of a situation given that—a very

basic pillar called prevailing wage in the construction industry may

go away in Katrina?

Mr. Rones. I wouldn’t comment on the policy decision to waive

the Davis-Bacon.

Representative Sanchez. I am asking in your economist role,

what would you anticipate would happen there with underemployment?

Mr. Rones. What I would say is we have a lot of experience with

measuring the effects of worker displacement. Typically it is for

other reasons. As a supplement to our household survey, every 2

years we look at worker displacements, and what we find is that

it is not unusual for people who lose jobs, for any reason—and I

would include the hurricane in that context—to take a considerable

amount of time to find work, and for those who find work to find

work at lower wages. So that is a fairly typical impact of worker

displacement.

What we also find is many people, maybe even the majority of

people, relatively soon after displacement, are able to get jobs that

are comparable to their original jobs.

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Representative Sanchez. But in this particular case, the Federal Government is pretty much lowering the mandate, so people

probably won’t find comparable jobs. If you are a carpenter who

used to make $36 an hour, I think it is going to be very difficult

for you to go back into the same arena and make those $36 an hour

now that the prevailing wage has been undone by the President,

wouldn’t you say?

Mr. Rones. I wouldn’t phrase it that way because of our different roles. But I understand that you are saying that there will

be a reduction in the pay rate for jobs in the construction industry.

We will wait to measure that in our surveys and to see what the

effect is.

One thing we do know is that employment pay rates are subject

to the laws of supply and demand. There will be an unprecedented

demand for construction labor in that area. Again, economic theory

would tell me that that would tend to drive up the prevailing

wages in that area.

Representative Sanchez. So you think it is going to go above

the prevailing wage rate?

Mr. Rones. No. I am saying that when you have an increase in

demand of that magnitude, economic theory would tell you that

wages tend to go up.

Representative Sanchez. I know my time is up——

Representative Saxton. Excuse me——

Representative Sanchez. I would like to just put on the record

that the President has, in fact, lowered the prevailing wage rate.

He is hoping that the cost per hour will come down.

Representative Saxton. Mrs. Sanchez, if you could please summarize, if you haven’t already.

Representative Sanchez. Mr. Chairman, let me repeat what I

just said. President Bush, I think, has lowered the prevailing wage

rate because it is his hope that people will make less per hour

when they go in these construction jobs. That is the whole reasoning behind lowering the prevailing rate. Thank you.

Representative Saxton. Mr. Rones, thank you for being with

us this morning. We appreciate it very much.

I was interested in the comment that you made. It occurred to

me about the same time when Ms. Sanchez was asking her question, that with the population in the area dispersed the way it is,

and workers in that population dispersed, who would like to go

back home, and with the amount of reconstruction or construction

that there is to be done, certainly the demand for labor will increase. It would be very difficult to discern what effect that would

have on the cost of labor in the area, given the fact that we know

that there is going to be a high demand and given the questions

involved in where the labor is and whether there will be an adequate supply of labor. So it could very well be, as you suggest, that

the cost of labor could increase.

Mr. Reed.

Senator Reed. Mr. Chairman, I don’t have a question. I believe

neither does Ms. Maloney, but I think Congresswoman Sanchez

has a question.

Representative Saxton. We are not going to have a second

round. We are going to let Mr. Rones go. Thank you for coming this

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morning. We appreciate very much your participation and we look

forward to seeing you in the months ahead.

Mr. Rones. Thank you very much.

[Whereupon, at 10:24 a.m., the committee was adjourned.]

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