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48–118 2009

CHALLENGES FACING AMERICAN WORKERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INCOME SECURITY 

AND FAMILY SUPPORT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 11, 2008

Serial No. 110–103 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT 

JIM MCDERMOTT, Washington, Chairman 

FORTNEY PETE STARK, California 

ARTUR DAVIS, Alabama 

JOHN LEWIS, Georgia 

MICHAEL R. MCNULTY, New York 

SHELLEY BERKLEY, Nevada 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

JERRY WELLER, Illinois 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JON PORTER, Nevada 

PHIL ENGLISH, Pennsylvania 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also, published in electronic form. The printed 

hearing record remains the official version. Electronic submissions are used to prepare 

both printed and electronic versions of the hearing record, the process of converting between 

various electronic formats may introduce unintentional errors or omissions. Such occurrences 

are inherent in the current publication process and should diminish as the process is further 

refined. 

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C O N T E N T S 

Page 

Advisory of September 4, 2008, announcing the hearing ..................................... 2 

WITNESSES 

Jared Bernstein, Ph. D., Senior Economist, Economic Policy Institute .............. 6 

Michael Ettlinger, Vice President for Economic Policy, Center for American 

Progress ................................................................................................................ 23 

Elizabeth Lower-Basch, Senior Policy Analyst, Center for Law and Social 

Policy ..................................................................................................................... 28 

Gregory Acs, Ph.D., Principal Research Associate, The Urban Institute ........... 36 

William W. Beach, Director, Center for Data Analysis, The Heritage Foundation ........................................................................................................................ 48

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CHALLENGES FACING AMERICAN WORKERS 

THURSDAY, SEPTEMBER 11, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 12:30 p.m., in 

room B–318, Rayburn House Office Building, the Honorable Jim 

McDermott (Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON INCOME SECURITY 

AND FAMILY SUPPORT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1025 

September 04, 2008 

ISFS–19 

McDermott Announces Hearing on 

Challenges Facing American Workers 

Congressman Jim McDermott (D–WA), Chairman of the Subcommittee on Income 

Security and Family Support of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on challenges facing American 

workers. The hearing will take place on Thursday, September 11, 2008, at 

12:00 p.m. in B–318, Rayburn House Office Building. In view of the limited 

time available to hear witnesses, oral testimony at this hearing will be from invited 

witnesses only. However, any individual or organization not scheduled to appear 

may submit a written statement for consideration by the Subcommittee and for inclusion in the record of the hearing. 

BACKGROUND: 

The current downturn in the economy presents new risks for workers, especially 

the continuing rise in unemployment. Concerns about this recent deterioration in 

the labor market are magnified by longer-term trends affecting workers. For example, the median duration of unemployment has increased over 85 percent since the 

1960s, employer-sponsored health insurance coverage has declined 4.9 percentage 

points since 2000, and real average wages have decreased compared to the early 

1970s. These negative trends have occurred even as worker productivity has risen 

significantly over the last three decades. 

In announcing the hearing, Chairman McDermott stated, ‘‘Too many Americans 

are working more for less—less wages, less security, and less dignity. We 

need to understand the trends affecting workers, so we can determine how 

best to respond. American workers are not whiners. They are simply struggling to stay afloat and the lifeboat they need doesn’t always reach them.’’ 

FOCUS OF THE HEARING: 

The hearing will consider data and analyses describing challenges facing American workers. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, complete all informational forms and ATTACH your submission 

as a Word or WordPerfect document, in compliance with the formatting requirements listed below, by close of business September 25, 2008. Finally, please note 

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that due to the change in House mail policy, the U.S. Capitol Police will refuse 

sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official record. As 

always, submissions will be included in the record according to the discretion of the 

Committee. The Committee will not alter the content of your submission, but we 

reserve the right to format it according to our guidelines. Any submission provided 

to the Committee by a witness, any supplementary materials submitted for the 

printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman MCDERMOTT. The meeting will come to order. As everyone in this room knows, and across America knows, 3,000 of our 

fellow citizens lost their lives on this same day 7 years ago. Before 

we start today’s hearing, I would ask everyone to join us in a moment of silence to remember and honor those who perished, as well 

as their families and loved ones. 

[A moment of silence is observed.] 

Chairman MCDERMOTT. Thank you. 

We are here today to look forward into the next congress and the 

next years that are before us, because, obviously, we don’t have 

much time left to pass legislation. We are here to focus on the challenges that are confronting the American workers and their families. 

Mr. Weller was coming back from the event, so I thought I would 

go ahead and read my statement so then he could read his statement. 

Of course, the most important concern at the present time is the 

rapid rise in unemployment. The number of unemployed has grown 

by well over 2 million Americans over the last 12 months with 

nearly 900,000 joining the ranks of the unemployed just since 

June. 

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Now, there are some short-term policies we can and should enact 

to help those dislocated workers, including extending unemployment compensation. Chairman Rangel and I have put in a bill to 

do another extension of unemployment benefits, which we hope will 

be considered before this session is over, but the anxieties that 

workers are feeling go well beyond the current rise in unemployment. 

The increase in joblessness comes on the top of long-term problems affecting economic security. Real income for America’s working families has fallen since 2000. This drop comes despite the fact 

that the productivity of our workers continues to grow. 

Some downward trends, such as real wages for men, have been 

occurring over a much longer period of time. The share of workers 

with employer-based health coverage has also dropped considerably 

since 2000, driving up the number of uninsured Americans by over 

7 million. Similarly, the percentage of workers with employer-sponsored retirement plans has declined, leaving more workers uncertain about their long-term economic security. 

America’s workers are finding it increasingly hard to balance the 

competing demands of family and work. As the number of families 

with two working parents have grown, work schedules has become 

much less flexible. 

Finally, nearly a quarter of all workers find themselves stuck in 

low-wage jobs, and there is a growing gap between the wages paid 

in these jobs and the wages paid in average and high-end employment. In short, many Americans are working harder for less: less 

income, less job security, less health and pension benefits, less time 

at home, and less opportunity. 

Now, left unchecked, this trend will strike at the very core of the 

American dream. My Republican colleagues will not be shocked to 

learn that I believe that many of the policies pursued by the current Administration have greatly exacerbated the problems facing 

workers. I also believe that any comprehensive approach to these 

challenges must be dealt with on a much broader reality. It has to 

be bipartisan. 

The world we live in today is very different from the one in 

which our basic safety net for workers was created in 1935. We 

need to think how to build a new framework to ensure the economic security of America’s workers. 

Now, in my view, that doesn’t mean abandoning programs that 

still provide real help to those who need it, such as unemployment 

compensation, but it does require updating existing programs and 

creating new initiatives to reflect the realities of the current labor 

market and economy. I look forward to hearing from the witnesses 

today as we examine these vitally important issues, and begin talking about what the potential responses must be for the 21st century. 

I now yield to my Ranking Member, Mr. Weller. 

Mr. Weller? 

Mr. WELLER. Well, thank you, Mr. Chairman. I know back in 

July we thought at that time that was going to be the last hearing, 

and of course I sang your praises, and thanked you for the opportunity to work with you over the last two years as the Ranking 

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Member of this Subcommittee. Once again, I want to express my 

gratitude for what I consider to be a good working relationship. 

I also want to tell you I am very pleased with the continued 

progress we are making with the bipartisan child welfare reform 

package that hopefully will be on the President’s desk in a few 

weeks, thanks to your leadership, and what I see as a good bipartisan effort. 

Chairman MCDERMOTT. I spoke to Senator Grassley. They 

marked it up yesterday, and it’s going to be over here. 

Mr. WELLER. Yes. 

Chairman MCDERMOTT. So, we’re going to get it done before 

you leave. 

Mr. WELLER. That would be fun. Well, again, thank you, Mr. 

Chairman. 

As we will hear today, depending on which expert you ask, you 

can get different answers on what the key challenges facing American workers are. We’ll hear concerns about wages, job losses, 

health coverage, and other issues, which are all important concerns. 

If you read most of the testimony today, you will see something 

is missing. Most of the testimony barely mentions the number one 

challenge facing American workers, and that’s the high price of energy. 

Between January of 2007 and July of 2008 in my home State of 

Illinois, the average price of gasoline doubled. It rose from just over 

$2 per gallon to over $4 per gallon. That price has now fallen back 

to about $3.75 per gallon, still nearly 90 percent above the level at 

the start of this current congress. 

Last month, a poll asked, ‘‘Has the recent rise in gasoline and 

oil prices caused you or your family any financial hardship or not?’’ 

73 percent said yes, gas prices have caused them financial hardship. Not surprisingly, Americans want something done, and they 

want it done now. 

Another poll recently asked, ‘‘What current economic issue is 

most important in determining your vote for President?’’ The number one answer was, ‘‘The rising cost of gasoline and fuel.’’ Five 

times as many people said they were concerned about rising energy 

prices, compared with losing their job. 

The hardship doesn’t stop with pain at the pump. It’s also felt 

at the dinner table, where energy prices are driving up food prices, 

making families poorer. According to the non-partisan Congressional Research Service, 1.2 million working American households 

have seen their standard of living fall below poverty due to excess 

food and fuel inflation between 2005 and 2008. This is all before 

fall and winter set in, driving up home heating costs to previously 

unseen, and some might say ‘‘obscene,’’ levels. 

The pain doesn’t end there, either. It is also felt in the workplace, as high energy prices lead directly to job loss. As one of our 

witnesses today describes, a $2 rise in gasoline prices like the one 

we have seen since January of 2007 is estimated to reduce employment by about half-of-a-million jobs, which just about matches the 

real decline in employment since January of 2007. 

Mr. Chairman, the people I am privileged to represent don’t want 

hand-outs. Like all Americans, they want to afford the energy they 

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need to get to work, put food on the table, and to heat their homes. 

That is not too much to ask, but that is something this Congress 

has totally failed at delivering. 

If we want to truly address the challenges facing American workers, the very first thing we need to do is to reverse the damage already done to American families, workers, and businesses by high 

energy prices. That means increasing energy supplies for all sorts 

of energy, including oil and gas. That, in turn, will reduce gasoline 

prices, cut energy-induced poverty, and reverse energy-caused job 

losses. 

A second challenge largely unmentioned in today’s testimony involves creating more jobs as this country produces and trades with 

our overseas partners. The facts are clear. Trade works for my 

home State of Illinois, and for the United States of America. 

Good trade agreements are boosting exports, helping provide one 

of the few bright spots in today’s economic news. Growing exports 

accounted for more than 90 percent of the 3.3 percent economic 

growth in the last quarter. In the first half of 2008, we were running a manufacturing trade surplus of $6.6 billion with our free 

trade agreement partners. 

In fact, our current trade surplus with the CAFTA nations has 

increased more than 150 percent. For Illinois, that means exports 

of machinery made in places like Joliet are up 28 percent, and exports of corn grown in places like La Salle County are up 48 percent. 

We must continue our path toward opening markets by passing 

legislation to implement the Colombia, Panama, and South Korea 

fair trade agreements. Colombia alone is a market of 42 million 

people, larger than California. While Colombia enjoys an open market to the United States, our products sold in Colombia are taxed, 

hampering our ability to export to this $30 billion market. 

Panama, too, has duty-free access to our markets, but we pay 

tariffs on our goods and services sold to Panama. 

South Korea represents the largest market we have ever negotiated a free trade agreement with, a huge opening for the United 

States into Asia. These economic opportunities for our workers are 

too important to be left to partisan politics. They deserve a vote 

and swift passage this year. 

Mr. Chairman, I look forward to working to reduce challenges for 

American workers, and to hearing the witnesses’ testimony today. 

Thank you. 

Chairman MCDERMOTT. Thank you very much, Mr. Weller. 

Any other Members who want to make statements, we will give 

five working days to put your remarks in the record. 

Today our panel begins with Jared Bernstein, who is a Ph.D. 

senior economist at the Economic Policy Institute. Dr. Bernstein? 

STATEMENT OF JARED BERNSTEIN, PH.D., SENIOR 

ECONOMIST, ECONOMIC POLICY INSTITUTE 

Dr. BERNSTEIN. Chairman McDermott, Ranking Member 

Weller, I thank you for inviting me to testify, and I applaud the 

Subcommittee for taking up this issue. 

As the Subcommittee knows, many working families face uniquely tough times. Most recently, a recession has gripped the labor 

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market, and payrolls are down by over 600,000 this year. Unemployment is up sharply, and compensation is consistently lagging 

inflation. 

Underemployment, a broader measure of labor market weakness, 

hit 10.7 percent last month, driven by a sharp increase in so-called 

involuntary part-time workers, persons working part-time who 

would prefer full-time jobs. In August there were 5.7 million of 

those persons. 

The fact that millions of workers cannot find the jobs or the 

hours they need right now, in tandem with the most recent commodity-driven acceleration in inflation, has led to persistent declines in inflation-adjusted earnings in compensation. If we hope to 

understand and address the economic insecurities facing American 

workers, we must recognize that the challenges they face pre-date 

the recession, and certainly pre-date the recent increase in gas 

prices. 

There may be no more telling statistic of this point than the fact 

that the real wage for the median male was lower in 2007 than in 

1973. In that same spirit, it’s been widely recognized that the current business cycle of the 2000s is the first on record where the income of the median family gained no ground in real terms, despite 

strong productivity growth over these years. Even the annual median earnings of college educated workers fell 3 percent from 2000 

to 2007, in real terms. 

It was not always so. Between the mid-1940s and the mid-1970s, 

the real compensation of most workers—blue collar workers in 

manufacturing, non-managers in services—and the productivity of 

the American workforce grew in locked step, both doubling. Since 

the late 1970s, however, these trends have diverged, and real compensation grew only 7 percent for these workers, 1979 to 2007, a 

7-percent increase in real terms over 28 years, while productivity 

grew 70 percent—70, 7–0. 

What explains these trends? One factor in play over the 2000s 

was uniquely weak job growth. Annual growth in jobs in the 2000 

cycle versus past cycles was less than one-third of the average rate. 

Again, of course this pre-dates any recent spike in energy prices. 

A symptom of weak growth is that once these workers lose their 

jobs, their unemployment spells can be quite long, another factor 

contributing to the weak income growth and increased worker insecurity. Despite the fact that unemployment was relatively low in 

the 2000s, weak job creation meant that long-term unemployment 

stayed elevated. Close to 20 percent of the unemployed were jobless 

for at least 6 months, on average, over these years. 

The insecurity bred by this longer term unemployment was not 

confined to marginal, less educated, or younger workers. In 2000, 

13 percent of unemployed college-educated workers experienced 

long-term unemployment. In 2007, that share jumped to 20 percent. 

Other insecurity-generating factors include the long-term shift 

from pensions that guarantee a fixed payout to variable pensions, 

defined benefit to defined contribution: a clear shift in the locus of 

risk from the firm to the worker. 

Also, the secular erosion of employer-provided health coverage. 

Again, even college-educated workers have been affected by this 

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trend, as the share of these workers with employer-provided coverage fell from 80 percent in 1979 to 68 percent in 2006. 

The long-term decline in men’s job tenure down about 2 years for 

men aged 35 to 54 is another factor contributing to the insecurity 

we’re talking about today. 

Now, the factors economists believe are responsible for the difficulties facing workers today include: the increased wage premium 

for more highly educated workers; diminished bargaining power of 

the majority of the workforce; increased trade imbalances, most notably with developing economies like China, that have very large, 

low-wage workforces, relative to the United States; and macro-economic weakness, including weak job growth in the absence of periods of full employment in labor markets. 

The policy actions to enhance worker security include, first, do 

no harm. It’s important not to exacerbate the problems I have documented with policies such as regressive tax cuts that promote 

greater inequality. To the contrary, returning some progressivity to 

the Tax Code would help offset some of these problems. Expanding 

the earned income credit, or making the child tax credit fully refundable are two areas this Subcommittee might consider. 

Second, the diminished bargaining power of many workers 

should be ameliorated by passing the Employee Free Choice Act, 

legislation that should help offset the disproportionate sway of 

anti-Union forces, and level the playingfield for those hoping to organize collective bargaining units in their workplace. 

Third, full employment, a tight match between labor supply and 

labor demand is another important criterion for reducing the gap 

between overall growth and the standards of working families. The 

policy levers here rest mainly with the Federal Reserve, but Congress can also play a role that I can discuss during our discussion, 

as I see I am running out of time. 

Changes in the structure of work, the demography of the workforce, along with the trend toward longer unemployment spells, underscore the need for updating our nation’s unemployment insurance system. The Unemployment Insurance Modernization Act already passed by this chamber would make such changes, including 

providing benefits to both part-time workers and for those with 

shorter job tenures. Thank you. 

[The statement of Mr. Bernstein follows:] 

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f 

Chairman MCDERMOTT. Thank you very much. I neglected to 

point the clock out to those people who are going to testify here. 

We would like you to hold your comments to 5 minutes, so that we 

can have time for discussion. 

Michael Ettlinger is the vice president for economic policy from 

the Center for American Progress. 

Mr. Ettlinger. 

STATEMENT OF MICHAEL ETTLINGER, VICE PRESIDENT FOR 

ECONOMIC POLICY, CENTER FOR AMERICAN PROGRESS 

Mr. ETTLINGER. Chairman McDermott, Mr. Weller, Members 

of the Subcommittee, thank you very much for the opportunity to 

appear today to discuss the challenges facing American workers. 

We are in a period that is distinguishable from any in the postwar era. It’s distinguishable statistically, but it’s also distinguishable in that we are now headed in the wrong direction in so many 

areas that are critical to working Americans. Wages are stagnant 

or declining, costs are rising, access to health care is declining, retirement security is in decline. Most recently, the value of the family nest egg, in the form of homes, has fallen dramatically. 

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This period is also different than others in that the public, while 

holding on to optimism for themselves, doesn’t see these problems 

being addressed at the societal level, or for their children. 

I won’t delve into the areas that Dr. Bernstein has covered so 

well, but I will focus on some of the other challenges facing working Americans. 

One of these challenges is absolutely the rising costs in transportation, utilities, and food that are hitting working families especially hard. Health care, of course, is also a major concern. Costs 

are rising, and the share of people with employer-provided health 

insurance dropped from 64.2 percent in 2000 to 59.3 percent in 

2007. Last year, 45.7 million people were uninsured. 

There is the saying that if you have your health, you have everything. I think a corollary may be that if you don’t have health insurance, you don’t have much. This is a huge source of stress for 

working Americans, a huge factor in people’s choice in jobs, a substantial constraint on people changing jobs to seek new opportunities, or to set off on their own to start new businesses, all to the 

detriment, not just of the individuals themselves, but also to the 

economy, as a whole. 

Preparation for retirement is also a problem. Only 43 percent of 

private sector workers have an employer-sponsored retirement 

plan, either a traditional pension or a retirement savings plan, 

which is down from 50 percent in 2000. Many American workers 

also lack retirement sufficiency. The median 401(k) balance for 

workers nearing retirement is only $60,000. 

All of these things manifest for working Americans and reduce 

quality of life and security. A Center for American Progress study 

on middle class security found, among other similar findings, that 

the percentage of families having 3 months’ worth of income in financial wealth, which is a good measure of their cushion against 

unexpected expenses or income loss, that percentage declined from 

39 percent in 2000 to 29 percent in 2007. 

The public, not surprisingly, is aware that there is a problem. A 

Pew Research Center poll found that 69 percent of people said that, 

compared to 10 years ago, it’s easier to fall behind today. Just 11 

percent thinks it’s harder to fall behind. A Lake Research poll 

found that when asked about the next generation, only 9 percent 

of voters say it will be easier for them to achieve the American 

dream. 

So, what to do? One thing that is clear is that whatever we do, 

it should be something different than what we have been doing, as 

the situation has worsened in recent years. In particular, tax cuts 

for corporations and the well-off, scrimping on public investment 

and slipshod regulatory enforcement are problems, not solutions. 

At the Center for American Progress, we have a plan called ‘‘Progressive Growth.’’ It has many components. Among them are transforming to a low carbon economy, which is critical to bringing energy spending under control; health care reform, to make health 

care more affordable and more broadly available; labor law and 

education reform. We are also developing a universal 401(k) plan 

to address retirement security. 

My final point is this. The conditions workers face are everyone’s 

problems, from investors to shop keepers to retirees. Attempts to 

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solve our economic challenges without directly addressing the conditions of working Americans will fail. 

The fact is that investments in people are investments that pay 

off for the economy, as a whole. When we have millions who are 

marginalized from the economy, millions who can’t afford to take 

risks with new jobs and new businesses, millions who can only afford to spend enough to just get by, we lose innovative energy, we 

lose the participation of millions of people who could contribute. We 

lose customers for our business, we lose a thriving middle class 

that is a must for driving growth and national prosperity. Thank 

you. 

[The statement of Mr. Ettlinger follows:] 

Statement of Michael Ettlinger, Vice President for Economic Policy, Center 

for American Progress 

Chairman McDermitt, Mr. Weller, Members of the Committee, thank you for the 

opportunity to appear before this committee on the subject of the challenges facing 

working Americans. That American workers are indeed facing challenges is difficult 

to deny. This isn’t the great depression but it is a period distinguishable from any 

in the post-war era. It’s statistically distinguishable by a number of measures, but 

it’s also distinguishable beyond each of these measures in two important ways. The 

first is simply that the challenges are coming on so many fronts. Things have gotten 

worse before, but we are now headed in the wrong direction, or at risk of heading 

in the wrong direction, in several areas that are critical to working Americans. 

Wages are stagnant or declining, costs are rising, access to health care is declining, 

retirement security is in decline—and most recently, the value of the family nestegg in the form of their homes has fallen dramatically. The second way today is different is that the public, while holding to optimism for themselves, doesn’t see these 

problems being addressed at the societal level or for their children. 

How bad are things? Before I get into the statistics, there’s an important, admittedly fairly obvious, point I’d like to make about interpreting them. In general, what 

one hears in this sort of presentation are a lot of averages and medians—single 

numbers to represent a very wide set of experiences by real people. Of course, however, if I tell you that as of 2007 real median household income was 0.8 percent 

lower than in 1999—that doesn’t sound like a good thing—after all, there’s an expectation that incomes rise in this country, not fall. But that number also has the 

feel of things not changing, that the situation might not be ideal, but, really, what’s 

going on isn’t imposing any significant hardships—0.8 percent doesn’t seem like that 

much. In fact, however, what I want to point out is that if an average or median 

is stagnant or falling, that means that while some are getting ahead, many, many 

are falling behind—that if a median income is falling 0.8 percent then millions of 

Americans are losing 5 percent, 10 percent, or more. So, if we’re defining our economic aspirations statistically, they should be ambitious enough that they bring 

most people along, not just the fanciful median or average working person. And 

stagnant median or average incomes don’t do that. 

Falling incomes 

To continue on the subject of income, as of 2007, real median household income 

was, indeed, 0.8 percent lower than its 1999 peak. Real hourly earnings are now 

down 2.5 percent from a year ago, and the prospects for turning this trend around 

in 2008 are slim to none. Weekly wages have declined by 0.3 percent since the start 

of the current business cycle in March 2001. One can pick different periods and 

come to the conclusion that incomes are up a little or down a little—but the bottom 

line is that they haven’t risen in any meaningful sense since the 1990s. That is bad 

enough on its face, but it’s worse when put into context. First, as I said, when the 

average or median is stagnant, it means that, while some are getting ahead, many, 

many Americans who are working hard and playing by the rules are falling behind. 

Second, it’s clear that falling or stagnant incomes and wages are far from the only 

challenges facing working people. 

Rising costs 

Among those challenges, costs have gone up in ways that make even inflationadjusted income comparisons understate the problem. The costs of necessities have 

been particularly hard hit. It’s a sign of the times that a national average price for 

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1 Energy Information Agency, ‘‘Monthly Retail and Gasoline and Diesel Prices,’’ last updated 

September 8, 2008, available at http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_m.htm. 2 Authors’ calculations based on Energy Information Agency, ‘‘Monthly Retail and Gasoline 

and Diesel Prices,’’ last updated September 8, 2008, available at http://tonto.eia.doe.gov/dnav/ 

pet/pet_pri_gnd_dcus_nus_m.htm. and U.S. Department of Labor, Bureau of Labor Statistics, 

‘‘Consumer Price Index,’’ last updated August 14, 2008. Note: All price data in this section are 

the author’s calculations based on U.S. Department of Labor, Bureau of Labor Statistics, ‘‘Consumer Price Index,’’ last updated August 14, 2008. 3 Christian Weller ‘‘Economic Snapshot for September 2008,’’ Center for American Progress, 

available at http://www.americanprogress.org/issues/2008/09/pdf/sep08_econ_snapshot.pdf. 4http://www.epi.org/content.cfm/webfeatures_econindicators_income_20080826_health. 5http://jama.ama-assn.org/cgi/content/abstract/296/22/2712 

6Patrick Purcell, ‘‘Pension Sponsorship and Participation: Summary of Recent Trends,’’ CRS 

Report RL30122, (Washington, DC: Library of Congress, Congressional Research Service, 2007). 7David Madland, ‘‘A Fragile Equilibrium: The Past, Present, and Future of Private Pensions, 

Contingencies Magazine,’’ forthcoming, November 2008. 8Dean Baker and David Rosnick, ‘‘The Housing Crash and the Retirement Prospects of Late 

Baby Boomers,’’ (Washington, DC: Center for Economic and Policy Research, 2008). 

regular unleaded gasoline of 3.779 in August is seen as progress.1 It is hard to overstate the burden higher fuel prices are putting on working Americans—gasoline 

prices rose by 44.6 percent between July 2007 and July 2008, in inflation-adjusted 

terms, and the increase since March 2001 is 258.8 percent.2 Fuels and utilities cost 

16.1 percent more in July 2008 than a year before and are up 52.9 percent since 

March 2001. 

Transportation costs in general have been hit hard. In July they were 13.0 percent higher than they were in July 2007 and 35.8 percent greater than they were 

in March 2001. The grocers bill is also not a pretty story. Food prices have increased 

7.1 percent from July 2007 to July 2008 and by 25.6 percent since March 2001. 

Alarmingly for the long-term financial health of the middle class and our national 

economic prospects, college tuition increased by 6.3 percent from July 2007 to July 

2008. This puts college tuition at 67.9 percent more than in March 2001. 

Health care 

Health care is, of course, a story all its own. Of all the necessities, health care 

has, for the longest time, been rising in cost and, for many, it has become unavailable. Recently, costs associated with medical care increased by 3.5 percent from July 

2007 to July 2008 and by 35.1 percent since March 2001. But whatever the cost, 

access has become a huge challenge. 

The share of people with employer-provided health insurance dropped from 64.2 

percent in 2000 to 59.3 percent in 2007.3 In 2007, 45.7 million were uninsured, 7.2 

million more than in 2000.4 In 2003, almost one-fifth of American families were 

spending more than 10 percent of their disposable income on health care.5 And more 

than one-quarter of adults reported not obtaining treatment or prescription drugs 

because of cost. 

I probably don’t have to elaborate at length as to how this is playing out in real 

people’s actual lives. There’s the saying that ‘‘if you have your health you have everything.’’ A corollary may be that if you don’t have health insurance you don’t have 

anything. If you’ve ever cared for someone who couldn’t get adequate treatment because they couldn’t obtain health coverage for an illness you know what I mean— 

and at this point more and more of us are seeing that or experiencing it. This is 

a huge source of stress for working Americans, a huge factor in people’s choice in 

jobs, a substantial constraint on people changing jobs to seek new opportunities or 

to set off on their own—all to the detriment of not just the individuals involved but 

the economy as a whole. 

Pensions 

Another important way in which the conditions of working people are declining 

is in their preparation for retirement. Only 43.2 percent of private-sector workers 

had an employer-sponsored retirement plan, either a traditional pension or a retirement savings plan, in 2006, the last year for which data are available.6 This is the 

lowest share in more than a decade and a substantial drop from 50.0 percent in 

2000, the last peak. According to Center for American Progress research, 8 million 

people, or one in four workers with defined-benefit pensions, have seen their benefits significantly cut since 2000.7

In addition, a growing number of workers are saving with defined-contribution retirement savings plans instead of defined benefit plans. This can leave workers exposed to a number of new risks—as declines in the stock market are now so amply 

demonstrating. These adverse trends have meant that a growing number of families 

will have to rely solely on Social Security as source of retirement income.8

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9 Christian E. Weller, ‘‘Model Retirement Savings: How Public Sector Retirement Plans Provide Adequate Retirement Savings in an Efficient and Sustainable Way,’’ Hearing before the 

Joint Economic Committee, 110 Cong, 1 sess., (July 10, 2008). 10 Alicia Munnell and Annika Sunden, ‘‘401(k) Plans Are Still Coming Up Short’’ (Center for 

Retirement Research at Boston College Issue Brief, No. 43: Boston, MA, March 2006). 11 Vanguard Institutional Investor Group, ‘‘How America Saves 2007: A Report on Vanguard 

2006 Defined Contribution Plan Data’’ (The Vanguard Group, Inc, Valley Forge, PA: 2007). 12 ‘‘The American Dream and the 2008 Election: Voters looking for leadership to restore the 

Dream,’’ (PowerPoint presented by Celinda Lake, Lake Research Partners,) (Washington, DC: 

Change to Win, September 25, 2007). 

Even those workers who are in retirement plans often lack retirement sufficiency. 

As defined-benefit plans have become less and less prevalent, workers are increasingly finding themselves doing more of the heavy lifting in planning for their retirement as well as bearing the bulk of the risk involved in having a defined-contribution plan.9 Companies typically contribute about 7 percent of payroll to support DB 

plans, but only about 3 percent for 401(k) plans.10

While the right-kind of 401(k) plan can help Americans retire with dignity, too 

many plans have proven inadequate to the job. The median 401(k) balance for workers nearing retirement—those ages 55 to 64—is only around $60,000.11 While 

$60,000 is a significant sum, it is not sufficient for retirement security, and can only 

purchase an annuity that pays approximately $400 per month. 

Home values 

The problems facing working Americans are, of course, compounded by the housing crisis. The most valuable asset that most middle-class asset-holding families 

have has just seen its value fall precipitously. Data from the Federal Reserve, for 

example, show that home equity relative to income dropped by 5.0 percentage points 

by March 2008, compared to a quarter earlier, the largest such drop on record. 

Standard of living and security 

All of this manifests in working Americans’ lives in a multiple ways. Obviously 

with stagnant incomes and rising prices, people’s quality of life declines. If more of 

one’s income is going into a gas tank less of it’s going to dinner out and a movie. 

It is also reflected in security. A recent study by the Center for American Progress 

measured families’ ability to weather different types of financial emergencies. The 

most general measure used was simply the percentage of families having three 

months worth of income in financial wealth. That declined from a peak in 2000 of 

39.4 percent to 29.4 percent in 2007. Other indicators were whether a family can 

cope with the cost of a medical emergency—33.9 percent could in 2007, down from 

a high of 44.4 percent in 1999. The share of families able to keep pace during a 

typical period of unemployment spell fell from 51 percent in 2000 to 44.1 percent 

in 2007. 

It’s not a secret 

The public, not surprisingly, is aware of the problem. A Pew Research Center poll 

conducted from Jan. 24 through Feb. 19, 2008 found the following: 

• Nearly eight in ten (79 percent) respondents said that it is more difficult now 

than five years ago for people in the middle class to maintain their standard 

of living. Only 12 percent said that it had become less difficult. 

• Sixty-nine percent said that, compared to 10 years ago, it’s easier to fall behind 

today. Just 11 percent think it is harder to fall behind. 

• A majority of Americans say that in the past five years, they either haven’t 

moved forward in life (25 percent) or have fallen backward (31 percent). This 

is the most downbeat short-term assessment of personal progress in nearly half 

a century of polling by the Pew Research Center and the Gallup organization. 

Furthermore, a September 2007 Lake Research Partners/Change to Win poll 

found these results: 12

• Seventy percent of voters say it is getting harder to achieve the American 

Dream, and only 8 percent say it is getting easier, with 21 percent saying it 

is the same. 

• When asked about the next generation, only 9 percent of voters say it will be 

easier for them to achieve the American Dream. 

The reason for the public’s gloomy view of the present is, of course, the reality 

they see. Their concern for the next generation speaks, however, to a disillusionment with the policies being pursued to deal with these challenges 

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Progressive growth 

With the laundry list of problems we face, I’m reminded of the Bette Davis quote 

that ‘‘old age isn’t for sissies.’’ These days, ‘‘governing isn’t for sissies’’ either. But 

that begs the question—what needs to be done. It’s said that the definition of insanity is doing the same thing over and over again and expecting a different result. 

That suggests that whatever we do, it should be something different than what 

we’ve been doing as the situation has worsened for working Americans over the last 

few years. 

At the Center for American Progress we have a plan called Progressive Growth— 

it has many components, including transforming our economy to a low-carbon economy, which is critical to bringing under control how much working Americans spend 

on energy, and health care reform to make health care more affordable and more 

broadly available. One more narrowly targeted element is a plan we are developing 

to address retirement security through a universal 401(k) plan which has as key 

components: 

• portability from job-to-job 

• incentives for employers to contribute 

• subsidies targeted at low- and middle-income workers 

The challenges of the American worker are America’s challenges 

The conditions workers face are not, of course, their problem alone. Policies that 

attempt to solve our economic challenges without addressing the conditions of the 

middle-class are doomed to failure. In the long run the hedge fund manager and 

the corporate CEO do not succeed unless there are businesses profiting from working Americans. The direction this country has been heading is a direction away from 

a hard-working, skilled, innovative workforce to a workforce so constrained by the 

challenges of just getting by that they, in fact, just get by. That is not the kind of 

workforce that moves business and a nation ahead economically. While one can 

overstate the extent that all our fates are tied together, in recent years such overstatement has been the least of our worries. The failure has been in understating 

it. The fact is that investments in people are investments that pay off for the economy as a whole. When we have millions who are marginalized from the economy, 

millions who can’t afford to take risks because they can’t change jobs because they’ll 

lose health coverage, millions who must limit their lives to spending on what’s needed to just get by—we lose innovative energy, we lose the participation of many millions who could contribute greatly, we lose customers for our businesses, we lose a 

middle class that drives the growth in national prosperity. 

That’s why it’s so critical that moving forward we don’t pretend that one class of 

people can go it on their own without everyone. Spreading the benefits of economic 

growth isn’t just a nice idea—it is, in fact, a key to continued growth. There are 

many challenges to be faced and we all will fail if they are not faced. The health 

care challenge must be dealt with—the rising costs are hurting individuals and industry alike. Investing in a low-carbon economy is an absolutely necessity—and the 

United States wants to be at its forefront, not lagging behind the rest of the world 

when we could be gaining a competitive advantage. Education and innovation are 

key linchpins to success in a modern economy. These are a few of the paths forward 

we need to take to move ahead our economy for the benefit of America’s workers 

and all Americans. 

Thank you again for the opportunity to present this testimony. 

f 

Chairman MCDERMOTT. Thank you very much. Elizabeth 

Lower-Basch is the senior policy analyst for the Center for Law 

and Social Policy. 

Ms. Lower-Basch? 

STATEMENT OF ELIZABETH LOWER-BASCH, SENIOR POLICY 

ANALYST, CENTER FOR LAW AND SOCIAL POLICY 

Ms. LOWER-BASCH. I am honored by the opportunity to testify 

here today. I want to thank this Subcommittee for your recognition 

that American workers and their families are experiencing a time 

squeeze, as well as a financial squeeze. 

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I will talk first about: how the demographics of the American 

workforce have changed; second, the ways the demands of the 

workplace have increased; and third, the failure of our employment 

standards to keep up with these changes. 

Over the last half-century, the American labor force has grown 

dramatically. Women now constitute 47 percent of all workers. The 

workforce has gotten older and more diverse. More mothers are 

employed, and more fathers are sharing in parental responsibilities. Over one-third of all workers have children under the age of 

18, and 85 percent of these working parents do not have an athome spouse. 

In addition, surveys suggest that between one in six and one in 

three workers are caring for adult relatives. 

There is no typical worker any more. We need policies that work 

for those who need to go back to school to develop new skills and 

move into better jobs, and for those who are phasing into retirement, as well as for those with care-giving responsibilities. 

The nature of the workplace is also changing. Just-in-time scheduling means that firms adjust staffing levels hour by hour. Some 

workers are forced to work mandatory overtime, while others must 

remain on call to keep their jobs, but are paid only for the hours 

when they are needed. As Dr. Bernstein mentioned, in the current 

recession workers’ inability to get enough hours of work to pay 

their bills is an increasing problem. 

Our employment standards have failed to keep up with these 

changes. The United States is one of the only countries in the 

world that does not guarantee any form of paid leave for childbirth. 

While some employers voluntarily step up, about one-third of workers taking family and medical leave receive no pay. More than half 

of leave takers worry about not having enough money to cover their 

bills. Only about half of workers are even covered. 

Similarly, while many take the ability to stay home with the flu 

without penalty for granted, in fact, barely half of all workers have 

any paid sick days. Only one in three can use these days to care 

for a family member. Without paid time off, workers are more likely to come to work sick, send their children to school or child care 

sick, and postpone needed medical treatment. 

Low wage workers are the most vulnerable, with only about one 

in three receiving paid sick days, or any pay during family and 

medical leave. They have the least flexibility and security at work, 

the least ability to pay for help, and the least ability to afford missing some of their pay. 

Even though a working life can now last 45 years or more, prime 

age workers who left the labor market for just a single year during 

a 15-year period made about 20 percent less than those who 

worked every single year, even after adjusting for differences in 

education and hours. 

Similarly, part-time workers often pay dearly for that flexibility 

in lower wages, lesser access to health insurance and pensions, and 

limited advancement opportunities. 

Too often, public policy also fails part-time workers. In half of the 

states, workers who are available only for part-time work are ineligible to receive unemployment insurance. Overall, only about one 

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1Mitra Toosa, ‘‘A Century of Change: the U.S. Labor Force, 1950–2050,’’ Monthly Labor Review, May 2002. Marlene A. Lee and Mark Mather, U.S. Labor Force Trends. Population Bulletin Vol 63, No 2, 2008. 

in eight part-time workers who becomes unemployed receives unemployment benefits. 

In conclusion, work-life issues and economic challenges facing 

American workers are inextricably linked. It is only by increasing 

their hours of work that American families have gained economic 

ground over the past 30 years. Without access to paid leave, or the 

opportunity to adjust one’s hours of work, hard won economic 

progress can be set back by a joyous event, the birth of a child, as 

well as by a sad one, the major illness of a spouse. 

Policies such as establishing minimum floors for paid family 

leave and paid sick days, ensuring equity for part-time workers, 

modernizing unemployment insurance, and expanding child care 

funding is, thus, a matter of basic fairness. Such policies would 

also be an important step toward breaking a cycle of disinvestment 

in low-wage workers and supporting economic growth. Thank you 

for your attention. 

[The statement of Ms. Lower-Basch follows:] 

Statement of Elizabeth Lower-Basch, Senior Policy Analyst, Center for Law 

and Social Policy 

I am honored by the opportunity to testify here today. I am a senior policy analyst 

at the Center for Law and Social Policy (CLASP). CLASP is a national nonprofit 

organization engaged in research, analysis, technical assistance, and advocacy for 

policies that improve the lives of low-income people. Our work is nonpartisan and 

based on research and evidence. One of our areas of focus is the quality of jobs 

available to workers, including work-life issues, and strategies to improve jobs and 

help workers succeed in all their roles. 

I have been asked to complement the data that has been presented on the economic challenges facing American workers with information about how workers are 

being caught between the demands of their jobs and their responsibilities as family 

members. I want to thank this Committee for your recognition that workers are experiencing a time squeeze, as well as a financial squeeze, and that both are fundamental to the well-being of American workers and their families. 

I will show how the demographics of the American workforce have changed, such 

that many workers also have caregiving responsibilities. I will also address the ways 

that the demands of the workplace have increased in our highly competitive 24/7 

economy. And I will discuss the failure of our institutions and employment standards to keep up with these changes. 

Changing demographics of the American workforce 

Over the last half century, the American labor force has grown dramatically, from 

62 million workers in 1950 to 152.3 million workers in 2007. As shown in Figure 

1, this growth was driven largely by two factors—growth in the working age population due to the baby boom generation, and increases in women’s labor force participation rate, which grew from 34 percent in 1950, to 43 percent in 1970, to nearly 

60 percent today. Women now constitute 47 percent of all workers. The workforce 

has also gotten older, on average, and more racially and ethnically diverse.1

Figure 2 shows that there is no ‘‘typical’’ worker in terms of marital status and 

parenting role. But workers at all stages of life need work-life flexibility. We often 

talk about it in terms of parents with young children, but it is also an issue for 

those caring for elderly parents or spouses, as well as for those who need to go back 

to school to develop new skills and move into better jobs, but can’t afford to stop 

working, and for those who are nearing retirement but wish to keep working. 

With more mothers employed—and more fathers sharing in parental responsibilities—more workers are balancing—or juggling—these two roles. As shown in Figure 2, more than one-third of all workers currently have children under the age of 

18. Eighty-five percent of these working parents do not have an at-home spouse to 

take care of all parenting responsibilities, either because both parents are working 

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2 Author’s calculation from unpublished Census tabulation of Current Population Survey data, 

DSG3–07. 3 Jane Lawler Dye, Fertility of American Women: 2006, P20–558, U.S. Census Bureau, August 

2008. 4Family Caregiver Alliance, Selected Caregiver Statistics, http://www.caregiver.org/caregiver/ 

jsp/content_node.jsp?nodeid=439. National Alliance for Caregiving, The MetLife Caregiving Cost 

Study: Productivity Losses to U.S. Businesses, July 2006. http://www.caregiving.org/data/ 

Caregiver%20Cost%20Study.pdf 

or because they are single parents.2 It’s worth noting that while fewer than half of 

workers have minor children at a given time, 80 percent of American women will 

have children at some point in their life.3 Most workers will move between different 

categories at different stages in their lives; they will need work-life policies that 

allow them to respond appropriately to their changing circumstances. 

As the population ages, an increasing share of workers are also responsible for 

providing care to elderly parents, spouses, or other adult family members. There’s 

a broad range of estimates as to how many, because there is no clear definition of 

what constitutes caregiving for adults, but surveys suggest that 17 to 35 percent of 

workers are either currently providing or have recently provided care for an adult 

family member.4 While most of these workers are not providing ongoing daily care, 

the need to respond to a sudden crisis situation can be even more disruptive at 

work. 

Mitra Toosa, ‘‘A century of change: the U.S. labor force, 1950–2050,’’ Monthly Labor Review, 

May 2002. 

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5 Jane Waldfogel, ‘‘Family and Medical Leave: Evidence from the 2000 Surveys.’’ Monthly 

Labor Review, September 2001. See also Society for Human Resource Management, An Overview 

of the 2007 FMLA Survey, May 2007. 6Gregory Acs and Pamela Loprest, Understanding the Demand Side of the Low-Wage Labor 

Market, The Urban Institute, April 2008. 7Kelleen Kaye and David Grey, The Stress of Balancing Work and Family, New America 

Foundation, October 2007. 8 Julia Henly and Susan Lambert, ‘‘Nonstandard Work and Child Care Needs of Low-income 

Parents.’’ In S.M. Bianchi, L.M., Casper, K.E. Christensen, & R.B King (Eds.), Workforce/Workplace Mismatch? Work, Family, Health, & Well-being. Lawrence Erlbaum Associates, Inc. 2005. 

Author’s analysis of unpublished data from the Current Population Survey, tabulated by the 

Bureau of Labor Statistics, DSG–03–2007. 

And, of course, any worker can get sick, or suffer an injury, causing him or her 

to miss work. In fact, the majority of workers taking family or medical leave do so 

as a result of their own health issues, rather than as caregivers.5

Changing demands of the workplace 

It is not just American families that have changed—the nature of the workplace 

is also evolving. There is a reason it has become a cliche ́ to say that we live in a 

24/7 economy. Consumers expect stores and service providers to be open evenings 

and weekends, which requires more and more workers to cover those hours. Companies that have invested in expensive capital equipment want it to be in use around 

the clock. 

Thus a recent nationally representative survey of employers found that employees’ 

willingness to work odd or flexible hours mattered ‘‘a lot’’ for 49 percent of employers in their choice of who to hire for non-college jobs. It mattered ‘‘not at all’’ for 

only 19 percent of employers. Thirty percent of recently hired less-skilled workers 

frequently work weekend hours, with another 24 percent working them occasionally 

or sometimes. Fifteen percent work evening shifts, 4 percent night shifts, and 11 

percent rotating shifts.6 Most workers report that they work these shifts for their 

employers’ convenience, not their own. While in some cases workers welcome nontraditional shifts because they allow them to forgo the use of paid child care, such 

split-shift schedules can put significant strain on workers’ marriages and families, 

as well as on their health.7

Even for people who work during traditional work hours, the hours of work have 

become less predictable. With ‘‘just-in-time scheduling,’’ sophisticated computer systems allow firms to fine-tune staffing levels hour by hour, in order to provide peak 

coverage as needed while minimizing the total payroll. This shifts the cost of inconsistent demands for labor onto the workers, requiring some workers to work mandatory overtime, while keeping others on call but paying them only for the hours in 

which their labor is needed. Many workers face unpredictable schedules, often provided no more than a few days in advance. 

Obviously, this is a challenge for workers with caregiving responsibilities. One 

study found that retail workers used as many as four different child care providers 

in the course of a single week in order to cover their varying hours of work. This 

reduced the stability of the relationships between children and caregivers, and parents were sometimes forced to accept less than ideal care situations in order to cover 

all the hours needed.8

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9 Bureau of Labor Statistics, Employment Situation Summary, September 5, 2008. 10 Jerry A. Jacobs and Kathleen Gerson, ‘‘Overworked Individuals or Overworked Families? 

Explaining Trends in Work, Leisure, and Family Time,’’ Work and Occupations, Vol. 28 No. 1, 

February 2001. 11 James T Bond, Ellen Galinsky and Jeffrey E. Hill. When Work Works: a Status Report on 

Workplace Flexibility. IBM and the Families and Work Institute, 2004. 12Wen-Jui Han and Jane Waldfogel. ‘‘Parental Leave: The Impact of Recent Legislation on 

Parents’ Leave Taking.’’ Demography, Vol 40, No. 1, February 2003. 13Waldfogel. ‘‘Family and Medical Leave.’’ 14 Jody Heymann, Forgotten Families, Oxford University Press, 2006. 15 Jane Lawler Dye, Fertility and Program Participation in the United States: 1996. Current 

Population Reports, P70–82. U.S.Census Bureau, 2001 and Jane Lawler Dye, 2008. Participation of Mothers in Government Assistance Programs: 2004. Current Population Reports, P70– 

116. U.S. Census Bureau, 2008. 16 U.S. Department of Health and Human Services, Indicators of Welfare Dependence, Annual 

Report to Congress, 2007. 

In the current recession, workers’ inability to get enough hours of work to pay 

their bills is an increasing problem. As of August, 5.7 million workers reported 

working part-time hours involuntarily, up 1.2 million from a year before.9 This figure does not include workers who usually work part-time, and are also experiencing 

reduced hours. 

At the other end of the labor market, professionals often find themselves working 

more and more hours. One in 12 working-age married couples now works a total 

of more than 100 hours per week—more than twice the percentage that did so in 

1970.10 Electronic devices such as BlackBerries allow greater flexibility for working 

from remote locations, but also make it harder to avoid workplace demands while 

trying to meet family responsibilities. Sixty-seven percent of employed parents say 

they do not have enough time with their children, according to the Families and 

Work Institute.11

U.S. lags behind in recognizing that workers are also caregivers 

In spite of these changes, the United States has made only limited progress towards recognizing that many workers are also caregivers. 

One of the biggest steps was the enactment of the Family and Medical Leave Act 

(FMLA) in 1993. This law allows workers to take up to 12 weeks of job-protected 

unpaid leave in the case of a major medical need, or to provide care to a family 

member. This law substantially increased workers’ access to unpaid leave. However, 

because this law only applies to companies with 50 or more employees, and because 

workers must have worked at least 1,250 hours for their employer in the past year, 

fewer than half of private-sector workers are covered and eligible.12

The fact that FMLA does not provide for pay during leave also creates a major 

hardship for many of the workers who are covered by it. The last time use of FMLA 

was studied in detail, about one-third of those taking leave received no pay, and 

more than half of leave-takers worried about not having enough money to pay bills. 

Lack of pay is a particular issue for low-income workers (those with annual family 

incomes of less than $20,000), of whom more than two-thirds received no pay during 

their leave.13 The United States is one of the only countries in the world that does 

not provide any form of paid leave for childbirth.14

Historically, one program that provided a minimal level of income support for poor 

single mothers during periods of unemployment or caregiving was Aid to Families 

with Dependent Children, AFDC. In the wake of welfare reform, it is clear that 

Temporary Assistance for Needy Families (TANF), which replaced AFDC, fills this 

role to a greatly diminished degree. In 2004, just 3.3 percent of women who had 

babies during that year received TANF cash assistance, compared to 11.6 percent 

in 1996.15 More broadly, HHS calculates that only 42 percent of eligible families received TANF benefits in 2004, down from 84 percent in 1996.16

A few states—California, Washington, and New Jersey—have taken an important 

next step by developing family-leave insurance programs which provide income replacement for workers who take family leave. These are important models to consider both for other states and for federal policy. Importantly, because the cost of 

providing this wage replacement is spread among employees, these policies do not 

place disproportionate costs on those employers who hire workers who are most likely to need to take family leave. 

Another area in which the public policy response has been limited is that of sick 

days. While millions of workers take it for granted that they can stay home with 

full pay when the flu strikes, the only places in the U.S. where such protection is 

guaranteed by law are San Francisco and Washington, D.C. Barely half of all workers (51 percent) have paid sick days, and only one in three can use these days to 

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17 Vicky Lovell, No Time to be Sick: Why Everyone Suffers When Workers Don’t Have Paid Sick 

Leave, Institute for Women’s Policy Research, Washington, DC, 2004. 18 James T. Bond and Ellen Galinsky. What Workplace Flexibility is Available to Entry-level, 

Hourly Employees. 2006. 19 Vicky Lovell, No Time to Be Sick: Why Everyone Suffers When Workers Don’t have Paid Sick 

Leave. Institute for Women’s Policy Research. 20Public Welfare Foundation, American Workers Overwhelmingly Support Paid Sick Days, 

Labor Day Survey Finds, August 29, 2008. http://publicwelfare.org/AboutUs/documents/ 

PollNRFINALa.pdf 21 Joan Williams, Unbending Gender: Why Family and Work Conflict and What to Do About 

It, Oxford University Press, 1999. 

22Stephen J. Rose and Heidi I. Hartmann, Still a Man’s Labor Market: The Long-Term Earnings Gap, Institute for Women’s Poicy Research, 23 Jeffrey Wegner, The Continuing Problems with Part-Time Jobs, Issue Brief #155, Economic 

Policy Institute, April 2001. 24 National Employment Law Project, Part-time Workers and Unemployment Insurance, March 

2004. http://www.nelp.org/ui/initiatives/part_time/parttimeui0304.cfm 

care for a sick family member.17 And access to this benefit varies greatly by income, 

as only 39 percent of low-wage, low-income workers receive any paid time off that 

they can use for a personal illness, compared to 90 percent of high-wage and highincome workers.18 Such workers can also least afford to forgo a day’s wages. Staying 

home sick may mean falling behind on the rent, or risking having the electricity or 

heat shut off. 

Lack of paid sick days causes negative health effects for workers, and their families, increased spread of disease among coworkers, customers and school children, 

and higher turnover.19 Without paid leave, workers are more likely to come to work 

sick, send children to child care or school when sick, and postpone needed medical 

treatment. Lack of a right to paid sick days can also threaten job security. A recent 

survey conducted for the Public Welfare Foundation found that one of six respondents reported that the worker or a family member had been fired, suspended, punished or threatened with being fired for taking time off due to personal illness or 

to care for a sick child or other relative.20

Large penalties for those who do not fit the old ‘‘ideal worker’’ model 

In spite of the many changes in the workforce, there remains a common assumption that workers should be available to work full-time, year-round, without interruption. Joan Williams refers to this as the ‘‘ideal worker’’ model, and argues that 

workers who deviate from it pay large penalties.21

Workers who take even relatively short breaks from employment pay for it in the 

form of lasting impacts on earnings. One study found that prime-age women who 

left the labor market for a single year during a 15-year period made 20 percent less 

than women who worked every single year, even after adjusting for differences in 

their education levels and the number of hours worked. Fewer men had such interruptions in their work histories, but those who did paid a similar penalty in lower 

earnings.22 Given that workers may well have more than 45 years to spend in the 

workforce, it does not make sense that taking a year or two off due to childrearing 

or other responsibilities should lower a worker’s earnings for the rest of her or his 

worklife. But it often does. 

One strategy that many families have used to meet their dual responsibilities as 

workers and caregivers is to limit one member’s paid employment to part-time. But 

workers who are unavailable for full-time work often pay dearly for that flexibility 

in lower wages, lesser benefits, and limited advancement opportunities. Part-time 

workers earn, on average, 20 percent less per hour than other workers with the 

same levels of education and experience, and are much less likely to receive either 

health insurance or pension benefits from their employers. This is in part due to 

the concentration of part-time jobs in a limited number of low-paying industries.23

In many occupations, the only part-time opportunities are those negotiated on an 

individual basis, often as a way to retain stellar performers, but not available to 

the workforce as a whole. 

It is not just private employers who economically penalize part-time workers; public policy does so as well. In half of the states, workers who are available only for 

part-time work are categorically ineligible to receive unemployment insurance, even 

though their wages are subject to the unemployment insurance tax. Even when not 

categorically excluded, part-time workers often fail to meet the minimum hours or 

earnings requirements to qualify for benefits. The result is that only about one in 

eight part-time workers who becomes unemployed receives unemployment benefits.24 Similarly, the FMLA does not cover workers who have worked less than about 

60 percent time for a single employer over the previous year. These policies are 

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25 National Center for Health Statistics, National Hospital Discharge Survey: 2004 Annual 

Summary With Detailed Diagnosis and Procedure Data, Vital and Health Statistics, Series 13, 

Number 162, October 2006. 26http://www.childtrendsdatabank.org/indicators/39ParentalInvolvementinSchools.cfm 27 Jennifer Meazey, Mark Greenberg, and Rachel Schumacher, The Vast Majority of Federally 

Eligible Children Did Not Receive Child Care Assistance in FY 2000—Increased Child Care 

Funding Needed to Help More Families, Center for Law and Social Policy, 2002. 28Leonard E. Burman, Elaine Maag, and Jeffrey Rohaly, Tax Subsidies to Help Low-Income 

Families Pay for Child Care, Tax Policy Center Discussion Paper #23, June 2005. 29 Jared Bernstein and Karen Kornbluh, Running Faster to Stay in Place: The Growth of Family Work Hours and Incomes. New America Foundation, June 2005. 

based on outdated notions that part-time workers’ earnings are not essential to their 

families’ well-being. 

Other systems have failed to keep up with the changing workforce and 

work environment 

The burden placed on people who are balancing work and family responsibilities 

is increased by the many aspects of our economy that have failed to keep up with 

these changes. I draw attention to three in particular: health care, schools, and child 

care. 

Health care: Today’s health care system does more medical procedures on an outpatient basis, and releases patients from the hospital sooner and sicker. From 1970 

to 2004, the average length of a hospital stay declined from 7.8 days to 4.8 days 

overall, and from 12.6 to 5.6 days for patients over 65.25 While this trend saves the 

health care system millions of dollars, it is based on an implicit assumption that 

patients have family or friends who are able to provide care that would once have 

been provided by professionals. Informal caregivers are frequently expected to 

change wound dressings and monitor healing, administer medication, assist with activities of daily living such as feeding and toileting, and transport patients to followup appointments. 

Schools: Our schools, with few exceptions, are open 30 hours a week and continue 

to run on an agricultural calendar that assumes that children are needed to work 

in the fields during the summer months. This places a burden on parents who must 

patch together child care for after school and school breaks. At the same time, the 

expectations for parents to be active participants in their children’s education have 

increased. Parents believe that we are failing our children if we don’t read with 

them, monitor their homework, help them sell popcorn or wrapping paper to raise 

funds for their schools, watch them play sports and perform in school plays, and 

attend parent-teacher meetings. If a child is struggling in school or has a disability 

that qualifies for an Individualized Education Program, parents will need to attend 

multiple additional meetings. Parents are responding to these demands: for example, education department statistics show that the number of students whose parents attended a general school meeting increased by 10 percentage points just from 

1996 to 2003.26

Child care: Reliable, high quality early childhood opportunities and care for 

school-age children give working parents the support and peace of mind they need 

to be productive at work. Unfortunately, the cost of child care has increased faster 

than inflation, and for too many low-income parents affordable child care is out of 

reach. Even after expansions during the late 1990s, the Child Care and Development Block Grant, which helps low-income working families pay for child care, only 

reaches about one in seven eligible families.27 In recent years, deficits have forced 

states to make substantial cuts to their child care assistance programs. Further, the 

tax credit for dependent care expenses is non-refundable, so it is useless for families 

earning less than about $22,000, and the expense limit is not adjusted for inflation.28

Conclusion 

Work-life issues are sometimes thought of as less serious than the economic challenges that workers face. But the two are inextricably linked. It is only by increasing their hours of work that American families have gained economic ground over 

the past thirty years.29 Without access to paid leave or the opportunity to adjust 

one’s hours of work, hard-won economic progress can be set back by a joyous event— 

the birth of a child—as well as by a sad one—the major illness of a spouse. 

While a great deal of attention has been paid to companies’ increasing efforts to 

accommodate the work-life needs of their workers, the vast majority of these efforts 

have been limited to highly paid employees, with ‘‘competing for top talent’’ and ‘‘rewwoods2 on PROD1PC60 with HEARING

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30 Corporate Voices for Working Families, Business Impacts of Flexibility. 31 Elizabeth Lower-Basch, Opportunity at Work: Improving Job Quality, Center for Law and 

Social Policy, September 2007. 

taining professionals’’ among the commonly cited benefits.30 Few of these initiatives 

reach down to lower-paid hourly workers. Such workers are particularly vulnerable: 

They have the least flexibility and security at work, the least ability to pay for help, 

and the least ability to afford missing some of their pay. 

Policies such as establishing minimum floors for paid family leave and paid sick 

days, ensuring equity for part-time workers, supporting those who need to temporarily interrupt their employment, and expanding child care funding are thus a matter of justice. Public policy can not add more than 24 hours to the day, but it can 

help ensure that workers are not forced to make unbearable choices between caring 

for their loved ones, and keeping the jobs that they need to pay the bills. 

Such policies would also be an important step towards breaking a cycle of disinvestment in low-wage workers. Too many companies assume that high turnover 

of hourly workers is inevitable, and thus fail to invest in the training, technology 

or management practices that would make them more productive. Both workers and 

our economy are worse off as a result. By using labor standards to set expectations 

for the workplace, government can take the ‘‘low road’’ option off the table, and give 

companies trying to do the right thing a little bit of breathing room, so that they 

are not immediately undercut by competitors taking the most brutal cost-cutting approach. In the long run, companies that take the ‘‘high road’’ by treating their hourly workers well can thrive in the marketplace by reducing turnover, increasing productivity, and improving customer service. 31

Thank you for providing me the opportunity to testify. 

f 

Chairman MCDERMOTT. Thank you very much for your testimony. 

Gregory Acs is a Ph.D. who is a principal research associate at 

the Urban Institute. 

Dr. Acs. 

STATEMENT OF GREGORY ACS, PH.D., PRINCIPAL RESEARCH 

ASSOCIATE, THE URBAN INSTITUTE 

Dr. ACS. Mr. Chairman, Mr. Weller, and distinguished Members 

of the Subcommittee, thank you for inviting me here to discuss the 

status and prospects of low-wage workers in the United States. The 

views I express are mine alone, and should not be attributed to the 

Urban Institute, its trustees, or its funders. 

There is no official definition of the term ‘‘low wage worker,’’ but 

research generally suggests that, in today’s dollars, the low wage 

line is about $10 an hour, and about a quarter of workers are low 

wage workers. 

To discuss the characteristics of low wage workers and their jobs, 

I draw on recent work with Austin Nichols. Note that not all low 

wage workers are poor, or even low income. About half of low wage 

workers are secondary or tertiary workers in families with incomes 

above twice the poverty line—that is about $42,000 a year—but 

that means about half of low wage workers are, in fact, in low income families. 

Low wage workers have less education than the average worker. 

Less than one-half of low wage workers have some education beyond high school, as compared with 60 percent of all workers. This 

suggests that some type of post-secondary education or training 

may help raise their wages. 

Low wage workers are more likely to be under age 30 than the 

average worker—39 percent versus 27 percent—and, as such, they 

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may expect to have wage growth as they gain experience on the 

job. 

Low wage workers, particularly those in low income families, are 

more likely to reside in central cities and in rural areas than the 

average worker. This suggests that low income workers may have 

limited access to better-paying jobs in growing suburban areas. 

The employment and job characteristics of low wage workers also 

differ from those of the average worker. Seventy percent of all 

workers work full-time, full year, compared to about half of low 

wage workers. The fact that about half of low wage workers do not 

work full-time year round contributes to their low income status. 

However, whether they could sustain full-time, year round work is 

uncertain. 

Low wage workers are also disproportionately likely to work in 

smaller firms. Due to their small size, these firms may lack the resources to pay higher wages, or offer comprehensive benefits, and 

they may have trouble offering much flexibility to their workers. 

Can low wage workers move up the economic ladder? Well, studies show that the wages of low wage workers grow by four to 8 percent with each year of additional experience. What does this mean 

for our low wage worker? 

Well, consider a worker who takes a job at today’s Federal min- imum wage, $6.55 an hour. Even with 8 percent annual wage 

growth—and this is the high end of the estimate—it would take 6 

years for this worker to start earning more than $10 an hour. The 

path up the pay scale is even harder when you consider how challenging it is for low wage workers to sustain full-time employment 

year in and year out. 

What work supports are available to low wage workers? Well, we 

consider work supports to include both public sector programs and 

private sector employer practices that promote job security, employment, and the advancement of workers. Private sector, or employer 

work supports, include non-wage benefits, like health insurance, 

training, educational benefits, paid time off, and even some form of 

retirement benefits. As we have heard, low wage workers have 

much less access to these employer-sponsored supports than higher 

wage workers. 

Now, on the public side, any program that supports the material 

well-being of low income working families can be thought of as a 

work support, although programs like food stamps are not themselves conditioned on work, while others, like the earned income 

tax credit, require it. 

These public programs interact in complex ways. By supplementing the resources of the very lowest earners, these programs make 

work substantially more attractive financially, than relying solely 

on public assistance. 

However, because these public supports are aimed at low income 

working families, they phase out as a worker begins to move up the 

economic ladder. Depending on the types of public assistance a low 

wage worker’s family receives, moving from $15,000 a year to 

$20,000 a year, the equivalent of a raise from $7.50 to $10 an hour, 

may mean only a meager increase in disposable income, as higher 

earnings displace public assistance. The family’s EITC is reduced, 

and they start incurring positive tax liabilities. 

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In short, low wage workers are less likely than other workers to 

receive private sector employer-sponsored benefits that support 

their work efforts. Public sector work supports provide substantial 

incentives to start working, but limit the financial incentives for 

low wage workers and low income families to take the next step up 

the economic ladder. 

Finally, other governing policies and laws ranging from minimum wage statutes to worker protection laws all, to some extent, 

affect low wage workers, but they may be poorly targeted, and they 

have unintended consequences. There are no easy answers to the 

challenges facing low wage workers and low income families. The 

challenges are complex, and solutions that address worker skills, 

employer practices, and the specific needs of low income working 

families all need to be considered. Thank you for your time. 

[The statement of Mr. Acs follows:] 

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f 

Chairman MCDERMOTT. Thank you very much for your testimony. 

Now, Mr. Beach, William Beach, is the director for the Center for 

Data Analysis at the Heritage Institute. 

Mr. Beach. 

STATEMENT OF WILLIAM W. BEACH, DIRECTOR, CENTER FOR 

DATA ANALYSIS, THE HERITAGE FOUNDATION 

Mr. BEACH. Yes, thank you, Mr. Chairman, Mr. Weller, Members of the Subcommittee. 

I testified last January before the Joint Economic Committee on 

the state of the economy, just as Congress began its debate over 

legislation to stimulate the economy. While my fellow panelists and 

I recognize the rough economic waters that the U.S. economy had 

entered, I did not join them in urging passage of a stimulus package. 

Past efforts by Congress to jumpstart a declining economy have 

done little economic good, and what temporary boosts to consumption or output occurred were borrowed from future production and 

purchases. Just as soon as the stimulus wore off, the economy fell 

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back to a sluggish pace, and we are seeing evidence of that repeating itself once again. 

There are, of course, a host of policy moves that Congress can 

make that are much more likely to help the economy than those 

that have been recently made, or that Congress is now planning to 

legislate. Temporary investment tax credits, bonus depreciation, or 

permanent reduction in the corporate profits tax all help build economic strength and create jobs. 

Also, clearly signaling your intentions about the expiration of the 

Bush tax relief measures will take enormous uncertainty out of the 

investment future and help businesses build their expansion and 

location decisions, as well as create jobs. 

Let me add another point that economists should have emphasized more back in the winter of this year. Rapidly increasing 

prices for gasoline and petroleum-based energy generally have 

slowed the economy and continued to impede job and income 

growth. If Congress acts to expand energy supplies, forward looking 

prices will fall, and economic activity will shed off the drag that 

stems from this sector. 

Let me illustrate. Economists working with me at the Center for Data Analysis at Heritage estimated the economic effects of a $2 

increase in retail unleaded gasoline. We have just experienced such 

an increase over the past 14 months. We found that total employment falls by 586,000 jobs. Aftertax personal income falls by 532 

billion. Personal consumption expenditures fall by 400 billion and 

significant personal savings would be spent to pay for the increased 

cost of gasoline. 

These national-level results reflect the economic effects of price 

changes. We looked at the economic effects on three types of households. Let me describe the effects on one of these, a married household with 2 children under the age of 17. For this household, disposable income falls by $1,085, as a result of this increase in price 

of gas. Purchases of goods and services fall by $719, and $792 is 

taken out of personal savings, just to pay the gasoline bill. 

Now, I am a free trader, just like Mr. Weller, who believes imports are central to our economic vitality and future economic 

strength. However, our heavy reliance on foreign oil producers—imported oil now constitutes over 60 percent of our daily petroleum 

demand—has made us subject to price variations due to supply disruptions, supply extortion, and booming world demand. 

In another study prepared by economists in my center, we asked, 

‘‘What would be the economic effects of increasing domestic production of petroleum by 10 percent?’’ The U.S. currently consumes 20 

million barrels of petroleum per day, of which 65 percent comes 

from foreign sources. If domestically sourced petroleum increased 

by two million barrels per day, what would be the economic effects? 

Our analysis indicates that such an increase would, first, expand 

the nation’s output, as measured by the gross domestic product, by 

$164 billion, and increase employment by 270,000 jobs. 

Congress exercises enormous authority over petroleum mining, 

largely through its regulation of offshore and Federal land oil reserves. Authorizing more oil mining in these reserves today would 

begin to wean the United States from economically harmful reliance on such foreign petroleum. 

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Enacting economic policies that are ineffective or counter-productive is really worse than doing nothing. If Congress fails to act now, 

then markets will develop work-arounds for these problems that 

can be fixed, or liquidate those that cannot be addressed. 

However, if the House and the Senate enact policies in those limited areas where its actions do make a difference, then the nearterm economic picture, both of the general economy and of the 150 

million workers who make it tick, should be much better. Thank 

you very much. 

[The statement of Mr. Beach follows:] 

Statement of William W. Beach, Director, Center for Data Analysis, The 

Heritage Foundation 

My name is William W. Beach. I am the Director of the Center for Data Analysis 

at The Heritage Foundation, a Washington based public policy institute. The views 

expressed in this testimony are mine alone and do not represent the views of The 

Heritage Foundation. 

I testified last January before the Joint Economic Committee on the state of the 

economy just as Congress began its debate over legislation to stimulate the economy. While my fellow panelists and I recognized the rough economic waters that the 

U.S. economy had entered, I did not join them in urging passage of a stimulus package. Past efforts by Congress to jump start a declining economy had done little economic good, and what temporary boosts to consumption or output occurred were borrowed from future production and purchases: just as soon as the stimulus wore off 

the economy fell back to its sluggish pace. 

How well has Congress’s first stimulus bill performed? 

• In January, unemployment stood at 4.9 percent of the civilian labor force. Today 

it stands at 6.1 percent. • In January, 7.6 million people were looking for work. In August 9.4 million 

were unemployed. • The Dow Jones Industrial Average on January 31 closed at 12,650. On August 

29 it closed at 11,543. • Some supporters of the first stimulus legislation point to the stronger growth 

in GDP during the second and third quarters as compared to the first. Clearly 

some additional consumption did take place, and it can be attributed to the rebate checks. • However, the additional consumption fell far short of the amount of the rebate 

checks. Further, there is evidence that consumption has fallen back down and 

that a disproportionate amount of the summer’s additional spending went to 

pay for high energy. 

Once again, Congress is considering economic stimulus legislation, but this time 

the proposals are even less economically viable. Extending the period during which 

workers can receive unemployment insurance certainly provides families with much 

needed income, but it does nothing to create jobs or put these folks back to work. 

Helping states with budget shortfalls builds no economic strength for the future. 

Spending the taxpayers valuable income on bridges and highways has proved time 

and again to be the worst move Congress can make to address today’s economic 

problems: you can’t get the money out of this town fast enough to provide economic 

relief, and the funds are rarely spent on what the economy really needs. 

There are, of course, a host of policy moves the Congress can make that are much 

more likely to help the economy than those you have recently made or are now planning to legislate. Temporary investment tax credits and bonus depreciation or a permanent reduction in the corporate profits tax all help build economic strength and 

create jobs. Clearly signaling your intentions about the expiration of the Bush tax 

relief measures will take enormous uncertainty out of the investment future and 

help businesses build their expansion and location decisions with better data. 

All of these ideas and more were fully covered in the reams of testimony last January. Let me add another that economists should have emphasized more back in 

the winter of this year. Rapidly increasing prices for gasoline and petroleum based 

energy generally have slowed the economy and continue to impede job and income 

growth. If Congress acts to expand energy supplies, forward looking prices will fall 

and economic activity will shed off the drag that stems from this sector. 

Let me illustrate. Economists working with me in the Center for Data Analysis 

at Heritage estimated the economic effects of a $2.00 increase in retail unleaded 

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1See Karen A. Campbell, ‘‘How Rising Gas Prices Hurt American Households,’’ Heritage 

Foundation Backgrounder, No. 2162, July 14, 2008. A copy of this report is attached to this testimony as Appendix 1. 2See Johanthan E. Hughes, Christopher r. Knittel, and Daniel Sperling, ‘‘Evidence of a shift 

in the Short-Run elasticity of Gasoline Demand,’’ National Bureau of Economic Research Working Paper, w12530 (September, 2006). 

gasoline.1 We have just experienced such an increase over the past 14 months. We 

found that 

• Total employment falls by 586,000 jobs. • After-tax personal income falls by $532 billion. • Personal consumption expenditures fall by $400 billion, and • Significant personal savings would be spent to pay for the increased cost of gasoline. 

These national level results reflect the economic effects of price changes. That is, 

disposable income falls because the economy slows below its potential. In addition, 

households have to spend more in gasoline. 

We looked at the economic effects on three types of households. Let me describe 

the effects on one of these: a married household with two children under the age 

of 17. For this household, disposable income falls by $1,085; purchases of goods and 

services falls by $719; and $792 is taken out of personal savings just to pay the gasoline bill. 

Some analysts argue that gasoline consumers can adapt to higher prices by 

changing their driving patterns and their automobiles. However, new research by 

Jonathan Hughes, Christopher Knittel, and Daniel Sperling (all from the University 

of California-Davis) shows that families today have little opportunity to quickly 

adapt to higher prices. Most working families have two income earners who commute by automobile to work. They live in suburbs away from mass transit opportunities. Their children have extensive after-school activities to which they are transported more often than not in an SUV. Today’s short-term price and income elasticities are a full ten times smaller than those estimated using data from 20 years 

ago.2

These lower elasticities mean that consumers have a much harder time adapting 

to gasoline price shocks today than two decades ago. Pretty much all they can do 

is reduce their consumption on other items and take funds out of savings to pay 

for the higher priced gas. Doing so, of course, slows the economy and makes everyone else worse off. 

There are many economic problems facing Congress, from slowing global economic 

activity to persistently bad news from our financial sector. Congress can act on some 

of the economic fronts before it, but its ability to affect the nation’s economic future 

is limited. On energy, however, its actions to increase supplies in the short and long 

run could do some good, particularly for workers looking for jobs and families hoping 

to keep their children in violin lessons and little league baseball. 

I am a free trader who believes imports are central to our economic vitality and 

future economic strength. However, our heavy reliance on foreign oil producers (imported oil now constitutes over 60 percent of our daily petroleum demand) has made 

us subject to price variations due to supply disruptions, supply extortion, and booming world demand. I believe that increasing the domestic production of petroleum 

and refined oil products would have a positive effect on our domestic economy, largely through more jobs and income. 

In another study prepared by economists in my Center, we asked what would be 

the economic effects of increasing domestic production of petroleum by 10 percent. 

The U.S. currently consumes 20 million barrels per day, of which around 65 percent 

come from foreign sources. If domestically sourced petroleum increased by 2 million 

barrels per day, what would be the economic effects. 

Our analysis indicates that such an increase would 

• Expand the nation’s output as measured by the Gross Domestic Product by 

$164 billion. 

• Increase employment by 270,000 jobs. 

Congress exercises enormous authority over petroleum mining, largely through its 

regulation of off-shore and federal land oil reserves. Authorizing more oil mining in 

these reserves today would begin to wean the U.S. from the economically harmful 

reliance on so much foreign petroleum. 

One of the more tragic features of recent energy policy actions by Congress is how 

often it has failed to increase access to energy resources on the grounds that doing 

so would not have any effect on supply or price for years. While possibly correct 

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from an engineering standpoint, this excuse for inaction makes no sense economically. If Congress were to announce greater access to proved reserves, mining activity would immediately begin, capital and talent would leave other parts of the world 

and travel to the United States, forward pricing markets would feel the downward 

pressure on prices that impending supply increases make, and ordinary Americans 

would not discount their own economic futures as much as they do today. 

Like tax policy, changes in energy policy signal to investors and consumers what 

their economic future will look like. Inaction on either front today is not acceptable. 

If you think we have weathered the economic storms of faltering financial markets 

and draining energy prices, think again. Major economies around the world are 

slowing, which places greater pressure on our weakened financial system and faltering manufacturing sector. The value of the current stock of housing will continue 

to fall. Investment by businesses and households will slow as interest rates rise to 

fend off inflation and uncertainty permeates more planning about future economic 

activity. 

If Congress fails enact the types of legislative responses to a slowing economy that 

actually work (tax and energy policy changes fall into the ‘‘what work’s’’ category), 

then we could be in for a very grim six months. I would not be surprised to see 

little if any growth in GDP over the next two quarters. Consumption in the third 

quarter of this year is very likely to be negative, and that’s the quarter that was 

supposed to be most affected by the boost from the stimulus. Unemployment will 

rise, and job growth will not resume until the summer of 2009. 

Enacting economic policies that are ineffective and counterproductive is worse 

than doing nothing. If Congress fails to act now, then markets will develop ‘‘work 

arounds’’ for those problems that can be fixed and liquidate those that can’t be addressed. However, if the House and Senate enact policies in those limited areas 

where its actions do make a difference, then the near-term economic picture, both 

for the general economy and the 150 million workers who make it tick, should be 

much better. 

* * * * * * * 

The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported, and receives no 

funds from any government at any level, nor does it perform any government or 

other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United 

States. During 2007, it had nearly 330,000 individual, foundation, and corporate 

supporters representing every state in the U.S. Its 2007 income came from the following sources: 

Individuals 46% 

Foundations 22% 

Corporations 3% 

Investment Income 28% 

Publication Sales and Other 0% 

The top five corporate givers provided The Heritage Foundation with 1.8% of its 

2007 income. The Heritage Foundation’s books are audited annually by the national 

accounting firm of McGladrey & Pullen. A list of major donors is available from The 

Heritage Foundation upon request. 

Members of The Heritage Foundation staff testify as individuals discussing their 

own independent research. The views expressed are their own, and do not reflect 

an institutional position for The Heritage Foundation or its board of trustees. 

[Additional testimony follows:] 

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Chairman MCDERMOTT. Thank you very much. As I said earlier, your full testimony will be entered in the record, so that those 

things you didn’t get to say will be recorded. 

As my question, I would like to say I want each of you to take 

a minute and do something for me. Imagine yourself being called 

by the next President of the United States down to the White 

House, and asked to write the new Social Security Act of 2009. 

What would be the two things that you would want dealt with in 

that new economic security act for the new 21st century? 

You can start any place. If you want to start, Dr. Bernstein, it’s 

fine with me, and give the others some time to think. 

Dr. BERNSTEIN. Lucky me. Interestingly, I think I would probably go back to some of the fundamentals that that act contained, 

updating them for today’s very different job market, as you have 

heard from my co-panelists. 

The first thing I would focus on is health care. We have, I think, 

a deep market failure in our health care system. The non-partisan 

Congressional Budget Office has been doing extremely persuasive 

work on the unsustainability of our current plan. 

It’s an area of great policy interest to me and my research in this 

shows that we have to seek the same solution that every other advanced economy has, which is to take health care out of the market 

to pursue a universal kind of health care coverage plan, and tap 

the same kinds of efficiencies they do to cover their full population, 

spending a half to two-thirds of their economy on health care, compared to us. 

Secondly, I would strengthen the pension and the unemployment 

insurance system, and I can say more about that, but I think my 

minute is up. 

My point is that both pensions and unemployment insurance system were precisely what they were thinking about back then, and 

it’s actually interesting and maybe somewhat alarming to think 

about the similarities that we’re facing now, relative to some of the 

imbalances in that economy and back then. 

Chairman MCDERMOTT. Mr. Ettlinger? 

Mr. ETTLINGER. So, I wrote, ‘‘Health, unemployment, pension.’’ 

So, the fact that we worked together for 6 years may be a—— 

Chairman MCDERMOTT. Well, he talked about health at some 

length. Talk about pensions. 

Mr. ETTLINGER. Yes, I mean, I—— 

Chairman MCDERMOTT. What would you do? 

Mr. ETTLINGER [continuing]. I think that, focusing in on pensions, there has been this shift from defined benefit in the private 

sector to defined contribution and I think that that is going to persist. 

I think that the businesses are going to move in that direction. 

I think that is going to continue. The downside to that is that, for 

workers, it’s creating more risk for them. As Jared characterized it, 

it’s a shift in risk. 

So, that means a couple of things. One is that it means that we 

definitely have to make sure that Social Security—which is becoming increasingly the only defined benefit that people have—is 

strong and paying good benefits and is kept up. 

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The other thing is we have to make sure that everyone has vehicles for defined contribution, if they’re not getting employer-provided systems. That’s why we’re working on, and others have done, 

come up with other things, too, around the idea of a universal 

401(k), which has a number of characteristics. One is that it’s portable. It is easy to get. It is automatic, which I think is an important thing because there have been studies that have shown if people are automatically enrolled in things, they’re much more likely 

to participate. 

Also, refundable credits for lower income people, so that their 

contributions into those plans are sufficient that they have an adequate retirement. 

Chairman MCDERMOTT. Ms. Basch? 

Ms. LOWER-BASCH. I think I would try to fill two sets of gaps. 

One is between the unemployment insurance system, and temporary assistance for needy families. We know now only about a 

third of workers who lose jobs receive unemployment insurance. 

Low wage workers, part-time workers just don’t get covered by it 

and temporary assistance is not picking up the gaps. 

Then, on the other side of temporary assistance, the gap between 

it and SSI, which is for people who are permanently and completely disabled. There are a lot of people who have limitations on 

their work, or care giving responsibilities, such that they can’t fully 

support their families, but they’re able to do something, and we 

need to figure out a way to provide some income support that 

doesn’t prevent people from working to the maximum extent that 

they’re able to do so. 

Chairman MCDERMOTT. Dr. Acs? 

Dr. ACS. Well, health care is one and two on my list, but it’s well 

covered, so let me move to education, where I think we have to improve the skills of our workforce, starting with reform at the high 

school level, and then also postsecondary education. 

Chairman MCDERMOTT. How do you fund it? 

Dr. ACS. Fortunately, I don’t have to. 

Chairman MCDERMOTT. The President will ask you, ‘‘How are 

we going to fund this?’’ 

Dr. ACS. I will ask Mr. Beach for help on that later, but also 

working with community colleges and local employers to identify 

the skills that they need from their workers, and to develop programs to help workers access this post-secondary training. 

The other area that I think probably needs attention is on taxes, 

and particularly the effective tax rates paid by working families as 

they try to move up the scale. So, I would expand the earned income tax credit, increase the levels available to those who don’t 

have children, and also try to develop ways to let workers, as they 

move up, keep more of the money they earn. 

Chairman MCDERMOTT. Mr. Beach? 

Mr. BEACH. Since I am kind of the rough edge on this panel, 

I will change the—— 

Chairman MCDERMOTT. I’m sure you could make some suggestions. 

Mr. BEACH. I think economic security is always enhanced if we 

know that our children are going to be better off than us, if we can 

look forward to the next generation and say that we have made the 

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right moves today that make things better in the future. It’s one 

of our metrics. 

Greg and I are working with the Pew Charitable Trust on a 

project just on that very subject. We know that 30 percent of intergenerational economic mobility is due to education, it’s the number 

one factor. So, let’s put our focus there, to make sure that education is the best we can make it, and that means a restructuring 

of the way education is provided in this country, so that we don’t 

make the same mistakes we have made over the past 50 years. 

Then, on health care, that’s 8 percent more. I join my colleagues 

in saying it’s important, but it needs to be portable and owned, and 

the patient needs to be the customer, and they need to see the 

prices. So, there is a lot we can do there, too. Thank you for a great 

question, Mr. Chairman. 

Chairman MCDERMOTT. Thank you. Mr. Weller? 

Mr. WELLER. Thank you, Mr. Chairman. Let me just clarify. Dr. 

Bernstein, you have appeared repeatedly in the news media this 

year as an economic advisor to Senator Barack Obama, Presidential candidate. Are you speaking on behalf of his campaign 

today, or are you on your own? 

Dr. BERNSTEIN. Oh, I am on my own. I’m an informal economic 

advisor, I’m not on the campaign’s payroll. 

Mr. WELLER. I just wanted to clarify that. Thank you. Mr. 

Chairman, I have a sampling of news clippings which talk about 

the impact on employment of soaring energy costs, and particularly 

gasoline costs. 

One, for example, notes 23 employees of a trucking company 

based in Knoxville, Tennessee, who were laid off in March. That included more than half of the company’s total workforce. Now, these 

hardworking Americans were laid off, as the article states, due to 

soaring diesel and gasoline costs that are hitting the trucking industry especially hard. I would ask, Mr. Chairman, unanimous consent to insert these into the record at this point. 

Chairman MCDERMOTT. So ordered. 

[The information follows:] 

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f 

Mr. WELLER. Thank you, Mr. Chairman. Mr. Beach, you talked 

in your testimony about the impact on Americans of higher gasoline prices. The four of us up here on the panel, both Democrats 

and Republicans, I think we’re all in agreement that we need to 

do a lot more of everything, and we need to invest in nuclear, we 

need to invest in hydro-electric, we need to invest in wind, we need 

to invest in solar. 

For the average American, they still drive cars using gasoline 

and, for the foreseeable future they will, as well. Can you talk 

about a typical household? Gasoline prices since January of 2007 

essentially doubled. What has that meant for a typical household 

in America? What does that come out to each year, this year, that 

they paid in higher gasoline prices—— 

Mr. BEACH. Well, if you take the—— 

Mr. WELLER [continuing]. Because of our limited supplies? 

Mr. BEACH. Right. If you take that typical household, and it 

consists of two children, two adults, all of that sort of typicality, 

you will find that they are paying about $800 more. One of the 

really—— 

Mr. WELLER. $800 more since January of 2007? 

Mr. BEACH. Over the past year. 

Mr. WELLER. Just the past year, $800 more. 

Mr. BEACH. Just this past year, on an annual rate. The reason 

we have so much pain out there on gasoline prices this time around 

is we have more two-earner families who are dependent on cars for 

commuting, we have more suburban residents who must, in fact, 

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travel to buy groceries and do all of their errands, and we have so 

many opportunities for children after 3:00 in the afternoon, as I’m 

sure the Subcommittee Members well know, that mothers and fathers are constantly going to violin lessons and little league, and 

football, and so forth. The car is now central. 

It is very difficult to change your suburban location to an urban 

location when the gasoline price goes up a dollar—consumers can’t 

adjust. So, it looks to them like a tax increase. It looks like something imposed without their consent, and they’re angry about that. 

We find that, in fact, Congressman, not only do they have to 

spend more, but they’re cutting back. Those violin lessons and the 

little leagues are falling victim to these higher prices. They’re going 

into their savings to pay for gasoline. 

Mr. WELLER. So, it’s affecting their quality of life. 

Mr. BEACH. The quality, yes, and the kinds of investments we 

make in our kids. 

Mr. WELLER. You mentioned the trips to the little league and 

violin lessons, or—— 

Mr. BEACH. Right. 

Mr. WELLER [continuing]. Piano lessons, or school activities, the 

school play, or Boy Scouts, Girl Scouts. I think of when I was much 

younger and growing up on the farm, and my brother and his wife 

lived in the house next door, and how many trips a day she made 

to town to pick up the kids at school activities, and little league, 

and all the various activities kids are involved in, because they 

lived five miles outside of the community. So, obviously gasoline 

prices were much less then. 

Mr. BEACH. That’s right. 

Mr. WELLER. I still remember when gasoline was $.28 a gallon 

when I was in college. So, it has gone quite a ways. 

One of my frustrations in all this is—what’s that? I am old, and 

getting older. When I turned 50, my wife said, ‘‘So, how do you feel 

about turning 50?’’ I said, ‘‘Honey, 50 is the new 40.’’ I just turned 

51, and she said, ‘‘Honey, how do you feel about being 51?’’ I said, 

‘‘Honey, I feel 51,’’ as I’m lifting my 2-year-old daughter up, who 

is getting bigger and heavier. 

One of the frustrations I have had is that we’re dependent on oil. 

Mr. BEACH. Yes. 

Mr. WELLER. About two-thirds of the oil that we consume comes 

from elsewhere. 

Mr. BEACH. Yes. 

Mr. WELLER. We have locked away so much of what we have 

and, really, since we all want to do more of everything, the debate 

really is, ‘‘What do we do about domestic production?’’ 

Mr. BEACH. Right. 

Mr. WELLER. I want to ask each of the panelists, about what 

we have out there, really, the areas where opportunities for domestic production are environmentally safe drilling in Alaska, and deep 

water drilling off our coasts. 

In 1996 we sent to President Clinton a bill which would have authorized environmentally safe drilling in Alaska, it would have generated over a million barrels of oil a day. Had he signed it into law, 

rather than vetoing it, we would be receiving that oil today, which 

would be increasing our supplies. 

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I would like to know from each of the panelists, if you could just 

very shortly tell me, do you support expanding domestic production 

of oil, so that we can bring down gasoline prices? Dr. Bernstein? 

Dr. BERNSTEIN. I thought that the—is it called the Gang of 

Ten, the group of bipartisan legislators who compromised on this— 

had it right. 

What concerns me is the non-sequitur between this idea of 

unleashing the outer-continental shelf and ANWR, the non sequitur of that idea and the issues we’re speaking about today. 

Mr. WELLER. That’s a big word, ‘‘non-sequitur.’’ 

Dr. BERNSTEIN. Well, my point is that the argument that I 

think you and Mr. Beach are espousing is that if you allowed drilling, if you ended the moratorium that we’re talking about, that the 

families we’re discussing today would be helped both in terms of 

lower cost, and more jobs. I think that’s wrong. 

If there were lower costs to energy, and I suspect there would be, 

according to the research I have seen it’s a couple of pennies per 

gallon, and it’s about a decade away. 

Secondly, if there were jobs to be had by drilling, well, we could 

have those jobs tomorrow, because there are far, far more square 

acres open to the oil companies to drill today having nothing to do 

with lifting the moratorium. So, I believe that this, as a policy situation to what we’re talking about, is unrelated. 

Mr. WELLER. So, you oppose, then, expanded domestic production through—— 

Dr. BERNSTEIN. No. I neither oppose expanded domestic production, nor do I disagree with any of the pain that we have described around—— 

Mr. WELLER. Don’t you have to drill where the oil is? 

Dr. BERNSTEIN. Well, my understanding—and I guess we could 

have dual geosurveys here—but my understanding is that there is 

far more oil available in the open lands for drilling today under the 

ground that is within the purview of these companies to go and 

drill in. 

So, I view this notion that you have to open up the OCS and the 

ANWR as more of a land grab than a real earnest—— 

Mr. WELLER. All right. Mr. Ettlinger, do you support increasing 

domestic production? 

Mr. ETTLINGER. First of all, I would associate myself with 

what Dr. Bernstein said, in terms of what the economic impact of 

doing such would be, in that it would be very small. 

The other thing I would say is that it is a valuable resource. If, 

indeed, one could do it in an environmentally sound way, the reasons not to do it go away. I think there is a lot of dispute on whether it can be done in an environmentally sound way, and I don’t 

claim to have expertise in that. 

Mr. WELLER. Okay. Ms. Basch. 

Ms. LOWER-BASCH. I am going to refrain from commenting 

about something that I do not have expertise on. 

I will, however, note that all this pain that we are discussing is 

a much greater burden on low income households. Food is a larger 

portion of low income families—— 

Mr. WELLER. So, low income families suffer the most from high 

gasoline prices? 

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Ms. LOWER-BASCH. Well, gas prices, high energy prices. This 

is going to be a scary winter for a lot of people. 

Mr. WELLER. Dr. Acs. 

Dr. ACS. I take no professional public opinion on the oil exploration or development of more oil. 

I would note that any rapid transitions to the economy are very 

hard on families, such as the rapid run-up in gasoline prices that 

we have seen. I also note that when the prices went up, all of a 

sudden you see transformations in the economy, there is more interest in alternative types of vehicles, alternative fuels, which may 

not be profitable if the price of oil is very low, but become profitable as the price rises. 

At some point, the oil is going to run out. At some point, we may 

be more—we may address—— 

Mr. WELLER. Is that technology immediately available, or is 

that—— 

Dr. ACS. That technology is—— 

Mr. WELLER [continuing]. Going to take some time to introduce, 

as well? 

Dr. ACS. All transitions take time. 

Mr. WELLER. Okay. 

Dr. ACS. So, the possibility of new—I guess they’re called green 

collar jobs—that might be the response, that might be the longer 

term upside of today’s high energy prices that may offset the pain. 

That doesn’t help a family today. 

Mr. WELLER. Dr. Beach, do you want to respond to your 

friends—— 

Mr. BEACH. Well, I would just like to say one thing about the 

argument that it would not make more than a few cents difference 

to the average working individual. That has to fall on its face. 

We have just been through 12 months of looking at the effects 

of higher oil prices on working families, which could have been, in 

part, avoided, had we had larger domestic supplies, based on the 

estimates that I have provided with you today. 

If you want to see the harm that that does, to not have a proper 

energy policy on the kinds of low and moderate income families 

that are working hard to make a living, then just look at the record 

of the past 12 months. 

Mr. WELLER. If President Clinton had signed into law the legislation which would have authorized environmentally safe drilling 

in Alaska, what would have been the impact on the price of a gallon of gasoline if that extra million barrels of oil had come in each 

day? 

Mr. BEACH. Well, we have just provided that information. Looking at the impact of two million additional barrels—you just cut 

our estimates in half—and we would have lower prices, more jobs, 

and higher output. 

Mr. WELLER. Thank you. 

Chairman MCDERMOTT. Mr. Davis? 

Mr. DAVIS. Thank you, Mr. Chairman. Ms. Basch, when you 

said that you were not going to venture an opinion on something 

about which you knew very little, I was struck that you disqualified yourself from ever being a Member of Congress. 

[Laughter.] 

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Mr. DAVIS. There are only four requirements for being a Member of Congress. You have to be 25, be a legal resident of your 

State, legal resident of the United States, and be willing to have 

firm and emphatic opinions about things about which you know 

nothing. 

[Laughter.] 

Mr. DAVIS. It’s a bipartisan thing that applies to all of us. 

Let me get to the subject of the hearing today, which is not drilling. One of my favorite John F. Kennedy speeches, which most people do not remember, is one he gave at Yale University, a commencement in 1962. He talked about the danger and the power of 

the myth and myth-making in American economic policy. He talked 

about the dangers that happen when ideas accumulate a power and 

a weight out of all proportion to the empirical value around it. 

I thought about Jack Kennedy’s speech as I have listened to 

some of the arguments from Mr. Beach and others about economic 

policy. I want to use my 5 minutes of questions to maybe address 

two myths that float around. 

The first myth is this idea that tax rates are the driving factor 

in a productive economy. Let’s look at a little bit of evidence. The 

1990s, we created, I think, a net of roughly 22 to 24 million jobs. 

There is no dispute that, whatever you think of tax policies and of 

President Clinton, that the tax policies today have enacted dramatic reductions and are less Draconian than President Clinton’s 

tax policies. 

Net job growth in the Bush Administration, which is due to end 

in the next several months—I forget the exact number, but I think 

we would all agree it is way, way short of 22 million. In fact, right 

off the top of your head, does anyone know the net—— 

Dr. BERNSTEIN. 5.7 million. 

Mr. DAVIS. Which is, by any math, 17 million to 18 million behind President Clinton’s numbers. 

Now, this is what tax policies look like under the Bush Administration: substantial reductions of taxation that is non-wage-based; 

substantial reduction of corporate tax rates; substantial reduction 

of dividend taxation; substantial reduction of capital gains taxation; no question, a far more generous tax policy. That, itself, 

seems to undercut a lot of the ideas that we sometimes hear in this 

city about the necessity of extending every portion of the Bush tax 

cuts. 

There is another piece of data that comes to mind from the Government Accountability Office. From 1998 to 2005, 2 out of every 

3 U.S. corporations had no Federal tax liability. Of the large corporations, which are defined as those with over $250 million in assets, or annual sales of at least $50 million, 1 out of 4 large U.S. 

corporations—who, by the way, generated revenues of $1.1 trillion 

in 2005—1 out of 4 of them had no tax liability whatsoever. 

So, I am a little bit struck by this idea that we somehow need 

to be more aggressive in reducing taxation, and that to do so is essential to the economy. That strikes me as a myth. 

Another myth that I want to address is the one about unionization. I come from a red State, Alabama. I come from a State where 

our business interests routinely pride themselves on our relatively 

low levels of unionization. 

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1947 to 1973 is the period of time in the post-war era where we 

have had the highest union penetration in the economy in the 

workforce. Almost 1 out of 4—actually, between 1 in 4 and 1 in 3 

Americans who were working were unionized between 1947 to 

1973. 1947 to 1973 happens to also be the highest combination of 

wage and productivity growth in the post-war era. 

Contrast that to 1973 to 2008. The level of unionization has 

plummeted, and is now less than 15 percent of the workforce. Yet 

our wages have been stagnant for all but 3 years in the late 1990s, 

and, for the first time, we have seen productivity move forward 

while wages have declined. 

That data seems to undermine the idea that unionization is a destructive element in our economy, or that it’s a growth deterrent 

in our economy. 

I wanted to give you all some time to respond to some of what 

I said. Dr. Bernstein? 

Dr. BERNSTEIN. I would like to defer most of my time to my 

colleague, Mike Ettlinger, because he just wrote a paper about precisely this point. 

I will say one other fact, just to amplify what you have said, Mr. 

Davis, which is that over the course of the 1990s, when we had a 

very different tax regime in place, one that you wouldn’t associate 

with supply side or trickle-down economics, the median income of 

working age households went up 10 percent, $5,000 in today’s dollars, a 10-percent increase over the course of the 1990s. 

The median income of working age households fell $2,000, or 4 

percent. That’s $2,000. That’s real money in today’s dollars, $2,000 

between 2000 and 2007, a period when productivity expanded by 

18 percent. So, it’s precisely in the spirit of your comments. 

Mr. ETTLINGER. Yes, the paper is—I wish I’d brought a copy. 

It’s coming out tomorrow, but it compares three eras: the era beginning with the enormous tax cuts 1981; the era beginning in 1993, 

with the Clinton tax increases; and the era beginning in 2001, with 

the tax cuts you’re all very familiar with. 

One of the most interesting things is sort of the premise of supply side economic theory, the theory that these tax cuts are going 

to generate economic growth, is largely that they’re going to spur 

a lot of investment. 

Just one of the things that was most telling to me was how much 

better investment growth was during the post-1993 era, than either 

the 1981 or 2001 eras. Obviously, things were better post-1981 

than they have been post-2001, but even, looking back at that and 

comparing that era to what happened after 1993, by a number of 

measures—income, employment growth, wage growth, a number of 

different measures we looked at—the economy did better for most 

people in the non-supply side era, if you will. 

Touching on corporate taxes for a moment, I think that we probably could all agree, I hope, that the corporate tax system needs 

some work, that right now we have this—it’s been in the paper a 

lot—we have this high tax rate on corporations, and yet the other 

side says, ‘‘Oh, but compared to other OECD countries, we end up 

collecting very little in taxes,’’ and that should clue us all in that 

there is something amiss. 

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We have enormous problems in how we tax the income of multinational corporations. There are lots of loopholes in the Tax Code. 

Coming together around trying to get serious about straightening 

out the corporate income tax—which might allow you to lower the 

rate some, if you were to do that—would be a really worthwhile endeavor. 

Mr. DAVIS. I would be happy to lower the rate if people actually 

paid them. If I paid no Federal taxes, I could be astonishingly productive. I could certainly spend an enormous amount of money. 

I think most people who we represent would say that. Those are 

staggering numbers to people, that two out of every three companies had no tax liability. Irrespective of what their rate is, through 

a combination of depreciations, writeoffs, shelters, they’re not paying any Federal taxes at all. 

Mr. ETTLINGER. 35 percent of 0 taxable income isn’t any worse 

than 25 percent of 0 taxable income. 

Chairman MCDERMOTT. Mr. Herger will inquire. 

Mr. HERGER. Thank you, Mr. Chairman. My friend and colleague, Mr. Davis, brought up President Kennedy, who is also one 

of my favorite Democrat Presidents. He campaigned on lower taxes, 

lowered taxes during his term, and we saw great results, as did 

President Reagan. I think much of the prosperity of the 1990s was 

because of the lowering of an incredibly high tax rate during the 

1980s. 

I am also pleased to read that Democrat Presidential candidate 

Barack Obama said this week that he has changed his mind, and 

decided he will not raise income taxes while the economy is struggling. Mr. Chairman, I want to thank you, and appreciate the opportunity to discuss policies that will help American workers. 

The current economic slow-down is affecting millions of American 

families. We are going through the worst housing crisis in a generation, and a credit crisis that has swept through our financial 

system. Unemployment is on the rise, and American families are 

struggling to make ends meet with high gas prices making it even 

more difficult, as we have been discussing. 

I do not believe, however, that increasing and expanding government programs that make Americans more dependent on the government is the right path for our workers. Instead, Congress must 

focus on growing our economy and creating jobs in the short and 

long term by opening more markets to U.S. producers, reforming 

health care to free up small business to hire more and increase 

wages, and blocking massive tax increases that would hamstring 

entrepreneurs from taking risks and expanding their businesses. 

I believe one of the most important issues we can talk about concerning worker security, and one that is extremely timely, is trade. 

The U.S. economy grew by a robust 3.3 percent in the second quarter. That growth was overwhelmingly the result of growing net exports. Congress has the ability to expand that growth by opening 

new markets to goods and services U.S. workers produce. 

Today, 57 million American jobs—about 40 percent of the U.S. 

workforce—depend on trade, both exports and imports. Our free 

trade agreements are a key tool in supporting and growing these 

jobs. 

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As of June of 2008, the United States had a trade surplus in manufactured product with our FTA partner countries of $6.6 billion, which includes NAFTA. The independent U.S. International 

Trade Commission has estimated that three pending FTAs—Colombia, Panama, and Korea—would increase U.S. exports by at 

least $10.8 billion, supporting thousands more of American jobs. 

Congress needs to act now to pass the pending FTAs with Colombia, Panama, and Korea, which will be a real economic stimulus to 

American families. 

Mr. Chairman, at this time—and since this may be our last hearing for the Subcommittee this year—I would like to take this opportunity to thank you, Mr. Chairman, and our colleague, Jerry 

Weller, for his many years of service to the Ways and Means Committee, to the Congress, and to his constituents. He has been a 

champion for children, a strong supporter of expanding trade opportunities, and he will be sorely missed, our good friend. Jerry, I 

wish you and your family all the best. 

With that, I yield back the remainder of my time. 

Mr. WELLER. Would the gentleman from California yield before 

he yields back? 

Mr. HERGER. Certainly. 

Mr. WELLER. Well, first, you are very kind, and I want to thank 

you. You have been a terrific mentor in the process, as my predecessor on this Subcommittee. You have been a tremendous mentor, 

and I want to thank you for the support you’ve given me, but also 

the friendship and the partnership we have had on many issues. 

One point regarding the statement you made, as we talk about 

the need for a stimulus, obviously part of the stimulus must be energy-related, particularly when it comes to increasing domestic oil 

production, what we depend on each and every day. 

When you think about it, this past quarter we had 3.3 percent 

economic growth. If you remove from that the portion of the economic growth that occurred from non-export-related activities, we 

had 3.1 percent economic growth this past quarter, solely because 

of expanded exports. 

So, clearly, as we look at how we can stimulate the economy, expanding trade grows the economy and creates jobs. I recall during 

the debate on the Dominican Republic, Central American Free 

Trade Agreement, the Chicken Littles were saying the sky will fall, 

and auto plants and steel mills will all move to Central America, 

and we’re going to lose lots of jobs. The facts show otherwise. 

In fact, when DR–CAFTA was being debated, we had a trade deficit with the DR–CAFTA nations. We have seen, since DR–CAFTA 

has gone into effect and been implemented, a 150-percent increase 

in exports to those nations. They have won, as well. They have 

seen expanded exports, as well, but we have gone from trade deficit 

to trade surplus, and that’s been a key part of the economic 

growth. 

So, I agree with you. When it comes to growing our economy, before us we have two Latin American trade agreements with Colombia and Panama. They represent 45 million people, not only friends 

with democratically elected governments, but people who have done 

everything we have asked, and they deserve a vote in this Congress. Before I leave, Mr. Chairman, those two countries deserve a 

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vote. I believe they will have bipartisan support for those trade 

agreements, which will grow our economy, and should be part of 

our economic stimulus package. 

So, thank you, and I yield back the time that you yielded to me. 

Mr. HERGER. Thank you. 

Mr. DAVIS. Mr. Chairman, would you indulge me 60 seconds? 

You can count them down, if you wish. 

Chairman MCDERMOTT. Yes, you may. I yield—— 

Mr. DAVIS. Three observations. First of all, I like Mr. Weller a 

great deal, too. I look forward to him proving that there is robust 

life after Congress, and I wish him and his family well. 

Two other quick substantive observations. First one, President 

Kennedy is often cited as an authority on tax cuts. It should be 

noted that the top marginal rate was 70 percent, the top corporate 

rate was 78 percent when he took office. Absolutely, both were in 

need of reduction, a far different cry from today. 

Third and final point, President Kennedy lowered rates across 

the board. President Reagan lowered marginal rates across the 

board. What has been unique about the Bush taxation is that not 

only a marginal rate has been lowered, but whole classes of taxation have seen their rates reduced, which, of course, is a transfer 

of the tax burden. 

We have had a transfer of the tax burden because of the lowering 

of capital gains rates, the lowering of dividend rates, and, in relative terms, the amount of income that people making under 

$100,000 a year pay in taxation has not substantially changed from 

what it was, pre-Bush tax cuts. So, you have had a transfer of the 

burden. That’s what makes the Bush tax policies unique. 

Mr. HERGER. Would the gentleman yield for just 30 seconds? 

[Laughter.] 

Chairman MCDERMOTT. I think I am going to exercise—— 

Mr. HERGER. I want to agree with him. I want to agree with 

the gentleman. 

Chairman MCDERMOTT. Oh, okay. 

[Laughter.] 

Mr. HERGER. I want to agree with the gentleman, in that he is 

correct. The taxes have been shifted, but they have been shifted to 

the wealthy. In 1989, the bottom 50 percent were paying only 5.7 

percent. Today they only pay 3.1 percent. The top 1 percent went 

from paying 27 percent to 39 percent. So, the wealthy are paying 

far more today than they were before. So, it was transferred, but 

not the way most people think. 

Chairman MCDERMOTT. As the Chairman of the Subcommittee 

on Income Security and Family Support, I feel I have expanded my 

jurisdiction about as widely as I possibly can today. 

I would just say on this energy question there is a little bill out 

there that you can sign on to putting gas stamps into the community development block grant, which would take off $500 of that 

$800 we hear they’re spending extra for 6 months. So, we have put 

some proposals on the table to deal with the short-term problems 

of the lower wage workers. 

I want to say Jerry has been a good guy to work with. I will miss 

him. I don’t know what the machinations in the Republican side 

will be, but maybe Mr. Herger will no longer be a Member of this 

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Subcommittee because he is the Ranking Member on a Committee, 

and he won’t want to come and be on this Subcommittee. We will 

miss him, as well. I have served with you both when you were 

chairmen and when you’ve been here on the Subcommittee, and it’s 

been good to work with you. 

Finally, I would say about this Subcommittee—although this 

hearing wandered a little bit, I want people to think about what’s 

going to happen in 2009. If we’re going to have those trade pacts 

that people want, one of the problems we got into was that we 

passed Peru and said, ‘‘Here comes TAA,’’ and TAA died in the 

Senate, because we didn’t take care of workers. 

If we don’t deal with the concern of the American workers, those 

trade bills are going to have a real tough time, because the people 

who are getting elected to Congress are coming from districts 

where people are saying, ‘‘I’m not sure this trade stuff is so good.’’ 

Some of us who are basically free fair traders recognize the uphill climb we make if we do not deal with the workers’ anxieties 

in this country. It is very clear that the things that you’re talking 

about here today will have to be addressed as we go down the road, 

if our economy is going to continue to be a part of the global economy. We cannot allow our workers to be uneducated, and continue 

to skim, through using immigration, as a way of filling our educational needs. We cannot do it by saying we’re going to take away 

pensions from everybody. 

I fly home on United Airlines. I have 2.8 million miles, so I know 

all the flight attendants. I said to one of them, ‘‘What do you have 

for a pension?’’ He said to me, ‘‘I have worked 22.5 years for United 

Airlines, and I have $271 a month for the rest of my life, because 

when they went into bankruptcy, I lost my entire pension and I am 

in the pension guarantee fund.’’ So, he has Social Security and 

$271 a month. When that’s what is going on in the economy, it 

seems to me that we, in this Subcommittee, have to think about 

it. 

So, we will be back on another day. Meeting is adjourned. 

[Whereupon, at 1:50 p.m., the Subcommittee was adjourned.] 

Æ 

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