```

[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

                                                   S. Hrg. 102-000 deg.

ROUNDTABLE ON PRODUCTIVITY: ARE WE MAKING AS MUCH PROGRESS AS WE THINK 
                                WE ARE?
                                   

=======================================================================

                               ROUNDTABLE

                               before the

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                    WASHINGTON, DC, FEBRUARY 4, 2004

                               __________

                            Serial No. 108-F

                               __________

         Printed for the use of the Committee on Small Business

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                                 ______

                   U.S. GOVERNMENT PRINTING OFFICE
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      ENI FALEOMAVAEGA, American Samoa
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             GRACE NAPOLITANO, California
TODD AKIN, Missouri                  ANIBAL ACEVEDO-VILA, Puerto Rico
SHELLEY MOORE CAPITO, West Virginia  ED CASE, Hawaii
BILL SHUSTER, Pennsylvania           MADELEINE BORDALLO, Guam
MARILYN MUSGRAVE, Colorado           DENISE MAJETTE, Georgia
TRENT FRANKS, Arizona                JIM MARSHALL, Georgia
JIM GERLACH, Pennsylvania            MICHAEL MICHAUD, Maine
JEB BRADLEY, New Hampshire           LINDA SANCHEZ, California
BOB BEAUPREZ, Colorado               BRAD MILLER, North Carolina
CHRIS CHOCOLA, Indiana               [VACANCY]
STEVE KING, Iowa                     [VACANCY]
THADDEUS McCOTTER, Michigan

                  J. Matthew Szymanski, Chief of Staff

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

PATRICK J. TOOMEY, Pennsylvania      [RANKING MEMBER IS VACANT]
Chairman                             JUANITA MILLENDER-McDONALD, 
STEVE CHABOT, Ohio                   California
MARILYN N. MUSGRAVE, Colorado        ENI F. H. FALEOMAVAEGA, American 
JIM GERLACH, Pennsylvania            Samoa
BOB BEAUPREZ, Colorado               DANNY K. DAVIS, Illinois
TRENT FRANKS, Arizona                DENISE L. MAJETTE, Georgia
JIM DeMINT, South Carolina           JIM MARSHALL, Georgia
CHRIS CHOCOLA, Indiana               MICHAEL H. MICHAUD, Maine

                     Joe Hartz, Professional Staff

                                  (ii)

                            C O N T E N T S

                              ----------                              

                              Participants

                                                                   Page
    Manser, Ms. Marilyn, Ph.D., Associate Commissioner, Office of 
      Productivity and Technology, Bureau of Labor and Statistics     3
    Cooper, Ms. Kathleen, Ph.D., Undersecretary for Economic 
      Affairs, Department of Commerce............................     8
    Price, Mr. Lee, Research Director, Economic Policy Institute.     8
    Tonelson, Mr. Alan, Research Fellow, U.S. Business and 
      Industry Council...........................................    10
    Lee, Ms. Thea, Assistant Director for International 
      Economics, Public Policy Department, AFL-CIO...............    11
    Yudken, Mr. Joel, Ph.D., Sectoral Economist and Technology 
      Policy Analyst, Public Policy Department, AFL-CIO..........    13
    Rosenblum, Mr. Larry, Chief, Division of Major Sector 
      Productivity, Bureau of Labor and Statistics...............    14
    Huether, Mr. David, Chief Economist, National Association of 
      Manufacturers..............................................    15
    Beach, Mr. William, Director, Center for Data Analysis, The 
      Heritage Foundation........................................    17
    Marron, Mr. Donald, Ph.D., Executive Director & Chief 
      Economist, Joint Economic Committee........................    18
    Duesterberg, Mr. Thomas, Ph.D., President & CEO, 
      Manufacturers Alliance.....................................    19
    Kosters, Mr. Marvin, Ph.D., Director, Economic Policy 
      Studies, American Enterprise Institute.....................    21
    Utgoff, Ms. Kathleen, Ph.D., Commissioner, Bureau of Labor 
      and Statistics.............................................    21

                                 (iii)
      

 
ROUNDTABLE ON PRODUCTIVITY: ARE WE MAKING AS MUCH PROGRESS AS WE THINK 
                                WE ARE?

                              ----------                              

                      WEDNESDAY, FEBRUARY 4, 2004

                  House of Representatives,
                                Committee on Small Business
                                                   Washington, D.C.
    The committee met, pursuant to call, at 2:09 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
[chairman of the committee] presiding.
    Present: Representatives Manzullo, Kelly, Gerlach and 
Velazquez.
    Chairman Manzullo. First I would like to thank the 
participants for coming today to this round table, even though 
it is square. This is really a continuation of a long, formal 
discussion we had a couple of months ago.
    This is a major issue that I am not sure many folks really 
understand, the issue of productivity. When the government 
releases its productivity numbers, we tend to have a very high 
level macro understanding of what the numbers are supposed to 
mean. We need the government to define and explain 
``productivity'' and how it is calculated.
    A common argument is that productivity increases are 
primarily due to improvements in technology and more efficient 
process. To a great extent that is true, and while we accept 
that principle, sources in the tooling industry indicate that 
only about one-quarter of the total productivity increases can 
be attributed to new machinery and faster processes. The more 
efficient processes is a code for offshoring of labor.
    When I hear about an increase in productivity, I also hear 
about companies that are moving operations overseas, both 
manufacturing and white collar jobs associated thereto. There 
seems to be a link, so it begs the question what do the 
official indicators of productivity really mean, and what 
factors are included in making that determination.
    I think our productivity is going to be increased by 
somebody turning the air conditioning on here. I do not know 
quite what is going on.
    We need to know this in light of what we are seeking with a 
lack of jobs across the skilled spectrum.
    I will ask the government panelists to go first and 
describe how they come up with this data and how it is used. 
Then we will open up the floor for discussion. This is intended 
to be an open, free flowing discussion, but to maintain order 
if you could just raise your hand and wait until I call on you 
before making your comments?
    We obviously are joined by our Ranking Minority Member 
here, Congressman Velazquez, and also by my Illinois neighbor, 
Bill Lipinski. If the two of you want to have a brief opening 
statement, then we could get right into the meat of the topic.

    Ms. Velazquez. I do not have an opening statement.

    Chairman Manzullo. Okay. Bill, did you have anything you 
wanted to say?

    Mr. Lipinski. I just want to say I appreciate very much, 
Chairman Marzullo and Ranking Member--

    Chairman Manzullo. It is Manzullo. Marzullo was the 
alderman from Chicago.

    Mr. Lipinski. Well, the problem really is is that all these 
years you have been pronouncing it and spelling it incorrectly. 
If it was Vito Marzullo, that has to be the way because Vito 
never made a single mistake in his entire life.
    Getting back to what I was saying before I was so rudely 
interrupted and corrected there by the Chairman, I simply want 
to say that I appreciate very, very much what Don Manzullo is 
doing in this area and what Ranking Member Velazquez is doing 
in this area. I think it is an enormously important subject. It 
is something that has to be addressed. Unfortunately, I do not 
think it is being addressed by enough people in this country.
    I am trying to do as much as possible in this area, but 
certainly the Chairman and the Ranking Member of this committee 
are in a much greater position than I to really accomplish 
something, so I salute you. I congratulate you. I thank you 
very, very much for holding this round table and all the other 
work that you have done pertaining to American manufacturing.

    Chairman Manzullo. Thank you, Congressman Lipinski.
    Congressman Kelly, did you have an opening remark?

    Ms. Kelly. I have no statement.

    Chairman Manzullo. Okay. Thank you.
    The first presentation would be from BLS, Bureau of Labor 
Statistics. Who would be speaking? Marilyn? Okay. Go ahead.

  STATEMENT OF MARILYN MANSER, BUREAU OF LABOR AND STATISTICS

    Ms. Manser. I want to begin to thanking Congressman 
Manzullo and the committee for inviting us to this round table.

    Ms. Kelly. Could you please pull that microphone closer to 
you? You are not being picked up.
    Chairman Manzullo. Thank you, Sue.
    Ms. Manser. Now can you hear me?
    Chairman Manzullo. Much better.
    Ms. Manser. I want to thank Congressman Manzullo and the 
other Members of the committee for inviting us to this round 
table today. The measure of productivity and the interpretation 
of what the productivity numbers are telling us is certainly an 
important issue today.
    We have a handout that I am pretty sure everyone here at 
the table has at least. I do not know if everyone in the room 
has one. I will be talking through that handout.
    Chairman Manzullo. Could you hold that up? Is it this?
    Ms. Manser. It is Manufacturing Productivity Measurement.

    Chairman Manzullo. Thank you.

    Ms. Manser. I want to begin with just a little bit of 
perspective on the productivity picture. Productivity growth 
during the recession from the first quarter of 2001 through the 
fourth quarter of 2001, as well as productivity growth during 
the first seven quarters since the trough, has been higher than 
previous comparable periods.
    Explanations for these facts we think should cover the 
entire period starting with 1990 because in fact we really saw 
an upswing in productivity growth starting in 1990 compared to 
the preceding period.
    In terms of manufacturing, we also see a strong 
acceleration of productivity growth during the 1990s, and that 
strong acceleration has continued during the last recession and 
the current recovery. To summarize what I am going to be 
showing with some of our data, the rate of outsourcing of goods 
and services for manufacturing was steady during the 20 years 
ending in 2000 and as a result does not appear to be 
responsible for the productivity speed up during that period.
    Now, by outsourcing for manufacturing to other sectors we 
are including both outsourcing from the manufacturing sector to 
businesses in other sectors of the U.S. economy, as well as 
offshoring because we cannot separate those two kinds of 
effects in the data, but they have the same sort of impact on 
the measures.
    We produce a family a productivity measures. There are 
three key measures of productivity that one can look at. I 
talked about these when we met with Congressman Manzullo and 
some of the others here today in December, and I will be 
talking about what the data show in a minute.
    If you want to pull out the table I am going to be talking 
about and sort of look at it side-by-side, it is two slides 
behind the Manufacturing Productivity Measures slides.

    Chairman Manzullo. Is that Table 1?

    Ms. Manser. That is Table 1.

    Chairman Manzullo. This one here?

    Ms. Manser. Right.

    Chairman Manzullo. Thank you.

    Ms. Manser. Okay. So sectoral output per hour is the 
measure on the left-hand side of that table. Sectoral output 
per hour is defined as the real value of shipments leaving an 
industry, including the value of intermediate inputs, divided 
by hours at work. This is the measure that we are able to 
produce on a current quarterly basis.
    Value added output per hour is the measure that is in the 
third column here, and value added output per hour is sectoral 
output--that is the output measure in the first column--less 
the real value of intermediate inputs per hour of work. We have 
these data through 2001. The data for 2002 are just 
extrapolated based on the sectoral output measure.
    Multi-factor productivity is a more comprehensive view, we 
think, of productivity. It is the series that is in the middle 
of that page. In multi-factor productivity, the output measure 
is the same as in the first column, sectoral output, but it 
uses a broader measure of inputs.
    Rather than comparing output growth to the growth of labor 
hours, it compares output growth to the growth of inputs, of 
hours worked, capital services, energy, non-energy materials 
and purchased business services. Those series presently go only 
through 2000. We will be publishing measures through 2001 next 
week.
    Okay. Now, what is the effect of outsourcing on 
manufacturing measures? We get the same output through 
outsourcing or offshoring, and we cannot distinguish them, but 
what is the effect on the measures?
    Well, on sectoral output per hour, and I think this is the 
point that some of you may have been concerned about. If there 
is offshoring or outsourcing, sectoral output remains 
unchanged, assuming the same final good is still being 
produced, while hours, measured hours, those hours used here in 
the U.S., fall. This could in theory lead to a substantial rise 
in productivity as measured by the series. Whether that happens 
empirically is a different question, but in theory you could 
get that effect.
    Value added output per hour is the measure in the third 
column, and when we are looking at value added output per hour 
or productivity measured that way if there is offshoring or 
outsourcing, both the value added output fall and the hours 
fall, leading to not much of a change in productivity measured 
on that basis.
    In fact, the only effects that we really would get in that 
type of a productivity measure arise from differing 
productivity growth rates of outsourced production from the 
remaining production in the U.S. and new production that may 
take place; really compositional effects.
    In the multi-factor productivity measures, as I already 
stated, sectoral output will remain unchanged if there is 
outsourcing or offshoring, but in this case the input measure 
will also change. Labor hours will fall, but purchases of 
outsourced intermediates will rise. In some, this will lead to 
a modest effect on measured multi-factor productivity growth 
because the productivity of outsourced production may differ 
from that of the remaining production.
    In practice, as we look at the pattern of productivity 
change in these three measures for the period through 2000 
where we have data available for all of them, the pattern of 
productivity trends and the story we get about strong 
productivity growth is the same on all three measures.
    In fact, sort of counter to the possibility that the 
sectoral output per hour measure could be somewhat overstated 
compared to the value added output per hour measure as a result 
of growing use of intermediates, that is actually not what we 
see in the data through 2000. We actually see the reverse; that 
the value added output per hour measure actually grows a little 
bit faster than the sectoral output measure, and that is 
because output is growing very strongly compared to the growth 
of intermediates.

    Mr. Price. What accounts for that difference? Why would the 
value added not be faster than the shipments made?

    Ms. Manser. It is faster. Why? Because intermediates are 
not growing as fast as the other components of output growth, 
as multi-factor productivity and capital inputs.

    Chairman Manzullo. Lee, if you could--

    Ms. Manser. Right. I actually will be saying a little bit, 
I think maybe make that point a little bit clearer in just a 
minute.

    Chairman Manzullo. Let me let the folks with the official 
stats go first because I want to lay the predicate here and 
then open it up for further comment and questions. I have tons 
of questions, but I am going to withhold them until we can make 
the presentations with the official data and then work from 
there.

    Ms. Manser. Right. Okay. Before I talk about the data in 
the following table, I want to just reiterate and expand a 
little bit on the definition of multi-factor productivity. That 
is the next page of the handout.
    As stated already, multi-factor productivity compares 
outputs to inputs. It compares output to input of hours, of 
capital services, of intermediate purchases of non-energy 
materials, intermediate purchases of energy and intermediate 
purchases of business services.
    Outsourced and imported inputs are included in the 
intermediate inputs, but they cannot be explicitly identified 
in the data. Within this framework, we can account for labor 
productivity growth as the sum of multi-factor productivity 
growth and the contributions of shifts in the mix of inputs. 
That is what we see on the next table, which is Table 2.
    To walk through this table, let me begin by looking at the 
period 1973 to 1990. I might say a little bit about the choice 
of periods. These are the periods that analysts of productivity 
growth often compare. We are looking at peak to peak changes. 
1973 was a business cycle peak, as was 1990.
    1995 was not a business cycle peak, but we often like to 
look at the first part of the 1990s compared to the later part 
of the 1990s because during the 1990s we saw an unusual 
situation where productivity growth picked up in the latter 
part of a long cycle, and that is not the pattern of 
productivity change that we usually see in long business cycles 
so it was a somewhat surprising number when we first started 
observing that in the data.
    Okay. Returning to the first column, for the period 1973 to 
1990, labor productivity grew at an average annual rate of 2.6 
percent, and that 2.6 percent equals multi-factor productivity 
growth, which was 0.5 percent, quite low during that period, 
plus the effects of input deepening, so during that period the 
increased use of materials outsourced from the manufacturing 
sector to other sectors, whether other sectors in the U.S. or 
overseas, that increased use of materials relative to hours at 
work contributed an average of one percent a year to labor 
productivity growth during that period.
    The increased use of business services, purchased services 
from outside the manufacturing sector relative to hours worked, 
increased 0.4 percent on average through that period, so they 
were contributing strongly to labor productivity growth during 
that earlier period.
    Looking now at the period 1990 to 1995, we see a strong 
pickup in labor productivity measured on this sectoral output 
concept, which is our preferred concept, a productivity growth 
of 3.3 percent per year, and that equals multi-factor 
productivity growth of 1.3 percent.
    We also had a strong increase in multi-factor productivity 
plus the effect of input deepening, but the contribution of 
increased use of materials relative to labor hours and 
increased use of business services relative to labor hours was 
about the same during the first part of the 1990s as it was 
during the 1973 to 1990 period.
    What that means is that during that period increased 
outsourcing was not responsible for the pickup in labor 
productivity growth. This was contributing to productivity 
growth, but not contributing to the acceleration of 
productivity growth. The same thing is the case for the latter 
part of the 1990s. The effect of input deepening is roughly the 
same as in the earlier two periods, while labor productivity 
and multi-factor productivity grew even faster.
    These are the data that are the source of the statement we 
make on the second page of the handout where we basically say 
that the rate of outsourcing of goods and services for 
manufacturing to other sectors was steady during the 20 years 
ending in 2000. It was really 27 years. As a result, this 
outsourcing does not appear to be responsible for the 
productivity speed up up through the year 2000.
    I want to make just a few remarks about the effect of 
outsourcing and offshoring in the quarterly non-farm business 
labor productivity measure. This is the quarterly labor 
productivity measure that is most widely watched because it 
refers to the entire non-farm business sector in the U.S.
    In this measure--

    Chairman Manzullo. Marilyn, how are you doing on time? I do 
not want to take away from your presentation, but I--

    Ms. Manser. Almost done.

    Chairman Manzullo. Okay.

    Ms. Manser. Next to the last slide.

    Chairman Manzullo. There are some people here that are 
ready to pounce on you.

    Ms. Manser. Okay.

    Chairman Manzullo. I just want to give them the 
opportunity. Go ahead.

    Ms. Manser. Okay. Output for non-farm business, like gross 
domestic product, is measured by delivery--

    Chairman Manzullo. What page are you on there?

    Ms. Manser. Nine. Page 9.

    Chairman Manzullo. Nine? Thank you.

    Ms. Manser. Output for non-farm business, like GDP, is 
measured by deliveries to final demand. By definition, there 
can be no intermediate inputs in this definition. It is, if you 
will, a value added type measure.
    Imported goods and services to consumers reduce output 
dollar for dollar, so in this measure output and input are 
really not affected by outsourcing, and the effect of 
outsourcing and offshoring on productivity comes from 
compositional effects, which are likely to be fairly modest.
    To wrap up and conclude, the data show that the 
productivity speed up has been ongoing since 1990. Since 1979, 
outsourced materials and purchased business services 
contributed about 1.5 percent per year to sectoral output per 
hour growth in manufacturing. Actually, that trend started in 
1973.
    Outsourcing can explain little of the manufacturing 
productivity speed up through 2000. The productivity data 
cannot specifically identify the effect of offshoring 
separately from domestic outsourcing, and non-farm business and 
value added manufacturing labor productivity are only modestly 
affected by outsourcing or offshoring. This happens through 
compositional effects.
    That is all I have to say.

    Chairman Manzullo. Thank you.

    Ms. Manser. My colleagues and I will be happy to answer any 
questions.

    Chairman Manzullo. Okay. Dr. Cooper, did you have a 
presentation you wanted to make?

      STATEMENT OF KATHLEEN COOPER, DEPARTMENT OF COMMERCE

    Ms. Cooper. I do not have a presentation. I just want to 
say BEA, the Bureau of Economic Analysis, which produces the 
numerator part of this measure, is comfortable with all that is 
done there with regard to how it feeds into the productivity 
numbers.
    We do not have a representative from BEA here today. I am 
here instead, but I would say that we are also comfortable with 
the measurement issues that BLS has put together and that 
Marilyn has talked about.
    I just want to emphasize that, as she did mention, around 
the middle of 1995 or thereabouts we did see a sizeable upturn, 
as we all know in this room, in productivity performance in the 
U.S. economy, and I think what is interesting and important for 
those of us who follow the economy and its progress, what is 
interesting for us to take note of is at the very same time and 
continuing today not only did productivity accelerate, 
essentially doubling the pace of growth that was experienced 
from that period 1973 to 1995 that you defined, that Marilyn 
defined, but at the same time we have seen an acceleration of 
comparable magnitude in real compensation of workers.
    That is what this is all about. This is about higher 
productivity bringing on higher wage gains and higher standards 
of living.

    Chairman Manzullo. That will evoke a lightning strike from 
one of the Members here.

    Ms. Cooper. I am sorry?

    Chairman Manzullo. That will evoke a lightning strike.

    Ms. Cooper. I am sure it will, but I think it is good to 
get it out there and talk about it.

    Chairman Manzullo. I appreciate that.

    Ms. Cooper. That is why we are here to discuss it today.

    Chairman Manzullo. That is right.

    Ms. Cooper. It is nice to be here. Thank you for inviting 
me.

    Chairman Manzullo. Let us open it up to questions, 
comments, interchange of ideas. This is free flowing. All I 
would ask is that you state your name and which group you are 
with, if any, and speak directly into the microphone.
    Go ahead.

       STATEMENT OF LEE PRICE, ECONOMIC POLICY INSTITUTE

    Mr. Price. I am Lee Price. I am from the Economic Policy 
Institute.
    When the calculations of multi-factor first started in the 
1950s, one of the first researchers talked about what that 
measure was, which is really a residual, as a measure of our 
ignorance. It is not a measure of something that we know what 
it is.
    When you look at Table 2 and look at the period 1973 to 
1990, you see multi-factor productivity going up five-tenths. 
What we measured was labor output in manufacturing relative to 
hours in manufacturing as going up 2.6. The question is how do 
we account for that?
    If there is more capital being used, that could account for 
it; more materials being used, that could account for it. When 
you did all of those things, you accounted for most of it. You 
are only left with a residual that you could not explain of 
five-tenths.
    Now we go forward to the most recent period of 2.1, and 
that is an increase in our level of ignorance by 1.6 percentage 
points. That matches up against the labor productivity increase 
of 2.6 to 4.3, so 1.7. We got a 1.7 acceleration in 
manufacturing output per hour, and the things we used in 
materials, business services, energy and capital do not account 
for but one-tenth of that.
    What we can account for, our ignorance, is the biggest part 
of it. I think we know of a number of trends going on in the 
economy that make it plausible that we have problems in the way 
we are measuring those things. We have offshoring.
    This stops in 2000, but we know just from the published 
statistics that BEA gives us that we have lost half a percent 
of GDP, unusually so in a recession. In the last three years, 
CBO calculates we have lost half a percent of GDP per year and 
dragged from the widening trade deficit in real terms. That is 
offshoring of production for supply here in large measure.
    Another part is when we do offshoring of services it is not 
clear that we have very good measures of what is happening on 
the services side. As she has said, we have materials going 
up--that would be the components would show up there--and 
business services, but I am really puzzled with a measure that 
says that business services, outsourcing from the business 
sector, slowed down in the 1995-2000 period. I think it is 
implausible that it slowed down further in the last few years.
    What we do know, though, is the other BLS statistics that 
do take us up to the third quarter. In that respect, output in 
the four quarters ended in the third quarter was up by 4.4 
percent. I am sorry. Productivity was up 4.4 percent, but 
output was down by 0.4 and hours were down by 4.7 percent, so 
in the most recent year there was a big drop in hours. They are 
capturing in the official statistics what a lot of us hear from 
the general public; that they are not getting hours.
    The manufacturing output is shrinking, and the hours are 
shrinking even faster. That shows up also in the December jobs 
numbers. Between the end of 2002 and the end of 2003, December 
to December, we went from 15 million to 14.5 million. Almost 
all of that was in production workers.
    We have had a huge drop in just the last year in the number 
of people employed in the manufacturing sector. That has been 
faster. We had a decline. I am not sure what the 12 month 
change in manufacturing production has been, but it is pretty 
close to flat even as we have had this big contraction in 
hours.
    I think when you talk about the multi-faction numbers 
stopping in 2000, there is reason to believe that since 2000 
there has been a shift towards outsourcing of both components 
and of services.

 STATEMENT OF ALAN TONELSON, U.S. BUSINESS AND INDUSTRY COUNCIL

    Mr. Tonelson. Thank you. Thank you, Mr. Chairman. My name 
is Alan Tonelson. I am with the U.S. Business and Industry 
Council, and we represent predominantly small and medium sized 
manufacturing companies.
    I would just like to make two points fairly briefly. One, 
it is good to hear an acknowledgement that the productivity 
figures do not distinguish between offshoring and outsourcing 
at home.
    At the same time, that failure to distinguish between these 
two business trends is very important and would suggest that 
there are some serious limits to the ability of these numbers 
to shed light on what has been concerning a great many of us in 
recent years, and that is the health of the American based 
manufacturing sector, as opposed to the health, for example, of 
multi-national industries or all multi-national companies that 
use offshoring to increase productivity.
    That is awfully interesting. I certainly want to know that, 
but I am much more interested in the health, by whatever 
measure you choose, of the U.S. based manufacturing complex. 
When productivity rises because of offshoring, that not only 
does not tell me anything about the health--again, whatever 
measure you want--of the U.S. based manufacturing complex. It 
can produce a somewhat misleading figure.
    The second point that I would like to make is that we know 
or we should know that there has been a very substantial 
increase in the imports of intermediate goods into this economy 
in recent years. There is a handout in front of you all that 
shows increases in import market share for about 90 categories 
of major industrial products. One set goes from 1992 to 1996. 
One set goes from 1997 to 2001.
    I had to break them up because we changed over in terms of 
measuring industrial output in the annual survey of 
manufacturing from the SIC system to the NAICS system, so 
precise comparisons are hard, but we do see very substantial 
rises in imports in the market share in the U.S. market of 
imported goods, including many, many categories of intermediate 
goods since 1992.
    We see that the outsourcing of this production has been 
very substantial. Again, I do not mean to be critical of the 
federal government, for at least at this point perhaps the 
state of the art simply does not permit us to distinguish 
between the two kinds of outsourcing that we are faced with, 
but I hope that we could acknowledge that as a result of that 
inability to make this distinction there are some serious 
limits in the light that these productivity figures shed on the 
health of the U.S. based manufacturing sector, not U.S. owned 
firms. The U.S. based firms doing manufacturing in this 
country.

    Chairman Manzullo. Thea, go ahead.

                 STATEMENT OF THEA LEE, AFL-CIO

    Ms. Lee. I just wanted to make a couple of broad points 
about what the numbers mean and what we think they mean and 
maybe sort of what we need to think in terms of the future and 
how we look ahead.
    Obviously, as Ms. Cooper said, the reason we care about 
productivity growth is that this is the basis for non-
inflationary wage growth and so it is very, very important to 
us, but we do see I think certainly in the last couple of years 
a gap between productivity growth and the gains that workers 
are getting.
    I think it is important for us to really make sure when we 
talk about productivity that we are talking about a measure 
which intuitively makes sense to us and that is going to be 
sensible to move forward. Measures take a long time to change. 
As Lee said, multi-factor productivity started a few decades 
ago, but it takes a long time to fix them.
    Certainly to the extent that offshoring of the inputs, as 
Alan shows, is a growing trend, that it may be the case that 
this is not responsible for some of the growth in productivity 
in the recent term, but it may be in the future. If so, I think 
it is important that we think about how we might revise these 
numbers as we look to the future.
    I think most Americans, when they see productivity growth, 
are thinking about companies being more efficient, using 
technology better, workers working harder. They are not 
thinking about buying huge amounts of imported inputs and 
artificially in some sense inflating productivity through that. 
I do think it is something that needs to be taken into account.
    I guess there is another question that goes to the points 
that Lee was raising too about how much confidence do we have 
in the numbers and the difference between, for example, 
outsourcing domestically, as Alan said, and importing product.
    The quantity of labor that is contained in those two 
different things may be very, very different. The input/ output 
figures that we are using that we calibrate the productivity 
numbers with, are those keeping up with the changes, with the 
offshoring and the very, very different production functions 
possibly, very, very different labor/capital input ratios that 
may be used in other countries due to very, very different 
relative prices of inputs.
    I guess those are some of the questions that I hope maybe 
we will get to later on today, but just as we think about the 
numbers, the productivity numbers, certainly the sectoral 
output per hour, it seems to me that is a number that does not 
represent what we want it to represent, which is the 
productivity of workers, how hard they are working with what 
kind of technology to the extent that imported inputs will 
alter that number. It is just I think a common sense problem.

    Chairman Manzullo. Before we go to Joel, did anybody have a 
response to that? It is not necessary.

    Ms. Manser. I would just say I guess just--

    Chairman Manzullo. Marilyn, could you pull that closer to 
your mouth? Thank you.

    Ms. Manser. Just a few points. I think we do think and this 
follows up a little bit on what Lee was saying, that multi-
factor productivity is probably the measure that we would most 
like to be able to highlight because it is the most 
comprehensive measure, and it does take account of all the 
substitution inputs. Unfortunately, the data lags badly in 
terms of--

    Chairman Manzullo. Is there a reason for that? It just 
comes in real slowly?

    Ms. Manser. Right. It is because you have to rely on data 
sources that just cannot be collected and processed that fast.
    We do see, and this is what Table 1 showed, that we have 
historically, up to at least the year 2000 we have seen the 
same trends and the same story about productivity acceleration 
and strong productivity growth coming from the quarterly 
sectoral output measure as we see from the multi-factor 
productivity measures.
    In terms of the data that we have to date, I do not think 
we really can say that the sectoral output measure is not 
giving us a good picture of whether we are having acceleration 
or not.
    It, of course, talks about productivity. What we think of 
as multi-factor productivity is what we often think of as 
changes as productivity changes in technology, better 
organizational structures, economies of scale, things that 
really increase our ability to produce output with the same 
inputs.

    Chairman Manzullo. Joel?

    Ms. Manser. That is what multi-factor productivity tells us 
and why we think that is a good measure, but we cannot, 
unfortunately, say what that is going to look like for the last 
two years.

    Mr. Price. Is that not just a surmise? I mean, multi-factor 
productivity--

    Chairman Manzullo. Let me go to Joel.

    Mr. Price. Okay.

    Chairman Manzullo. Joel, go ahead.

    Mr. Yudken. Lee, do you want to finish your point?

    Mr. Price. There are a lot of things that multi-factor 
productivity could be. We would like to think that they are 
better technology, better organization, but we do not know 
that. It may be poor measurement of the other things as well. 
We cannot really distinguish.
    I am not challenging your effort to try to get the best 
measures you can, but if we have poor measures of inputs those 
would show up. The effect of that would show up in multi-factor 
productivity.
    If we have understated the material input by poor 
measurement, that would show up as higher multi-factor 
productivity just as well as better technology.

    Ms. Manser. That is correct. That is correct. Just to make 
one point in terms of what the story and the picture of 
productivity is, though, and how things change, Lee was making 
the point that multi-factor productivity was very low from 1973 
to 1990 and, you know, has sped up and is it possibly a 
question of mismeasurement or a question that we do not 
understand what is going on, but the issue used to be why was 
productivity growth so low in 1973 to 1990.
    If you look at the figures, multi-factor productivity grew 
1.5 percent from 1949 to 1973, so what we have really seen is a 
return to the higher measure of productivity growth that we had 
for earlier years in the first part of the 1990s and then a 
speed up beyond it in the latter part of the 1990s.

    Chairman Manzullo. Joel?

    Mr. Yudken. Yes.

    Chairman Manzullo. State your name and position. Name, rank 
and serial number.

    Mr. Yudken. I do not know what my serial number is.

               STATEMENT OF JOEL YUDKEN, AFL-CIO

    Mr. Yudken. I am Joel Yudken. I am with the AFL-CIO Public 
Policy Department.
    I have one technical question that I am grappling with 
understanding, which in the end we are talking about some 
equation with a bunch of terms which you are all trying to 
measure each one separately. I think the problem we have is 
that there could be a lot of methodological issues and problems 
with actually what they mean and how we collect them.
    I have three more general questions, and I will try not to 
be too long. The first technical question is I was trying to 
grapple with the equations you use, which you do provide in 
your various documents and which show the relationship of the 
labor productivity to the multi-factor and all the other 
components.
    It looks like labor productivity is additive of multi-
factor plus these other components. Is that right?

    Ms. Manser. Productivity growth.

    Mr. Yudken. Trying to calculate them, you get into using 
natural log relationships and quotients, which my math is not 
what it used to be. It has been a long time, and so I am not 
sure. You use weights, and the weights are related to the cost 
of the factors, the relative cost.
    Here is the question, because I am just asking. I really do 
not know. It is just a suggestion here. Those weights, can they 
not be part of the mystery here that we are trying to fathom 
here in terms of when you start offshoring some of your 
activity and they come back as part, they are cheaper than they 
would have been in they were produced here.
    Therefore, would that not in fact lessen the component part 
of materials in your measurement relative to what in fact it 
would have been, let us say, if it was produced here, but 
outside or incorporated? Maybe you can explain a little bit. I 
do not know.

    Chairman Manzullo. Larry, did you want to take that 
question?

    Mr. Rosenblum. Yes.

    Chairman Manzullo. If you could hand the mike down? Again, 
state your name for the record.

  STATEMENT OF LARRY ROSENBLUM, BUREAU OF LABOR AND STATISTICS

    Mr. Rosenblum. Larry Rosenblum, Bureau of Labor Statistics.
    The answer is that yes, it would, but if they are buying 
less expensive inputs then presumably there is an efficiency 
gain that is going on through doing that. In fact, if they 
are--excuse me. I do not want to speak technically.
    If they are operating as efficiently as they can, they will 
alter their production so that the value of the cost of the 
goods equals its value in production, so it should fall. That 
is correct.

    Chairman Manzullo. That is presuming the price goes down on 
the completed item.

    Mr. Rosenblum. No. Just for the intermediate that they are 
now buying from overseas.

    Chairman Manzullo. All right.

    Ms. Lee. Just a quick followup in terms of the word 
efficiency. You know, if you are buying the goods from overseas 
and they are cheaper, you can say they are produced more 
efficiently. It is also the case that they may be produced in a 
way that damages the environment or where workers are treated 
very badly.

    Mr. Rosenblum. And they may not actually be produced more 
efficiently. I mis-spoke. They are simply cheaper.

    Ms. Lee. Right.

    Mr. Rosenblum. Now, the firm that buys them presumably is 
going to equate marginal cost in production in a way that will 
alter their mix of how they produce things in a way that the 
value share of material should in fact fall and reflect changes 
in the marginal products of other inputs. Yes, they should 
fall, to answer to your question.

    Mr. Yudken. Would that not mean that this--

    Chairman Manzullo. Joel, could you talk into the mike more 
directly, please?

    Mr. Yudken. This 1.1.0. If you had a significant growth of 
offshoring inputs, could that not in fact be understated here?

    Mr. Rosenblum. If you are assuming that firms are operating 
competitively, then price is equal to value of marginal 
products.
    Now, I am not going to get into the issue about whether 
firms are operating competitively or foreign markets are 
competitive. That is beyond my pay grade, so to speak, but in a 
competitive market--

    Mr. Yudken. In theory.

    Mr. Rosenblum. --in theory the lower price should reflect 
its value.

    Mr. Yudken. It should balance in some way, but I guess that 
is an open question. I have three other points, but I will--

    Chairman Manzullo. David, did you have a comment you wanted 
to make or a question?

      STATEMENT OF DAVID HUETHER, NATIONAL ASSOCIATION OF 
                         MANUFACTURERS

    Mr. Huether. Yes. Hi. I am Dave Huether, chief economist at 
the National Association of Manufacturers. We represent 
manufacturers of every size, every industry here.
    This has been a concern of a lot of our members in talking 
about this, about outsourcing. I guess one of the questions I 
have is that one of the things that I think we need to address 
and to find out is if this is a structural event going on or is 
this a cyclical event that has been caused by some external 
forces such as U.S. competitiveness in manufacturing.
    I know that you look at inputs of manufactured products and 
you look at that as a share of domestic production. It has gone 
up very much since 1997. In 1997, imports of manufactured 
products were about 14 percent of production. Now it has gone 
up about 50 percent. It is at 32 percent now.
    I know Alan was mentioning earlier that to an extent it is 
very difficult to ascertain how much of this is imports of 
capital goods, how much of it is consumer goods, how much of it 
is intermediate products, but I think that another thing to 
really kind of investigate is how much this has to do with the 
strong value of the dollar which occurred during the late 1990s 
and made imports extremely inexpensive.
    U.S. firms, since they had no pricing power, were seeking 
the lowest cost possible. Now we have all seen that the dollar 
has come down in the last year or so, so the question is 
whether or not this trend is going to continue going forward.
    The other point I kind of would like to make is that a lot 
of discussion with respect to productivity ends up becoming 
discussion about jobs in the United States. While I think 
productivity definitely has--

    Chairman Manzullo. It took us 40 minutes to get there.

    Mr. Huether. Yes. --an impact on jobs, looking at that is 
really looking at half the equation in the sense that you need 
to look at productivity growth, as well as output growth in the 
manufacturing sector.
    There is one constant really that has been going through 
the manufacturing sector for about 50 years, and that is if you 
look at when output growth in the manufacturing sector rose 
faster than the productivity growth, manufacturers had 
employment, and when productivity grew faster than output 
manufacturers reduced employment.
    This has been true in every year since 1950 except three 
years, so I think when we look at what has been going on in the 
last three years, especially the last two years since 
``recovery'' began, we really have to look at why, even though 
productivity has been trending a little higher, but what has 
kept manufacturing recovery in terms of output growth so 
sluggish, which has kept manufacturers from seeing demand 
increase enough to begin to regain employment.
    I think that when all is said and done, talking about 
productivity growth and whether or not this measure is off a 
little bit here or there, I think when we think about what is 
going to drive the employment numbers back up in manufacturing 
is going to be the domestic international conditions that are 
going to make manufacturing production start to begin to 
outpace manufacturing productivity.

    Chairman Manzullo. Alan?

    Mr. Tonelson. I just wanted to make a quick point about the 
import levels and how they bear on the question of whether this 
growing import dependence is mainly structural or mainly 
cyclical.
    What my figures show, and this is not the trade deficit. It 
is very important to understand that because the trade deficit 
is an increasingly inadequate measure of the real effects of 
trade on employment and living standards in this country 
because so much trade today consists not of finished goods 
being traded back and forth between one producer and one 
customer.
    For example, Boeing makes an airliner and sells it to Air 
France. Perhaps 40 or 45 percent of all global trade today has 
nothing to do with that. It is the constant flow of 
intermediate goods and inputs of various kinds around the world 
within the production chains and outside also the production 
chains of multinational companies.
    Trade deficit is helpful in some regards certainly, but 
really limited. The market share numbers show you how were U.S. 
based producers performing head to head, whether they are U.S. 
owned or foreign owned, versus producers overseas. What these 
figures show is that the market share losses began well before 
the dollar run-up of the mid 1990s.
    I wish I could find data going back before 1992. I have not 
found it. If anybody knows where it is, please tell me. I can 
only find it back to 1992. This predates the dollar run up 
which began in 1995.

    Chairman Manzullo. Bill Beach? Go ahead.

      STATEMENT OF WILLIAM BEACH, THE HERITAGE FOUNDATION

    Mr. Beach. Yes. My name is Bill Beach. I am from the 
Heritage Foundation at the Washington Think Tank, one of the 
few organizations at this table that cannot be outsourced, 
though I am sure there are some who wish we could be 
outsourced.

    Chairman Manzullo. Just wait. There are a lot of economists 
in India.

    Mr. Beach. Indeed. Indeed. It is a coming phenomenon. I 
will be back on the other side of this issue, I am sure.
    Let me just say a couple of things, Mr. Chairman, just to 
add to this discussion, which is fascinating and highly 
constructive. Productivity measures, as Lee has pointed out so 
skillfully, have been a controversial issue for a long time.
    Now, a lot of the discussion that we are having in the 
policy community and you are having as policymakers turns on 
numbers. Unfortunately, you have some very difficult numbers 
you have to work with. Let me suggest that if you cannot work 
directly with the numbers there, as my colleagues from BLS will 
no doubt affirm, what you can do is look at the other side.
    We have not talked about consumers today. One of the things 
that productivity, high gross productivity, should be doing is 
raising the quality of standards, the quality of goods, 
lowering prices. Those are the things that are sort of the 
mirror of productivity, the returns to capital and returns to 
labor, as Secretary Cooper had pointed out. We should be 
looking at increasing wages.
    If you cannot find multi-factor productivity as a 
comfortable concept or cannot measure it well, then you can 
look at these other things. I think the committee would be well 
served to do so. Life of capital goods in service.
    Another thing which has only been mentioned a couple of 
times, and I really do hope we do mention consumers more, but 
another item. This is not the first time this Congress has had 
this discussion about outsourcing. It seems to me, and I have 
been doing this a long time, that we come to this issue almost 
every time we have a recovery after a recession. We begin to 
think about all those jobs that are going overseas.

    Chairman Manzullo. My District's unemployment is at 11 
percent.

    Mr. Beach. Indeed. Indeed.

    Chairman Manzullo. That does not include the four factories 
that have announced they are closing down, so we are not 
exactly dancing in the streets in Rockford, Illinois.

    Mr. Beach. Well, that is right. That is my point. Every 
time we come to a recovery--that is we have just gone through a 
recession--we come through a point in the early stages of that 
recovery where we have this discussion because we are concerned 
about, A, high unemployment that is not coming down the same 
way the other numbers are going up, and outsourcing that has 
occurred.
    I was working for one of the governors of Missouri back in 
the early 1980s. We had just gone through a very severe 
recession. We had 18 percent unemployment in certain parts of 
the state. I will close on this. The discussion that this 
governor was having with the folks in St. Louis was what to do 
with the Brown Shoe Company.
    The Brown Shoe Company at that time wanted to relocate very 
badly, and there was a great deal of political pressure brought 
on Governor Ashcroft to keep the company in the state, along 
with Zenith Television.
    Well, the decisions were made just not to resist that 
desire to go overseas, but instead to put the emphasis of the 
state on retraining those employees so that in fact Brown could 
go to Brazil, Zenith could go to Mexico, could produce at 
higher margins as they wanted to do, and those employees would 
be retrained to better paying jobs.[The information follows:]
    Chairman Manzullo. Let us go to Don Marron.

      STATEMENT OF DONALD MARRON, JOINT ECONOMIC COMMITTEE

    Mr. Marron. Thank you, Mr. Chairman. I am Donald Marron. I 
am the staff director of Congress' Joint Economic Committee.
    I am just revisiting some of the comments I heard earlier. 
I want to make sure that going back to the issue of how you 
measure productivity that we not ask of productivity the wrong 
question. I think in just sort of a traditional economic 
framework, productivity is a measure of how much Americans, if 
we are focusing on America, can produce per hour of their work 
using whatever means possible.
    It might be innovations in technology. It might be the 
recognition that they can import certain services from other 
countries. It might be the recognition many decades ago that we 
could import oil from other countries.
    Productivity is really about just using everything at our 
disposal, how can the American worker produce as much as 
possible or what is the measure of how much they can produce, 
so I am hesitant to say or to allow it to be said that the 
measures of productivity we have at the moment are artificial. 
I think for what they are being asked to measure--

    Chairman Manzullo. Are official?

    Mr. Marron. Artificial. Sorry.

    Chairman Manzullo. Artificial.

    Mr. Marron. I heard some people say we may be experiencing 
artificial improvements in productivity because of the 
opportunity to outsource, and I think in reality if you are 
asking productivity, how can we produce stuff using whatever 
means are at our disposal, importing or outsourcing is one of 
those means, and productivity is a fair reflection of the 
average productivity, the average stuff that is produced by the 
American worker.
    Now, I share Alan's concern that you need metrics for how 
the American manufacturing sector is doing, and I would submit 
that output and jobs would be the first two natural things to 
look at and that they would give you a good metric for thinking 
about how things are going.
    As you know better than I in the manufacturing sector, 
output has done quite well over the long run, but has had a 
difficult time with the recent recession and the very slow 
recovery for a variety of reasons which we could get into. Jobs 
have had a less good time in part because of rapid advances in 
productivity.
    Those are I think reasonable metrics to look at when asking 
about how manufacturing is doing. I just want to make sure we 
do not ask the wrong question of productivity and invest in 
perhaps coming up--well, it would be difficult to come up with 
a different productivity measure I think. That is not the most 
productive way to go.
    Rather than saying we have productivity measures; they look 
at what the average output of American workers is. That is the 
right thing to ask of them. There may be some interest in some 
sort of measure that is the state of technology if that is what 
people have in mind by sort of the layperson's notion of what 
productivity is.
    I think total factor productivity is the measure that comes 
the closest to that that we have today, but, as Lee rightly 
points out, it is residual, and it is very, very hard to 
measure.

    Chairman Manzullo. Thank you. Tom?

   STATEMENT OF THOMAS J. DUESTERBERG, MANUFACTURERS ALLIANCE

    Mr. Duesterberg. Thank you, Mr. Chairman, and I want to 
thank you for convening this very useful discussion.
    At the risk of changing the subject, I want to make two 
comments. One, with regard to productivity and the effect of 
outsourcing, we have done a little bit of work through 
Manufacturers Alliance and--

    Chairman Manzullo. Tom, pull that in closer. Could you? 
Thank you.

    Mr. Duesterberg. We have done a little bit of work which 
collaborates what Marilyn Manser reported about the effects of 
outsourcing on productivity. We think it has very little 
impact, although we have a sense that probably there is a 
little bit more outsourcing, an uptick in outsourcing over the 
last six or eight years, which I think is probably obvious.
    The second point I would make is that these discussions 
always convert to jobs, you know, and I am very aware of the 
situation around your area because a lot of my members are from 
Rockford, Illinois.
    What we think, and this responds to one of Dave's points 
about whether or not this is a cyclical or a secular question. 
We did some work jointly with NAM to try to look at the cost 
side of the equation as a way to get at whether or not there 
has been a secular change in the competitiveness of American 
manufacturing.
    I think we have all heard anecdotally that various forms of 
costs, such as health care costs, have been rising fairly 
rapidly. There has been an uptick in health care costs the last 
few years ago, so the actual cost of labor--

    Chairman Manzullo. Now, that is part of productivity is the 
cost of health care. It increases, but that is reflected in it.

    Ms. Cooper. It pushes productivity.

    Mr. Rosenblum. Right. I mean, it changes the cost of labor, 
but it does not affect productivity directly except as, of 
course, firms may want to outsource or reduce their labor, 
whatever.

    Chairman Manzullo. Tom, go ahead.

    Mr. Duesterberg. We did some work trying as best we could, 
as much as the data will allow, to compare the costs of 
manufacturing in the United States versus the nine leading 
trading partners of the United States.
    If you look just as unit labor costs, raw unit labor costs, 
which are wages, basically wages alone, the United States is 
reasonably competitive. Their costs are lower than places like 
France and Germany, surprisingly close to even South Korea.
    When you add in costs, and we looked at five categories--
taxes, employee benefits, including health care, tort costs, 
natural gas costs, which have doubled in the United States or 
more, as you know, in the last few years, and certain forms of 
regulatory costs.
    We found that we added over 22 percent to the cost of labor 
in the United States, so this is one reason that you have seen 
an explosion in productivity because firms just have to try to 
do better with the labor that they have in order to compete.
    It also suggests that maybe we should pay a little bit of 
attention to that side of the equation, the cost side of the 
equation. That is what we are really interested in.

    Chairman Manzullo. Marvin?

   STATEMENT OF MARVIN KOSTERS, AMERICAN ENTERPRISE INSTITUTE

    Mr. Kosters. Thank you, Mr. Chairman. I am Marvin Kosters 
at the American Enterprise Institute, and I would like to raise 
a question about something that has not been mentioned.
    There are lots of data sources around, and our data system 
is really very rich. Both the Department of Commerce and the 
Department of Labor are very forthcoming about the data and how 
they are used, but sometimes when there are multiple sources of 
data questions arise about possible inconsistencies and about 
which is the more accurate measure of one thing or another.
    I think in particular of the input side here, the labor 
measurement, particularly in view of recent trends that have 
one measure of our labor, but growing more rapidly than another 
measure.
    It raises questions in my mind, and I realize they are 
defined differently and so on, but the questions it raises in 
my mind are, one, how the two measures can be reconciled and 
whether the measure of labor input that is used in the 
productivity measurements primarily is more accurate or not 
than the other labor input measure.
    I would myself be curious about whether we have some 
information about that issue.

    Chairman Manzullo. Does someone want to try to respond to 
that?

    Ms. Utgoff. Yes. Let me try.

    Chairman Manzullo. Kathleen, if you could state your name 
for the record for the reporter?

  STATEMENT OF KATHLEEN UTGOFF, BUREAU OF LABOR AND STATISTICS

    Ms. Utgoff. Yes. Kathleen Utgoff, Bureau of Labor 
Statistics.

    Chairman Manzullo. Thank you.

    Ms. Utgoff. Marvin has pointed out something that a number 
of people have noticed, which is that the household series of 
employment has grown faster than the payroll series, and the 
issue is how do we do that in productivity.
    The productivity measures come from both series, from the 
basic data that is used for the payroll series, and it also has 
things like self-employment that come from the household 
series, so it is a mixture of both.

    Chairman Manzullo. Kathleen Cooper? Did you have something?

    Ms. Cooper. No. Labor is there.

    Chairman Manzullo. Let me just throw out a couple things 
here because we expect a series of votes around 3:15. Let me 
put a hypothetical here.
    If I have in the manufacturing process four firms--Firm A 
is located in Rockford, Illinois, which, by the way in 1981 led 
the nation in unemployment at 24.9 percent, so we have had some 
tough times there. Company A in Rockford and Companies B, C and 
D. A, B and C provide parts. Company D does engineering. This 
is all done in the United States, okay?
    Productivity increases at let us say just for the heck of 
it eight percent. That could be due to a lot of things. Faster 
machines. High-speed, hard-milling machines now are at 30,000 
rpm. Seven months ago they were at 13,000. I am sorry. Twenty 
thousand rpms. You can see it is a faster machine. It does the 
job faster, but we bring in more orders. Therefore, we have to 
add employees.
    That is going on now with Don Buzzacross, who has the first 
high-speed, hard-milling machine in the United States delivered 
from Japan. The machine tool is not made here. That is pretty 
easy to figure that one out what productivity is. It is a 
faster machine.
    Let me throw this out to you. If in the parts end of it 
Company A over here does the assembly and some manufacturing, B 
does manufacturing, and now you have Company C. All of a sudden 
instead of Company C in the United States, Company C is in 
China. That part now is made at 20 percent of what the cost of 
the part that was made by the company when it was in the United 
States.
    Are you with me at this point? Would that increase 
productivity? You are making the same product, only cheaper.

    Mr. Rosenblum. In the manufacturing sector, if you are 
using the sectoral output, which is the first definition we 
mentioned, sectoral output per hour--

    Chairman Manzullo. Right.

    Mr. Rosenblum. --it is true that output of those four firms 
or three manufacturing firms would remain the same. The hours 
would go away of Firm C that left and moved to China, and so 
sectoral labor productivity would rise.

    Chairman Manzullo. Okay.

    Mr. Rosenblum. Sectoral multi-factor productivity is likely 
to be largely unchanged except for a compositional effect if, 
for example, C was a very weak firm and by moving off seas the 
remaining firms were relatively strong, so you have a 
composition effect. You are left with two really good firms in 
the industry, and you got rid of the third one, but largely it 
would be unchanged.
    Now, finally with the value added output per hour that 
again would have very little change in productivity because 
both the output and the hours of Company C would decline in the 
measures. Again, you might have a composition effect if C is a 
relatively low productivity firm compared to A and B.

    Chairman Manzullo. Thea, and then Lee?

    Ms. Lee. I just had a quick point. We started talking about 
productivity gains being the basis for real wage gains. Now, 
the workers who are left behind are not likely to get a wage 
increase when Company C moves to China.

    Chairman Manzullo. Their company closed.

    Ms. Lee. Right. I mean the workers at Factory A, even 
though their output looks like it has gone up. I guess that is 
really one of the questions I want to raise. It goes I think to 
the point that Mr. Marron was making that there is really no 
difference. Your productivity can go up because you are using 
imported imports just as well, and that ought to be the 
measure.
    I guess my question is do we see the same basis for 
productivity gains to be translated into real wage gains when 
some of that productivity, some portion of it, is coming 
through imports rather than increased technology and harder 
work effort or even the most efficient plants being--

    Chairman Manzullo. Kathleen, do you want to try to tackle 
that?

    Ms. Cooper. I would simply say, and I am sure there are 
others who want to comment too, but I see no reason why if 
these firms, if the other firms that are left are doing better 
as a result of a stronger sector and more ability to pass on 
and earn higher profits, I do think that wage earners would end 
up ultimately--not immediately, but they would end up doing 
better longer term.
    In addition, we need to think about how the capital that is 
earned by the shareholders of the firm that went to China, how 
those shareholders redeploy that, reinvest it in the U.S. 
economy most likely, but potentially in a broader way.

    Chairman Manzullo. Lee, and then Joel? Microphone?

    Mr. Price. Just to modify your example a little bit, and I 
think it explains another phenomena that is going on. If you 
have the three component places and the engineering place, let 
us say they are all in the same company. They are 
establishments in the same company.

    Chairman Manzullo. The same company. Okay.

    Mr. Price. They ship out to a foreign source one of the 
three parts places. If the engineering place gets paid more, 
their average worker pay is higher than in the component 
production places. That will raise the value added measure.
    The manufacturing sector looks like it is, in Kathleen's 
terms, healthier. You have fewer workers in manufacturing. The 
average has gone up because the jobs that you have outsourced 
were lower paid than the engineering jobs that you kept.
    To the extent that we have had, and I think we have had, 
keeping more of the headquarters and engineering jobs here and 
shipping out the production jobs, that is going to raise both 
manufacturing productivity, but also the value added measure of 
productivity.

    Chairman Manzullo. Lee? I am sorry. Joel?

    Mr. Yudken. I wanted to bring back to the productivity 
measure in relating the multi-factor to the actual numbers you 
had.
    Aside from the methodological and some of the technical 
issues, we have been trying to raise some questions of whether 
or not we are measuring what we think we are measuring and 
whether or not there is--what you have talked about is what we 
had seen up until the year 2000.
    I was trying to play with the numbers, your own numbers 
here, and you can sort of see that after 2000 you just sort of 
have--

    Chairman Manzullo. Joel, where is that chart?

    Mr. Yudken. I just brought it with me. I was playing on my 
own computer here. I can give you a copy of this.

    Chairman Manzullo. Okay. Thank you. Go ahead.

    Mr. Yudken. This is the BLS data. I just took it off the 
tables today. This is the labor productivity indexed to 1992, 
starting everything at 1992. You see that the labor 
productivity continues to rise after 2000 at a fair clip.
    What you do see, though, is that the output starts to drop 
and then sort of stagnates. I mean, it starts to move up a 
little bit towards the end, which may be recovery we may be or 
may not be seeing.
    Labor hours dropped dramatically, which reflect in this 
curve here the employment, this sharp drop since 2000 in 
employment, which, of course, we are talking about employment. 
It is an important part of this whole issue.
    The problem is that in what you have measured and what you 
have talked about, assuming what we have seen over the last 
decade and before in part was in fact growing technology 
improvements, a changing in organizational structure, 
remanufacturing becoming much more prevalent. It is not just 
technology that produces efficiencies in organizational change. 
Other factors as well as maybe increasing steady outsourcing as 
part of that.
    Even assuming that up to this point there is a big, dark 
area about what has happened since 2000 where we have seen this 
sudden drop in hours, and we have seen a continued seeming 
surge in productivity, but output itself is rather shallow. 
That is also seen in their own bar chart.
    Again, you start seeing that you have a lot of drop in 
output in the last two or three years with the drop in hours. 
It is just a faster drop in hours, which could be that 
companies when they are in the downturn they start shedding 
jobs. They ask workers to work longer hours. A lot of other 
things happen that drive up productivity, but the output is 
lower because demand is lower because of the recession or 
whatever factors. There also could be a drop in the fact that 
they are moving stuff away.
    What I am trying to say is that there is this relationship 
that is unclear, and so far you do not have the multi-factor 
data to tell us one way or the other, assuming this additive 
thing is true, and whether or not the component of the 
materials and the outsourcing are still the same or whether 
there is a growing component there that we cannot measure.
    You know, if it is still the same, then what is explaining 
this continued growth and productivity? I guess I am just 
having a hard time believing, especially since we have seen 
this drop in output, that it is just about improved technology. 
Maybe that is there, but it seems that something is still not 
understood about what we are seeing in this productivity 
growth.
    Now, I just want to respond to one thing Donald mentioned 
because he was making the equation that productivity growth is 
responsible for the job loss. You know, that just simply is not 
true. Productivity in fact is not necessarily correlated with 
any job growth or job change at any particular time.
    Historically, and I think your own JEC document pointed 
that out, it has been associated with job growth. It has been 
used. I am just wrenching that because--

    Chairman Manzullo. No. This is great.

    Mr. Yudken. --the productivity numbers have been used 
recently to say well, that is what has caused the job loss.

    Chairman Manzullo. That is correct. That is one of the 
reasons why we had this here.
    Let me go to Lee, Don and then Alan. Go ahead.

    Mr. Price. You had your hand up.

    Mr. Marron. Okay. I would like to stipulate that Joel's 
interpretation of my position is correct regardless of what I 
may have said earlier.
    It is the case I think that sudden productivity 
enhancements can lead to short run dislocations which reduce 
jobs, which I think is the concern, but in the long run 
absolutely.
    I wanted to go back, Mr. Chairman.

    Chairman Manzullo. But could you defend that?

    Mr. Marron. Actually, I was going to use the example you 
gave earlier as an attempt to build on that.

    Chairman Manzullo. All right. Go ahead. I do not mean to 
use the word defend. This sounds like a doctoral thesis.

    Mr. Marron. Right. No. Your story was, and I will over 
simplify it slightly, Company C used to sell stuff to Company 
A, and now Company A buys it overseas.

    Chairman Manzullo. That is correct. From China at 25 
percent of the cost.

    Mr. Marron. So then we had the question about how that 
affects the productivity calculation, and I believe--I do not 
know the gentleman's at the end name, but--

    Mr. Rosenblum. Larry.

    Mr. Marron. Larry's description about what he 
characterized, I believe, as what you might think of as being 
the first order direct affect of that change, but that the 
overall affect on productivity is going to depend on what 
happens to those people who used to work at C because we have 
to account for where they go in the economy.

    Chairman Manzullo. I can give you the names of about three 
million of them.

    Mr. Marron. And also then what happens to Company A, 
because Company A is now more efficient and will presumably 
gain market share and sell more stuff. There will be some 
efficiency in the economy.

    Chairman Manzullo. We have the economic theories coming 
out.
    Let me see. Who is next? Alan?

    Mr. Marron. So Company A will probably expand and hire some 
more people, and maybe that will get some of the people from C. 
Maybe it will not. Some of the people in C will go into some 
other aspect of the manufacturing sector. Some of them will go 
into the services sector, and some for some time period will 
presumably unfortunately remain unemployed.
    I just want to have on the record for you the technical 
point that the ultimate effect on productivity is going to 
depend for those people who get re-employed what their 
productivity is in the new place that they land, and then sort 
of the beauty of the dynamic economy is that over time 
entrepreneurs say--I used to be one; I failed, which is why I 
am in government now.
    There are entrepreneurial folks out there who are looking 
for people to work with who will create new jobs in the future. 
I mean, I sense and feel the pain of the folks for whom this 
takes time and it is difficult, but the long run history of our 
country and many other countries is that over time the folks 
get re-employed in newer and better opportunities.

    Chairman Manzullo. Okay. Alan?

    Mr. Tonelson. I think Lee was. I think you actually called 
on Lee.

    Chairman Manzullo. Go ahead.

    Mr. Tonelson. I thought he had his hand up before I did.

    Chairman Manzullo. Okay. Go ahead.

    Mr. Price. There are a couple of arguments being made here 
that--

    Chairman Manzullo. Get closer to the mike, please.

    Mr. Price. Lee Price. There are a couple arguments being 
made here that I hear often and I think are misleading. One is 
to say that the reason that employment has not gone up with 
hours is because of productivity, but that is a tautology.

    Chairman Manzullo. Just a second. What Thea said was that 
one of the reasons given by some--

    Mr. Price. Right.

    Chairman Manzullo. --that jobs are not being created is due 
to productivity, if not the reason.

    Mr. Price. Right.

    Chairman Manzullo. Okay. Go ahead. Why is that wrong?

    Mr. Price. The reason that production has gone up and hours 
have gone down is because the ratio of the production to hours 
has gone up. By definition, that has to be the case.

    Chairman Manzullo. Okay.

    Mr. Price. The question is why has the ratio of output to 
hours worked or jobs gone up? There are multiple reasons for 
that, some of which may be the phenomena you are trying to 
question whether that is contributed to. How much of it is 
import sourcing of what used to be done here?
    I would say we do not have a good answer as to how much 
that has contributed, but it could be a significant part.

    Chairman Manzullo. Remember, BLS has, and Marilyn stated it 
very specifically. The productivity data cannot specifically 
identify the effect of offshoring separately from domestic 
outsourcing, so they are working within some very tight 
parameters.

    Mr. Price. Right.

    Chairman Manzullo. Alan?

    Mr. Price. Let me just make one other point.

    Chairman Manzullo. I am sorry.

    Mr. Price. We have had a very unusual three-year period. We 
have never had a three-year period like this before.
    Yes, it is true that manufacturing has gone down in 
previous recessions, but it usually bounces back strongly. 
Manufacturing is lower today than it was three and a half years 
ago in terms of total production. That is totally unique in the 
period since we have been doing monthly statistics to have this 
sustained decline in manufacturing output.
    We have had 11 recessions since 1939 that we monthly have 
data for employment. The first 10 of them, employment hit 
bottom within three months. People talk about employment being 
a lagging indicator. In the first 10 recessions, it never was 
longer than three months after the end of the recession that we 
hit bottom and started adding jobs. We did not add jobs as fast 
in the tenth recession, the one in the early 1990s. We did in 
the first nine. We were adding jobs.
    This time we continued to lose jobs. Part of it is what is 
happening to manufacturing. I think that manufacturers have 
decided that they need to be lean and mean and compete 
internationally, and what has happened in 2001 and 2002 may 
well be an interaction of what is happening to domestic 
competition and international competition.
    They have been much more aggressive in cutting back in 
employment, and it has caused us to not have the kind of normal 
stabilization and rebound that we have had in the first 10 
recessions.

    Chairman Manzullo. Alan, and then David?

    Mr. Tonelson. I was just hoping to drag us back to greedy 
empirical reality from certain hymns we have heard about the 
glories of the beautifully dynamic American economy, which is a 
beautiful and completely dynamic thing, but in fact during the 
1960s, during the 1960s expansion, we had a very substantial 
rise in labor productivity. I cannot remember the exact figure. 
It was about 50 percent. Real wages and manufacturing during 
the 1960s expansion rose by about 22 percent.
    During the 1990s expansion, we had an even greater rise in 
labor productivity. It was about 60 percent. Real manufacturing 
wages went up 2.8 percent cumulatively, so the notion that 
well, when you get around to the first and second and third and 
fourth order and ninth order effects and workers will 
eventually get re-employed at higher wages, that relationship 
seems to be a lot more complicated now than it had been.
    The second point is that it is just strange. I do not know 
the explanation, but it is strange that during the 1990s, a 
period of surging productivity growth in this nation, the 
market share of about 80 or 90 American industries, major 
American industries that I studied from 1992 to 2001, went 
down.
    Competing head-to-head against foreign competition in this 
market, the market they should presumably know best and do the 
very best in, 80 or 90 industries losing market share despite 
world beating productivity increases.
    Again, something is odd here, and I would hope we would be 
more ready to acknowledge this and acknowledge the limits of 
this data, which is widely used, but perhaps less revealing 
than has been recognized so far.

    Chairman Manzullo. Maybe we are placing too much emphasis 
on it also.

    Mr. Tonelson. We may be.

    Chairman Manzullo. David?

    Mr. Huether. Yes. Just to build on what Lee said, you know, 
the last three years have been unprecedented in the sense that 
since the end of the recession all the way to the end of 2003, 
so that is two years, manufacturing output edged up three 
percent. You compare that to what usually happens during the 
first couple years of a recession. Like you said, usually 
things bounce back.
    That is true. The manufacturing output in the first several 
years of a typical expansion usually rises by about 18 percent. 
I think one of the reasons we have to look at it is why have 
there not been an increase in manufacturing employment. I think 
productivity is one of the reasons.
    We also have to go back and look at the fact that 
manufacturing production has not consistently been positive 
continuously for three or four months until October of last 
year, so for a number of reasons we all know with respect to 
investment recovery lagging, export recovery lagging, there 
really has been no stimulus in the manufacturing sector.
    If we look at where have we lost all of these jobs in 
manufacturing, it has not been in apparel. It has not been in 
textiles. It has not been in leather goods. It has not been in 
areas that are most import dominated. It has been in 
electronics. It has been in transportation. It has been in 
industrial equipment and fabricated metals. Combined, that is 
the majority of all the jobs lost in manufacturing in the past 
three years.
    What do those sectors have in common? Well, they are all 
very export dependent and all very dependent on domestic 
investment as well. When you have no business investment 
recovery and you have no export recovery, it is not a far leap 
to assume that you are not going to have a recovery in the 
manufacturing sector where those are basically the three 
biggest sectors in manufacturing today.
    I think that we have to always go back and take a look at 
what are the domestic and international conditions that are 
going to generate the demand that U.S. manufacturers really 
need to begin to see output growing fast enough to start 
offsetting this productivity growth and increasing the demand 
for workers.
    I think there are some structural components here because 
imports as a share of shipments have been going up for decades, 
but I think the real thing to focus on is the conditions that 
are going to get manufacturing growing. I think and most people 
think that things are starting to turn around right now.

    Chairman Manzullo. Kathleen?

    Ms. Cooper. Yes. I just wanted to second what David said. I 
mean, this has been a highly unusual recession and recovery 
period for the manufacturing sector, for the economy as a 
whole, but certainly for the manufacturing sector.
    The reason it has gotten hit even harder, the main reason 
it seems to me it has gotten hit even harder this go around, 
has to do with the two things he mentioned, exports very weak 
from the U.S. and actually the world as a whole and then 
secondly the investment goods part of our economy had not 
gotten hit, and now that this economic recovery has begun and 
these parts of our economy are starting to improve, I certainly 
expect and believe that over the course of the next year we are 
going to see some improvement in manufacturing.
    Does that mean a sizeable improvement? Does that mean that 
job growth will be there in a major way? I think that is a 
different question obviously because what is going on and what 
these manufacturers have learned is that there are very high 
fixed costs of employment. Healthcare was mentioned. One could 
name a number of other issues that relate to the cost of hiring 
someone today.
    I think manufacturers, like other businesses across this 
country, are being very cautious in putting someone on their 
payroll on a permanent basis. That does not mean that will not 
come and it is not getting ready to come, but it is going to 
take a while.
    I think that is a big part of the reason why on a cyclical 
basis over the third and fourth quarter in particular we saw a 
great deal of reluctance on the part of companies to do that, 
but it has begun. We have a stronger economy, and it is going 
to actually show up in the manufacturing sector, I am 
convinced.

    Chairman Manzullo. Joel?

    Mr. Yudken. Yes. It remains to be seen obviously, so I 
guess some of us who are not quite so sanguine about the whole 
thing that if we are indeed seeing, and I guess this comes down 
to the outsourcing, a large, increasing part of our industrial 
base being outsourced especially in some of these sectors you 
are concerned about, what does that mean in terms of any of the 
jobs coming back, or are these permanently lost?
    If some of the high end jobs, and I know we are slipping 
more into a policy discussion beyond productivity, but if some 
of the high end jobs that we are talking about because they are 
more easily digitized, and technology certainly is a factor in 
making that possible. Is that going to mean that we--you know, 
are those good jobs that we are supposedly going to replace all 
the lower wage and bad jobs, which we do not think are bad, but 
some people call them that, going overseas.
    You know, where are those jobs going to come from? In the 
end, if we do not have the kinds of jobs being created that 
replace the jobs that are being lost--

    Chairman Manzullo. And who is going to buy the stuff?

    Mr. Yudken. And who are going to buy the stuff? Where is 
the boost to the economy?
    E.P.I. had a recent study that showed that there is a 
definite shift from high wage to lower wage industries in the 
last few years. Am I correct, Lee? Am I stating this correctly?

    Mr. Price. Manufacturing is the major driver in that 
though.

    Mr. Yudken. Pardon?

    Mr. Price. The loss of jobs within the manufacturing sector 
is the major driver.

    Mr. Yudken. At the same time, we are seeing the huge boost 
in productivity, and it is being bandied about this is the 
greatest thing since sliced bread. Things cannot be that bad. 
The productivity is moving, and that is why we are raising 
this.

    Chairman Manzullo. Marvin?

    Mr. Kosters. There has been a lot of comment about failure 
of manufacturing jobs to spring up with the recovery, but 
nothing has been said about how far down they went.
    It is my observation that they have gone down less with 
this recession than during many earlier recessions. That is one 
reason why they have sprung back less strongly. I think of 
automobiles, for example. The automobile production in the 
country has held up better than in many earlier recessions, and 
that may be one reason why we do not see a quick recovery in 
employment manufacturing.

    Chairman Manzullo. Tom?

    Mr. Duesterberg. This does not directly address 
manufacturing, but we are all wondering where the jobs are 
going. I mean, it is a legitimate concern. Here is some 
empirical data.

    Chairman Manzullo. Tom, could you talk directly into the 
mike, please? Thank you.

    Mr. Duesterberg. Some empirical data about job growth and 
losses between 1999, the peak of the previous long boom, as we 
called it then, and 2002, the depth of the recent recession. 
These are BLS data.
    Management jobs down 12 percent; business and financial 
operations and their categorization up 9.4; computer and 
mathematical jobs, 5.8 percent positive; then life, physical 
and social sciences up 18.6 percent; office and administrative 
support, a huge category, up .9 percent.
    These are generally decent jobs, and it belies the notion 
that we are outsourcing back office jobs to India and China and 
not creating any new jobs. In fact, what is happening is we are 
outsourcing the lower level jobs--this is in the services 
sector--and we are creating opportunities for the higher 
levels.

    Chairman Manzullo. Tom, the problem is you have to return 
to Natasha Humphries. She worked in California, a high end--
what did she do? Was she a programmer? A software engineer. 
Natasha and 12 of her co-employees, including a lady who was 
born in India, came to the United States, became a U.S. 
citizen.
    Natasha was asked to go to Banglador and to train people to 
do the exact same thing that she was doing in the United 
States. In her testimony before our committee, I asked the 
question have you been re-employed. She said no. Thea, you were 
there. I said of the 12 others that were laid off, have they 
gotten re-employed. She said only one.
    I mean, the point is what are you going to retrain people 
for? You know, where are these jobs with the tremendous amount 
of offshoring that is going to India, for example? These are 
people that are reading x-ray films, radiation films. These are 
engineers, accountants. I mean, these are not low end. These 
are not service centers. These are high end, white collar jobs 
that are going to India.
    Does that make U.S. companies more productive to use those 
services? You bet they do. They turn out the same product, only 
cheaper. Is that an increase in productivity? I would think it 
is.
    There is a term they use back home for what happens to 
machines. It is called black hole. In one of the companies that 
was closing down, the guys came down to my office and said they 
were getting ready to black hole the machinery. I said what do 
you mean? He said well, we try to figure out what the codes are 
when they tagged where the machinery is being shipped to. I 
said well, where is it going? China, Mexico. If the machinery 
is leaving, what are these guys going to work on?

    Mr. Duesterberg. Each loss of a job is a tragedy. Each 
individual story in itself is worthy of attention. I was just 
giving some overall statistics which show increases in jobs.
    I think we need to do a better job of controlling the cost 
pressures on American manufacturers. I think we need to do a 
better job--

    Chairman Manzullo. I was not picking on you.

    Mr. Duesterberg. --building human skills so that we can 
remain the innovative and technology leader of the world 
economy.

    Chairman Manzullo. Okay. Bill, and then Thea?

    Mr. Beach. Let me just point out two things, Congressman 
Manzullo. The BLS is now producing a data set, which they had 
produced years and years ago. It shows job gains and job 
losses, millions and millions and millions of jobs each year, 
which are created. These are in some cases employees who have 
lost their job and found another job, who have gone from a low 
paying job to a good paying job. That is kind of the way the 
economy works.
    We actually cannot answer your question. The honest answer 
is we do not know where these people are going to get jobs. 
Nobody knows the answer to that, but we have to have some sense 
of is the economy producing jobs. If you look at these data, 
which have just begun to come out, yes, they are.
    Second point. One of the things we have not discussed is 
the fact that we have the second highest corporate income tax 
in the world. We have business taxes on business taxes, which 
are very, very high.
    Now, it could very well be that one of the unusual 
parameters, one of the things we did not expect to see, is the 
high operating cost now for businesses in the United States. We 
may not be a business friendly country like we were 10, 15, 20 
years ago.
    That is an area where the Congress can do some work and a 
good deal of investigation. Two bills are pending, one in the 
House and one in the Senate right now, to take a look at our 
worldwide business taxes and what we can do to change that in 
order to create a little more business friendly environment.

    Chairman Manzullo. Okay. Lee, then Thea, and then Alan.

    Mr. Price. When you reconcile the household survey with the 
payroll survey and take out the self-employed and the 
agricultural and the other that are in the household numbers, 
what you end up with is a relatively small difference between 
the two for the last year, year and a half.
    There was an enormous difference in the late 1990s. The 
payroll numbers were going faster. There was an enormous 
difference in 2001 and the end of 2002 with the household 
survey doing better.
    For over a year or so, the two numbers reconciled on the 
same basis of people in the household survey who look like they 
are holding payroll jobs are growing at about the same rate. It 
is a pathetically slow rate. It is just not an issue here.

    Chairman Manzullo. There were 1,000 jobs recruited in 
December.

    Mr. Price. And there were 54,000 lost in the household 
survey. It is not that different. The household survey does 
show some people becoming self-employed. It does show some 
people being in--

    Chairman Manzullo. It does or does not?

    Mr. Price. It does.

    Chairman Manzullo. It does?

    Mr. Price. It does. It does show some people being--I do 
not know the trend beyond that, but when you make them on the 
same basis, you give a slight increase in the household, a 
slight decrease in the payroll over the last year, year and a 
half. It is just not the story.
    We are not adding jobs anything like we should if we were 
keeping up with the growth of the population. We have a lot 
more people turning 16, 18, 20 than we have turning 65. You 
take into account what is happening with the working age 
population. We should be adding.
    We have 250,000 people added to the working age population 
every month. Some of them are in school. Some are retired. Some 
are disabled. Some of them are married with kids and they do 
not want to work, but you expect 60 percent of them to be 
employed.
    We should have 150,000 new jobs every month to keep up with 
the growth in the working age population. We have not had that 
for over three years. It is better to add 50,000 than to lose 
50,000, but every month we are not getting 150,000 the labor 
market is getting weaker, and wages are going slower.

    Chairman Manzullo. Thea?

    Ms. Lee. I wanted to speak directly to this question about 
upward mobility and whether workers who lose their jobs in the 
manufacturing sector, get outsourced, are sort of moving 
smoothly up the job ladder to more productive and better paid 
jobs.
    The displaced worker survey said the BLS used to collect, 
and I understand that this program is under consideration for 
being cut for budget reasons, which I think would be really, 
really a shame. This is a very, very important and very 
interesting survey. It actually tracks workers who have been 
laid off, follows them three, five years later, how many of 
them have a job and what their wage level is compared to their 
old job.
    I think it is pretty clear what you see. I am more familiar 
with the numbers a few years ago, not the most recent ones, but 
certainly manufacturing sector workers take a big pay cut when 
they get re-employed. The higher paid they were, so steel and 
auto workers, for example, might take a 40 percent pay cut, 
whereas an apparel worker might take a 10 percent pay cut.
    The people are not moving into higher paid jobs. This is 
following the individuals who have lost their jobs, have been 
displaced largely due to--for any reason for the different 
kinds of layoffs. I just think it is an important point because 
there is sort of a blitheness about the ease with which people 
move into better jobs. It is not happening.

    Chairman Manzullo. Alan, and then Kathleen? Did you raise 
your hand? Alan, and then Kathleen?

    Mr. Tonelson. I wanted to just speak briefly about the 
business cost issue. I work for a group that again represents 
small and medium sized manufacturers. They hate regulation. 
They hate paying taxes, but they emphatically reject the idea 
or certainly the strong implication that we have just heard 
that the only way the United States can become globally 
competitive once again is to reduce our levels of regulations 
and also taxes from first world levels to third world levels.
    Although there are always improvements that can be made in 
tax and regulatory policy, that kind of move would be obviously 
impossible politically and undesirable socially. We 
emphatically reject the notion that it is necessary to restore 
American manufacturing competitiveness.

    Chairman Manzullo. Kathleen?

    Ms. Cooper. I just wanted to make the point that certainly 
what Lee said about the last three years being very tough years 
is absolutely correct, and that ties in with what Thea 
mentioned too. This has been a very tough period. The recession 
began in early 2001 or perhaps even before that. The NBER is 
considering whether it began in 2000.
    It has been three very tough years, first recession and 
then trying to get this recovery going with a lot of highly 
unusual events causing a great deal of uncertainty in 
everyone's mind and in business people's minds certainly who 
have to make these decisions, so it has been a very tough 
period.
    As Tom said, in every job, when someone loses a job it is 
very, very tough trying to get them re-employed because it is a 
wrenching experience. This is a churning economy. Bill 
mentioned the data that BLS puts out on how many jobs are 
gained and lost.
    This is an economy, because it is so dynamic, that is going 
to continually provide challenges, and that is the reason the 
Administration has certain programs to help that. I will not go 
into the Department of Labor ones, but to help retrain workers.
    I would say for Commerce, the kinds of things we have been 
trying to do, for instance, such as your manufacturers are 
feeling when their community is hit so hard because of 
concentration in a particular industry, what we have tried to 
do with our economic development administration is to work with 
the community, try to put together a strategy for development 
of industries and bringing in new industries, new companies 
that fit with the skills and the infrastructure of that 
community. We think that is one of the best things we can do.

    Chairman Manzullo. Joel? Quickly, and then we have to go 
vote.

    Mr. Yudken. Yes. First I want to point out our goal should 
be not lowering our standards in terms of regulation, you know, 
but to raise labor standards, to raise environmental standards 
so that in China and all the countries where we are trading 
that they are at higher levels.
    I think that goes to the second point that I wanted to 
raise about leveling the playing field. This is part of what we 
are concerned about, whether it the dollar issue of the trade 
or what have you. Are we operating on a level playing field 
internationally? This is one of the things that we are 
concerned about, which has been fostering a lot of the 
outsourcing and movement offshore and that we may never get 
back.
    The third is that, you know, it is very well to talk about 
the aggregate and the overall, but in the end it is all very 
regional and very local. There are particular population 
groups, especially black Americans, who have suffered among the 
greatest in terms of this drop in manufacturing.
    Manufacturing has been traditionally a job ladder, a career 
ladder for low income workers and through the middle class. 
They are losing that. Those communities are getting especially 
hard hit probably in parts of your state and in Chicago and 
around the country in urban area. Rural areas are also being 
harder hit.
    You know, I just do not think that these issues are being 
dealt with sufficiently, and I do not think the policies, 
frankly, are--

    Chairman Manzullo. Let me thank you for coming. This is the 
55th hearing that the Small Business Committee has had in the 
past three years on the issue of manufacturing, loss of 
manufacturing jobs and loss of white collar jobs. Fifty-five 
hearings.
    The reason for that is that Rockford is the tool and die 
center of the world. We have been screaming for years that when 
the orders fall off for the machine tools, that must be an 
indicator that we are in a downward spiral. We have been 
working with the fed, and when they come out with their beige 
book they are not taking a look at the order of machine tools 
as an indice as to whether or not interest rates should be 
raised.
    The second thing is there is a phenomenal article that I 
cut out of the Wall Street Journal January 3 about Chinese 
companies that are now outsourcing because the price of labor 
has skyrocketed to about $150 a month. They can outsource and 
get cheaper things, get this, from North Korea.
    I want you to think about this. I want American 
manufacturers to think about this. Order anything from China, 
and you are having parts coming in from North Korea. You know 
the tyranny and the oppression of that government. The 
sociological impacts of what is happening are astounding.
    The purpose of this meeting, and you guys all took off your 
political hats mostly, but really you did and added a 
tremendous amount to the discussion here. Our goal obviously is 
to try to restore manufacturing in this country.
    We take a look at this figure we call a productivity figure 
and ask ourselves what all is involved in it. The figures on 
the multi-factor are three and a half years old. That seems to 
be about the most accurate ones that we can rely upon.
    Let me throw out one of the standards that I use, and that 
is called the pink towel indication. A pink towel is used in 
machining to wipe your hands on for the machine oil. When the 
pink towel companies are down in their business, you know that 
the jobs are suffering in the manufacturing sector.
    Again, thank you all for coming. You have been really 
terrific, and we appreciate your input this afternoon.

    Mr. Price. What has happened to pink towels lately?

    Chairman Manzullo. They are having a hard time.
    [Whereupon, at 3:52 p.m. the committee was adjourned.]
      

                                 
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