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57–058 2010

S. HRG. 111–584 

LONG-TERM UNEMPLOYMENT: CAUSES, 

CONSEQUENCES, AND SOLUTIONS 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 29, 2010 

Printed for the use of the Joint Economic Committee 

( 

(II) 

JOINT ECONOMIC COMMITTEE 

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

HOUSE OF REPRESENTATIVES 

CAROLYN B. MALONEY, New York, Chair 

MAURICE D. HINCHEY, New York 

BARON P. HILL, Indiana 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

VIC SNYDER, Arkansas 

KEVIN BRADY, Texas 

RON PAUL, Texas 

MICHAEL C. BURGESS, M.D., Texas 

JOHN CAMPBELL, California 

SENATE 

CHARLES E. SCHUMER, New York, Vice 

Chairman 

JEFF BINGAMAN, New Mexico 

AMY KLOBUCHAR, Minnesota 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

MARK R. WARNER, Virginia 

SAM BROWNBACK, Kansas, Ranking Minority 

JIM DEMINT, South Carolina 

JAMES E. RISCH, Idaho 

ROBERT F. BENNETT, Utah 

ANDREA CAMP, Executive Director 

JEFF SCHLAGENHAUF, Minority Staff Director 

(III) 

C O N T E N T S 

MEMBERS

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

Hon. Kevin Brady, U.S. Representative from Texas ............................................ 3 

Hon. Representative Elijah E. Cummings, a U.S. Representative from Maryland ........................................................................................................................ 5 

Hon. Sam Brownback, Ranking Minority, a U.S. Senator from Kansas ............. 6 

WITNESSES

Dr. Lawrence F. Katz, Elisabeth Allison Professor of Economics, Department 

of Economics, Harvard University ...................................................................... 7 

Dr. Till M. von Wachter, Associate Professor of Economics, Department of 

Economics, Columbia University ........................................................................ 9 

Ms. Diana Furchtgott-Roth, Director, Center for Employment Policy, Hudson 

Institute ................................................................................................................ 11 

SUBMISSIONS FOR THE RECORD

Prepared statement of Representative Carolyn B. Maloney, Chair .................... 30 

Prepared statement of Representative Kevin Brady ............................................ 31 

Prepared statement of Representative Elijah E. Cummings ............................... 32 

Prepared statement of Senator Sam Brownback .................................................. 33 

Prepared statement of Dr. Lawrence F. Katz ....................................................... 35 

Prepared statement of Dr. Till M. von Wachter ................................................... 48 

Prepared statement of Diana Furchtgott-Roth ..................................................... 67 

Chart titled ‘‘Measuring the Stimulus’’ .................................................................. 85 

(1) 

LONG-TERM UNEMPLOYMENT: CAUSES, 

CONSEQUENCES, AND SOLUTIONS 

THURSDAY, APRIL 29, 2010 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The committee met, pursuant to call, at 2:00 p.m., in Room 210, 

Cannon House Office Building, The Honorable Carolyn B. Maloney 

(Chair) presiding. 

Representatives present: Maloney, Sanchez, Cummings, 

Brady, Burgess, and Snyder. 

Senators present: Klobuchar and Brownback. 

Staff present: Andrea Camp, Gail Cohen, Colleen Healy, Kinsey 

Kiriakos, Jessica Knowles, Justin Ungson, Jim Whitney, Lydia 

Mashburn, Rachel McFadden, Jeff Schlagenhauf, and Robert 

O’Quinn. 

OPENING STATEMENT OF THE HONORABLE CAROLYN B. 

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

Chair Maloney. I understand Mr. Brownback is on his way, so 

we are going to call this committee meeting to order. The Chair 

recognizes herself for an opening statement. 

Just over one year ago, the current Administration took office 

while the country was suffering from the worst economic crisis 

since the Great Depression. In fact, last October, Council of Economic Advisers Chair Christina Romer testified to this Committee 

that the shocks we endured in the Great Recession were actually 

worse than those of the Great Depression. 

But today it is clear that America is on a path toward economic 

recovery. After four straight quarters of negative growth, the economy grew during the last two quarters of 2009. There is a consensus that when the latest GDP numbers are announced tomorrow, we will see that our economy continued to expand during the 

first quarter of 2010. 

The most recent employment report showed that 162,000 jobs 

were created in March, with three-fourths of those new jobs coming 

from the private sector. Manufacturing employment has been up 

for 3 straight months. Sales of cars and light trucks were up in 

March. Excluding aircraft orders, durable goods orders were up almost 3 percent in March, and retail sales were up 1.6 percent, their 

third straight month of growth. Sales of both existing and new 

homes increased in March, with sales of new single-family homes 

rising by almost 27 percent, and many surveys of the economy are 

2 

optimistic about growth in both the service and manufacturing sectors. 

These improvements in our economy are proof that actions taken 

by Congress, the Fed, and the Administration have put our economy back on track. While we are making progress, the road to recovery will not be without bumps. Although we saw significant job 

creation last month, we need stronger job creation to reduce unemployment. 

In addition, while the unemployment rate rose during this recession, it is the rise in the long-term unemployment rate that is especially troubling. Nearly half of the unemployed have been without 

work for over 6 months, and more than a quarter of unemployed 

workers have been looking for work for over a year, even before the 

Recovery Act was signed into law. Some groups are suffering more 

than others. Younger workers, less educated workers, and AfricanAmerican workers are among those who are likely to be unemployed and stay unemployed. 

The painful aftermath of long-term unemployment is borne by 

the unemployed, their families, and the economy as a whole. While 

the long-term unemployed earn 30 percent less in their new jobs 

than before they lost their jobs, even 15 to 20 years later these 

workers’ earnings are still about 20 percent less than similar workers who did not lose their jobs. The scarring effect of long-term unemployment also reaches into the next generation. The children of 

displaced workers have lower earnings and are more likely to be 

unemployed than those whose fathers had stable employment. 

Finally, the costs to the economy in terms of lost output are great, which will have an impact on our debt and deficit; $3.1 trillion of the deficit over the next 10 years can be attributed to the 

recession due to lost and lower incomes and the need for government assistance during periods of unemployment. 

While many believe that a rising tide will float all boats and that 

a growing economy is all that we need to help the long-term unemployed, it is clear that targeted provisions are needed to move the 

large numbers of unemployed back into the labor force. 

Congress passed legislation to lessen the depth of the recession, 

including the Recovery Act, which provided tax relief for 95 percent 

of American families and created jobs, while investing in clean energy technologies, infrastructure, and education. The Worker, 

Home Ownership and Business Assistance Act expanded the firsttime home-buyer tax credit and enhanced small business tax relief. 

And just last month, Congress passed the HIRE Act, which provides tax incentives for businesses that hire out-of-work Americans. 

The House of Representatives passed the Disaster Relief and Summer Jobs Act of 2010, which supports an additional 300,000 summer jobs for young workers. 

But when it comes to long-term unemployment, we need to do 

more. That is why we are particularly fortunate to have such a distinguished panel of labor economists before us today. We owe it to 

the unemployed workers, some of whom are watching this hearing, 

their families, and to our economy to search for ways of getting all 

workers jobs. 

At a recent JEC hearing, Dr. Berner, Chief Economist of Morgan 

Stanley, said that we have a responsibility to look under every rock 

3 

for solutions. I look forward to looking under new rocks this afternoon with today’s panel as we search for solutions to the problem 

of long-term unemployment. 

[The prepared statement of Representative Maloney appears in 

the Submissions for the Record on page 30.] 

Chair Maloney. I thank our panelists for coming, and recognize 

Mr. Brady for 5 minutes. 

OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A 

U.S. REPRESENTATIVE FROM TEXAS 

Representative Brady. Madam Chair, I am pleased to join in 

welcoming today’s witnesses before the committee. 

Although many economic indicators show signs of recovery, the 

employment situation remains dire. As of last month, 15 million 

Americans were out of work, for an employment rate of 9.7 percent. 

Moreover, over 44 percent of the unemployed have been out of work 

for 27 weeks or longer, which is an all-time high. Given these grim 

unemployment statistics, I thank the chair for convening this hearing on long-term unemployment. 

I agree with many of the things that today’s witnesses have to 

say. 

Long-term unemployment presents Congress with two distinct 

challenges. First, what policies will boost economic growth, entrepreneurship, and business investment in the private sector so the 

rapid job creation will slash unemployment? Secondly, how does 

America successfully address the mismatch between skills and jobs, 

both today and in the future? Too many of our long-term unemployed have limited education and skills, while the high-paying 

jobs they are seeking require higher levels of both. 

Ms. Furchtgott-Roth, your written statement is such a comprehensive indictment of the economic policies of President Obama 

and this Congress that there is little to add. 

To accelerate economic growth, create millions of new jobs, and 

address the Obama unemployment bubble, we need to restore 

America to the best business climate in the world in which to invest, innovate, and produce. To do that, we must admit America 

has fallen behind. Other nations have taken a page from our successful playbook and have attracted U.S. companies and jobs by 

lowering taxes, rewarding investment, and recruiting research and 

development facilities. 

To restore our economic strength, the United States must lower 

its punitive taxes on business investment. Countries around the 

world have been slashing their corporate income tax rates to stimulate job-creating business investment while the United States has 

largely stood pat. In 1990, our average combined Federal and State 

corporate income tax rate was 6 percentage points lower than the 

average in other OECD countries. We were leading our competitors. Today, it is 9 percentage points higher, and now we are losing 

out to them. 

The same goes for incentivizing research employment in America. In 1981, realizing the importance of research and development 

for technological leadership and economic strength, the United 

States enacted the R&D tax credit. At the time we were leading 

the world. Seeing the benefits, other countries have enacted more 

4 

generous R&D tax credits and created incentive packages to relocate these critical jobs elsewhere, and now we are losing out. This 

Congress stood by while our R&D tax credit expired last year. We 

need to restore, modernize, and expand that tax credit immediately 

and permanently or watch as the exodus of American research 

workers overseas accelerates. 

Misguided and harmful proposals by this White House and Congress, during an economic recession of all times, to levy hundreds 

of billions of dollars in higher taxes on capital gains, dividends, income, U.S. energy production, inventories and U.S. businesses 

reaching customers around the globe, will only ensure America will 

fall further behind its international competitors and fall further behind in creating the types of high-paying jobs that will help solve 

our long-term unemployment crisis. 

If these job-killing tax increases become law, America will have 

tragically gone from first to worst in business climates among the 

world’s largest economies. Instead, we should boldly strive to create 

the best business climate in the world for 21st century jobs by reducing the Federal corporate income tax rate to no more than 25 

percent, modernizing and making permanent the R&D tax credit, 

eliminating taxes on dividends and capital gains, and reforming 

our international Tax Code. 

The United States must also seek new customers around the 

world by ratifying this year the three pending free trade agreements with Colombia, Panama, and South Korea. They represent 

$13 billion in new sales abroad and 250,000 new high paying jobs 

here in America. And then to ensure our companies and workers 

don’t fall further behind in the global marketplace, Washington 

should renew Trade Promotion Authority, conclude a meaningful 

Doha Round at the WTO, and aggressively negotiate new free trade 

agreements, beginning with the Trans-Pacific Partnership. 

Shifting gears and wrapping up, Dr. Katz, I would like to thank 

you for your research identifying skill-biased technological change 

due to the rapidly falling costs of computers and computer-driven 

machinery as the major cause for the growth of income inequality 

in the United States since the 1970s. Skill-biased technological 

change is a global phenomenon that has widened the income gap 

in developing countries alike. 

Your research indicates that to address the mismatch between 

jobs and skills, we must improve the educational attainment and 

skills of our workforce. To compete and win in the global economy, 

the needs of our children in public schools must come first. We 

should sweep away wasteful layers of education bureaucracy, redirect tax dollars to classrooms, and free principals to manage their 

schools. 

We must also focus on the needs of young adults entering college 

and workers seeking continuing education or retraining based not 

on the needs of politicians or union leaders or bureaucrats. Our 

current Federal retraining programs are often too slow, bureaucratic, and driven by special interests rather than the workers. 

With a worker-driven program, our colleges, universities, and 

training centers can help both current and future workers improve 

their skills to qualify for high paying jobs. At the end of the day, 

5 

the greatest affirmative action program yet invented is a good, 

solid education. 

I look forward to today’s discussion, and yield back. 

[The prepared statement of Representative Brady appears in the 

Submissions for the Record on page 31.] 

Chair Maloney. Thank you so much. 

Mr. Cummings is recognized for 5 minutes. 

OPENING STATEMENT OF THE HONORABLE ELIJAH E. 

CUMMINGS, A U.S. REPRESENTATIVE FROM MARYLAND 

Representative Cummings. Thank you very much, Madam 

Chair, and I thank you for this hearing. 

Like many of us in Congress, I have spent the bulk of the last 

week talking about Goldman Sachs and financial regulatory reform. We have been able to generate strong support for the SEC 

casting a wider net around Goldman Sachs’ Abacus transactions. I 

am grateful for the support of my colleagues in this endeavor, including members of this committee. However, I have consistently 

told my staff that none of this matters if, at the end of the day, 

it does not result in benefits to our constituents. 

My constituents and neighbors in Baltimore continue to struggle—to find a job, to stay in their homes, and to provide for their 

families. So many have lost jobs in this recession, and as CBO Director Douglas Elmendorf told this committee, a large number of 

those jobs are simply not coming back. That is why the work of one 

of our witnesses, Dr. Katz, on the benefits of education is essential 

to our ongoing recovery. 

Dr. Katz has argued persuasively on the need for educational 

systems and protocols that produce high returns for young students 

and adult learners alike. He has written that ‘‘Although college enrollment rates among new high school graduates have been rising 

since the early 1980s, the share of young adults completing fouryear college degrees has risen only modestly.’’ 

Clearly, as strong as our higher education system is, there are 

constituencies that are not able to thrive within the current infrastructure. Therefore, we must embrace alternative approaches to 

higher education that not only provide the necessary critical thinking, but also real job training and work skills. 

I know that these two goals can be attained through two approaches. First, America’s community college system, which offers 

not only higher education to those who otherwise could not afford 

it, but also critical worker and vocational training programs. Community colleges also provide a haven for the non-traditional student, offering, as Dr. Katz noted in his opening statement, high returns for the dislocated workers. 

Unfortunately, the community college system relies heavily on 

State and local governments to meet financial obligations, and as 

we know, the recession has decimated State and local government 

coffers. While the Recovery Act provided essential assistance to 

community colleges, more must be done to allow these institutions 

to continue to meet the needs of a changing workforce. 

The second way we can complement our traditional higher education institutions is through customized programs developed by 

business and community organizations. A top example of this is the 

6 

Bio Stars to Bio Professionals Program, a product of the East Baltimore Development Initiative and the Biotechnical Institute of 

Maryland located in my district. 

The program, one I pushed for, prepares the residents of east 

Baltimore for careers in biotechnology through not only technical 

training, but also with the personal and professional skills that are 

applicable in any vocation. This program helps address the skill 

mismatch that plagues our unemployed, especially the young and 

minorities, who are among the most vulnerable in this recession. 

I hope today’s hearing will not only discuss the benefits of programs like Bio Stars, but also what other efforts we must explore 

and undertake to ensure that none of our constituents fall through 

the cracks during the recovery. 

I would also be interested to hear about how we can direct more 

of our young people to jobs, say, in the green area, and jobs in the 

health area. 

What we have found in Baltimore is we have got Coppin State 

University, for example, an Historically Black College, which has 

a phenomenal and top-rated nursing school, yet they are denying 

admittance. For every person they admit, a qualified student they 

admit, they cannot admit five qualified students. These students 

are from the inner-city of Baltimore and they are left out in the 

cold. Why? Because there is not enough space and faculty at the 

university. 

So, I would love to hear our witnesses talk about how do we put 

our priorities in order to begin to push our young people in the direction of where the jobs are and where they will be, and then, of 

course, we will address the issue of retraining. A lot of people think 

they are going to get their jobs back, but they are not. 

With that, Madam Chair, again, I thank you for this hearing, 

and I yield back. 

[The prepared statement of Representative Cummings appears in 

the Submissions for the Record on page 32.] 

Chair Maloney. Thank you very much. 

Senator Brownback. 

OPENING STATEMENT OF THE HONORABLE SAM BROWNBACK, RANKING MINORITY, A U.S. SENATOR FROM KANSAS 

Senator Brownback. Thanks, Madam Chair. I appreciate your 

holding this hearing. I appreciate the witnesses being here. I look 

forward to your testimony. 

Job one, two and three is getting jobs back to the United States. 

We all know that. We have different perspectives maybe on how we 

can get that done. I hope that you can provide us as a panel with 

what we know from the data that works, that is within our reach 

to do? I think that is what we need to look at, and that is what 

we need to hear from you folks. 

We have lost over 8 million jobs in this downturn. If you just 

have a slow growth of 3 percent, you are barely keeping track and 

you are barely moving up with the population of the United States. 

So we need growth. We need jobs. That is what I hope for more 

than anything. 

7 

Madam Chair, I appreciate very much your holding the hearing, 

because this is what is on most Americans’ minds. I have a statement I will submit for the record. I look forward to the testimony. 

[The prepared statement of Senator Brownback appears in the 

Submissions for the Record on page 33.] 

Chair Maloney. Thank you very much. 

I would now like to introduce our panel of experts. Dr. Lawrence 

F. Katz is the Elisabeth Allison Professor of Economics at Harvard 

University and a Research Associate of the National Bureau of Economic Research. His research focuses on issues in labor economics 

and the economics of social problems. 

His past research has explored a wide range of topics, including 

wage and equality trends; the impact of globalization and technological change on the labor market; the economics of immigration, 

regional labor markets, and the problems of low income neighborhoods; and the social and economic consequences of the birth control pill. 

Professor Katz has been Editor of the Quarterly Journal of Economics since 1991 and served as the Chief Economist of the U.S. 

Department of Labor for 1993 and 1994. 

Dr. Till von Wachter is an Associate Professor at the Department 

of Economics of Columbia University, as well as a Faculty Research 

Fellow of the Aging and Labor Groups at the National Bureau of 

Economic Research. He is also affiliated with the Center for Economic Policy Research in London. His research focuses on the longterm impact of job loss on earnings, health, and retirement. He has 

also studied the persistent effect of business cycles on career outcomes of younger and older workers. His work has been published 

in top economic journals. 

Ms. Diana Furchtgott-Roth is a Senior Fellow at Hudson Institute and directs the Center for Employment Policy. From February 

2003 to April of 2005, she was Chief Economist of the U.S. Department of Labor. She was Assistant to the President and Resident 

Fellow at the American Enterprise Institute from 1993 to 2001. 

Prior to that, she served as Deputy Executive Director of the Domestic Policy Council and Associate Director of the Office of Policy 

Planning in the White House under former President George H.W. 

Bush. 

So, starting with you, Dr. Katz, we look forward to all of your 

testimony. Thank you so much for coming. 

STATEMENT OF DR. LAWRENCE F. KATZ, ELISABETH ALLISON 

PROFESSOR OF ECONOMICS, DEPARTMENT OF ECONOMICS, 

HARVARD UNIVERSITY 

Dr. Katz. Chair Maloney and other members of the committee, 

I am honored to have the opportunity to talk to you today about 

the extremely important and distressing issue of the plight of the 

long-term unemployed. I will talk about what we know about the 

causes of the growth of long-term unemployment, the consequences 

of which Professor von Wachter will talk more about, and possible 

solutions for the current situation. 

The past 21⁄2 years have been particularly trying ones for American workers and their families. Labor market conditions have deteriorated dramatically since the start of the Great Recession in 

8 

late 2007, making this the severest labor market downturn since 

the Great Depression of the 1930s. 

We have already lost 8.4 million payroll jobs, or a 6 percent decline in employment, through February 2010. There are some encouraging signs of employment growth in the last month and of 

GDP recovering, but we still have a tremendous jobs problem and 

jobs deficit. If you take into account how much we would have 

needed employment to grow just to keep up with population 

growth, we are actually about 11 million jobs behind where we 

would need to be, and we need to create 15 million jobs in the next 

4 years to get back to sort of a normal employment situation. 

So, clearly there is a huge job creation problem. But on top of 

that, there are two particularly worrisome signs about the aspects 

of the labor market. That is, as has been noted, unemployment is 

increasingly concentrated in the long-term unemployed. We have 

61⁄2 million Americans who have been out of work for 27 weeks or 

more, over 6 months, and another almost 2 million that have become so discouraged that they are no longer even looking for work, 

who have exhausted benefits or have dropped out of the labor force. 

So there are over 8 million Americans that can be reasonably 

classified as long-term unemployed, and most of them are permanent job losers. The rate of long-term unemployment and the share 

of the unemployed who are permanent job losers are at record levels since we have collected data starting in 1945. 

This is quite worrisome because permanent job losers and the 

long-term unemployed seem to have quite persistent earnings 

losses. It impacts on their family and it impacts on their health. 

So doing something to assist them is going to be a first order of 

importance in making our society whole over the upcoming period. 

Additionally, a large share of long-term unemployed also is a 

drag on a macroeconomic recovery. Their employment opportunities 

tend to be less sensitive to standard macro policies, whether fiscal 

or monetary policy, than those of the short-term unemployed. So 

we need a robust jobs recovery, and we are going to need to do 

something targeted to the long-term unemployed. 

How did we get to this situation? Obviously, the financial crisis 

and the macroeconomic problems are the first order of fact. A way 

of putting this in context, we currently have more than five unemployed workers per job. We actually have two-and-a-half long-term 

unemployed workers per job opening. So clearly a macroeconomic 

jobs recovery is a necessary factor for anything that will help the 

long-term unemployed. 

But there are several reasons to think there are structural problems beyond that were already in the economy. The first are the 

skill-biased technological change and the polarization of job opportunities in the U.S. over the last 25 years. 

We have growing employment opportunities in very high-end jobs 

and in-person services; a weakening of employment opportunities 

in traditional middle-class jobs, whether middle management with 

education, or production jobs or construction jobs, and we are going 

to need to find the types of training and job creation to provide new 

middle-class jobs. 

So there is a skills and aspiration mismatch between the longterm unemployed and the jobs. There also is a regional mismatch 

9 

tied up in our housing market problems and the fact that the usual 

areas of expansion in the U.S. economy, places like Nevada, places 

like California and Florida, are depressed. Currently a large part 

of the U.S. recovery is the dynamism of moving workers to areas 

of new opportunities. 

What can we do to try to deal with the problems of the long-term 

unemployed? On top of job creation, there are several things I 

would like to conclude would make sense. 

One is we need to do something to supplement their earnings 

when they take a new job, serious consideration of wage loss insurance as an additional component, a way of using unemployment insurance more effectively to provide people with support when they 

move into a new job with training. 

Second, we need better reemployment services and training opportunities. We have a lot of people going into community colleges. 

They have a high rate of return when they get proper training, but 

they have very little rate of return when people are taking remedial classes or caught in a maze and not taking the courses that 

line up with labor market projects. 

So we need to make sure that community colleges are reasonably 

funded, but we also need to provide the student services and guidance so people take courses that have a return. 

Finally, one of the things we have learned in the last few years 

is a tremendous innovation in job training. Some of the stuff that 

Representative Cummings was talking about are these what we 

call sectoral employment training, working between businesses, 

community organizations, community colleges and labor market 

intermediaries. 

The latest evaluations show the highest rates of return that we 

have ever seen on job training programs, and we need to think 

about redirecting many of our resources that now go into, frankly, 

not terribly effective Federal job training programs into some of the 

more innovative ones that are working at the community level. 

I think if we do those things, we can at least have a chance of 

trying to provide better job opportunities to those who we worry 

are going to be left behind in this recovery. 

[The prepared statement of Dr. Lawrence F. Katz appears in the 

Submissions for the Record on page 35.] 

Chair Maloney. Thank you so very much. 

Dr. von Wachter. 

STATEMENT OF DR. TILL M. von WACHTER, ASSOCIATE PROFESSOR OF ECONOMICS, DEPARTMENT OF ECONOMICS, COLUMBIA UNIVERSITY 

Dr. von Wachter. Chair Maloney, Vice Chairman Schumer, 

Ranking Members Brady and Brownback and members of the committee, it is a great honor to be with you today. 

As you know, as was already pointed out, the labor market in the 

United States is recovering from the most severe recession since 

World War II. As the overall economy continues to recover, an important question is the fate of the large number of workers affected 

by layoffs and lengthy spells of unemployment. My testimony is 

going to focus on the short- and long-term consequences of layoffs 

10 

and unemployment and on potential policy options to ease the burden of adjustments on workers and their families. 

Judging from experience in past recessions, the consequences of 

layoffs for job losers are substantial and long-lasting along several 

dimensions. Our evidence suggests that average mature workers 

losing a stable job at a good employer will see earnings reductions 

of 20 percent lasting over 15 to 20 years. While these earnings 

losses vary somewhat among demographic groups or industries, no 

group in the labor market is really exempt from significant and 

long-lasting costs of job loss. 

A job loss is also typically followed by extended periods of instability in employment and earnings. During this period, job losers 

can experience declines in health. In severe downturns, these 

health declines can lead to a significant reduction in life expectancy 

of 1 to 1.5 years. 

The consequences of job losses are also felt by workers’ children, 

who can suffer from the consequences even as adults, and by their 

families. All of these costs are likely to be greater for the long-term 

unemployed. 

Government programs can alleviate part of the short-term earnings loss associated with job loss and unemployment. As a typical 

measure, extensions of unemployment insurance ease the burden of 

adjustment for laid-off workers. They are likely to prevent entering 

into more costly government programs, such as disability insurance, and they also provide a degree of demand stabilization, and 

at least in this large recession, they are unlikely to be associated 

reduction in employment in the short or the long run. 

Extension of unemployment insurance could be combined with 

policies that have been able, shown to be able, to improve employment prospects of the long-term unemployed such as targeted efforts to help in their job search or programs reducing costs of longterm adjustments, such as the cost of retraining or the cost of relocating. 

However, the available evidence suggests that it may be difficult 

to help workers recover from the large and long-term reductions in 

earnings that eventually follow a spell of unemployment or a job 

loss. The majority of long-term losses are due to losses in the value 

of certain skills as industries decline. They are due to the loss of 

long-term career jobs, or they are due to slow wage adjustment in 

the labor market. 

None of these factors are likely to be easily manipulated by government policies. Yet there may be policy options available to prevent large-scale layoffs in the future. Such options could be programs of work sharing, to subsidize employment before workers are 

laid off and become unemployed, or to introduce flexible work time 

arrangements with workers and their employers. 

For example, the cost of unemployment insurance benefits for a 

typical worker is a fraction of the lifetime loss in earnings once the 

job loss has taken place. So if the same benefits were paid during 

employment to avoid job loss, this would substantially reduce the 

cost of a recession and this would be beneficial even if the worker 

were to be let go eventually, since their earnings losses tend to be 

much smaller for layoffs that don’t occur in recessions. 

11 

To conclude, the evidence suggests that job loss and unemployment during severe recessions can impose substantial and lasting 

costs on affected workers, in terms of earnings, in terms of health, 

and strain on their families, and it appears the short-term burden 

of these costs may in part be alleviated compared to these small 

costs, for example, by extension of unemployment insurance or by 

introductions of wage insurance to get long-term unemployed back 

into employment. 

Similarly, cost-effective policies may be available to help reemploy the long-term unemployed, for example, by informing where 

they could get better jobs or where retraining would be most efficient. Yet, less is known about how to help reduce the substantial 

long-term earnings losses following a job loss and unemployment, 

and given these large and long-term costs, preventive measures to 

avoid massive layoffs in the future may be a policy option worth 

considering. 

Thank you. 

[The prepared statement of Dr. Till M. von Wachter appears in 

the Submissions for the Record on page 48.] 

Chair Maloney. Ms. Furchtgott-Roth. 

STATEMENT OF MS. DIANA FURCHTGOTT-ROTH, DIRECTOR, 

CENTER FOR EMPLOYMENT POLICY, HUDSON INSTITUTE 

Ms. Furchtgott-Rott. Thank you. 

Madam Chairwoman, Senator Brownback, members of the committee, thank you very much for allowing me to testify today. I 

don’t want to repeat what my fellow panelists have said about the 

dire situation of the long-term unemployed. They and you have laid 

it out well. 

Over the past few days, I have spoken to many long-term unemployed who have contacted me personally through a forum for the 

unemployed called Unemployed Friends. I have spoken to Pamela 

from Philadelphia, who used to work at the State’s Career Placement Center. She has been out of work for over 2 years. Doug from 

Battle Creek, Michigan. Greg Rosen, who used to be a sales manager for a telecom company. Natasha Jones used to work in administration. They are long-term unemployed. They are all desperately 

looking for jobs. 

Greg said to me, ‘‘I have scaled down. All I want is a position 

where I can pay my mortgage and bills.’’ Gloria Stevens sent me 

suggestions for changing the unemployment insurance program. 

But whereas jobs are the first priority of all these Americans, unfortunately, the legislative agenda has reduced jobs rather than 

created them. The high minimum wage, the proposed energy and 

environmental legislation, the new health care law, tax increases 

and the Employee Free Choice Act all serve to drive jobs abroad 

rather than attract them here. And the legislation that is under 

consideration but has not yet passed serves as a warning to any 

employers who want to create jobs: You create a job, we are going 

to punish you. 

There is a joke that says Democrats love jobs; it is employers 

they can’t stand, and many of the legislative priorities today show 

that. 

12 

Low-skill Americans are having a harder time recovering from 

the recession because the minimum wage has increased over the 

past 3 years from $5.15 to $7.25 an hour. A minimum wage of 

$7.25 an hour plus the mandatory employer’s share of Social Security, unemployment insurance and worker’s compensation brings 

the hourly employer cost close to $8 an hour, even without any 

benefits. So employers only hire workers who can produce $8 an 

hour or more in goods and services. 

At a time of high unemployment, the Federal Government is 

dooming unskilled workers to the ranks of the unemployed by saying they cannot even take the first step on the rung of the career 

ladder. 

Let’s look at tax increases. Income taxes on the most productive 

small businesses, often called the engine of growth in the economy, 

are going to increase, making them less willing to expand production and employment now. The top tax rate on business owners 

who pay taxes as individuals, not corporations, which is how small 

businesses file their taxes, is now 35 percent. It is scheduled to go 

up to 39.6 percent on January 1st, 2011, and under the new health 

care bill it will rise even further with an addition of an almost 1 

percent Medicare tax on wage and salary income and a 3.8 percent 

tax on investment income. With state taxes, some combined rates 

will exceed 55 percent. 

In addition, last week the Senate Budget Committee passed a fiscal 2011 budget resolution that includes an increase in the top tax 

rate on dividends to 39.6 percent from the current 15 percent. That 

is a 164 percent tax increase. 

The cap-and-trade bill, another legislative priority, would raise 

energy prices, impose strict new efficiency standards on automobiles and appliances, and mandate greenhouse gasses per person 

back to 19th century levels by 2050. That is enough to discourage 

anyone from creating a job here in the United States. It would discourage jobs in the United States in oil, natural gas, and coal. It 

will create jobs building more expensive forms of energy, such as 

solar panels and wind turbines, in China, not here. 

The bill’s $800 billion-plus price tag comes from new taxes, higher prices for energy and increased borrowing. Again, this decreases 

jobs in the United States. 

In Spain, Economics Professor Gabriel Calzada A ́ lvarez of the 

Universidad Rey Juan Carlos has indicated that Spain has spent 

about $763,000 per green job, and higher energy costs have driven 

away many kinds of jobs. This is not the path we want to be following. And even in Spain, which has beautiful sunshine, solar 

power didn’t account for even 1 percent of 2008 electrical production. 

As we all know, and as we have seen, the new health reform bill 

is also going to hurt employment. Companies across the industry 

spectrum, such as AT&T, Prudential, Verizon, and Caterpillar, are 

all writing down their earnings because the new bill is going to 

raise their taxes. Higher insurance premiums and taxes on income 

and payrolls are going to leave individuals with less to spend on 

goods and services. Employers are going to be required to offer 

health care to workers or face a $2,000 per worker fine. Again, that 

doesn’t encourage employment. That discourages employers from 

13 

hiring. It makes them want to have more machines and fewer people. 

Let’s look at the Employee Free Choice Act, which attempts to 

raise union membership by making it easier for unions to organize. 

The bill would take away the secret ballot in elections for union 

representation, as required for almost 75 years, and impose mandatory 2-year contracts through political arbitrators. 

Michigan, one of the highest unionized states, has one of the 

highest state unemployment rates, now about 14 percent. Why do 

we want to make more states follow Michigan? 

Let’s look at regulating private sector employment. The DavisBacon and Service Contract Acts and their associated regulations 

have always required contractors to pay prevailing wage rates. 

Now, in addition, project labor agreements ensure that workers in 

the construction sector are being paid wages even higher than 

Davis-Bacon rates, and the Administration is also discussing giving 

preferences to ‘‘high road’’ contractors. 

These regulations worsen unemployment by raising the price of 

labor, causing fewer workers to be hired. Taxpayer dollars don’t go 

as far because projects are more expensive. And small business, the 

engine of job growth, will employ workers. 

Under project labor agreements, all employees on projects over 

$25 million have to receive union-approved wages and benefits, 

even if they don’t belong to unions. This drives out small business 

from competing for these projects, raises their costs from taxpayers, 

and funnels a larger stream of union dues from taxpayer pockets 

to union treasuries. 

On April 13th, the Administration issued final regulations for 

this executive order mandating project labor agreements. The order 

is going to take place on May 13th. 

In addition to these project labor agreements, the Administration 

is discussing an additional method of regulating Federal contracts 

called the high road procurement process. The high road contractors would pay living wages and they would be given preference for 

government contracts now worth about $500 billion a year. And 

just as with project labor agreements, the government would award 

the contracts to the highest bidder, not the lowest bidder, reducing 

employment. 

Recommendations: What is needed is a whole new approach to 

job creation, and I agree with my fellow panelists on some of their 

recommendations. Approximately $358 billion of the $787 billion 

stimulus has been spent, leaving us with more than $420 billion 

that we could use. There is still time to reallocate the remainder. 

Lower taxes encourage firms—— 

Chair Maloney. The gentlelady’s time has expired. Could you 

summarize and move forward with questions? 

Ms. Furchtgott-Roth [continuing]. Yes, let me summarize. 

We could have lower taxes; we could reduce the minimum wage 

to $5.15 an hour; we could encourage community colleges to offer 

high return courses. 

In answer to Congressman Cummings’s question as to why more 

high-return jobs are not created, community colleges have an incentive to offer fewer courses in nursing, which is a high-return 

14 

profession, and I have written a paper on this. They could be encouraged to have more high-return slots, such as nursing. 

We could have wage insurance that would give the unemployed 

an incentive to take a lower paying job and pay part of the difference between the lower paying job and the higher paying job. 

I would just like to conclude with today’s editorial from the 

Washington Post talking about the problem with Greece and the 

debt ratio. It says, ‘‘For all of Europe’s indebted governments, the 

key statistic is the ratio of government debt to gross domestic product. Greece’s is 125 percent.’’ Ours, by the way, is now 63 percent, 

due to be 90 percent in 2020. 

The Washington Post writes, ‘‘Austerity can cut the numerator— 

debt—but only growth can increase the denominator—GDP. In 

many countries, labor protections, bloated public sectors, byzantine 

taxes and other stultifying policies have hindered private investment and employment. From Madrid to Athens, politicians must 

take on the special interests that benefit from outmoded practices, 

lest their countries sink into permanent stagnation or worse.’’ And 

we in the United States must also pay attention. 

[The prepared statement of Ms. Diana Furchtgott-Roth appears 

in the Submissions for the Record on page 67.] 

Chair Maloney. Thank you very much for your testimony. 

I first would like to ask the panelists if they are aware of the 

use of unemployment checks to cover the costs of training as one 

idea of how to move forward. 

Beginning with Dr. Katz, are you familiar with the Georgia 

Works program that began in 2003, and other States trying to follow this example? It pairs unemployed workers with companies for 

job training, and during their training they would receive their unemployment check and also a stipend to cover transportation and 

other costs, and there is no cost to the employer. And at the conclusion of the training, sometimes there is a job waiting for them that 

they have been trained for. According to a report I read, over half 

of the people who entered the Georgia Works program ended up 

with a full-time job. 

I wonder if you have looked at this, and if such a model could 

be successful with the long-term unemployed that we have in our 

country now? 

Dr. Katz. I think Georgia Works is a quite interesting and promising program. I do not know all the details of it in specific, but 

there is something—traditionally the way our unemployment insurance system worked is basically employers paid money, which 

largely came out of workers’ wages when you look at the incidence 

of it, to provide this insurance for when downturns occurred workers would have some support. The unemployment insurance system 

was only supposed to use its money to pay out benefits and determine eligibility. 

People who receive unemployment insurance benefits are supposed to be searching for work, but a big question is what does it 

mean to search for work within that system? Historically, there are 

two other ways to get work than to just go pound the pavement. 

One is to actually increase your skills and move into a new job, 

which is known as State-approved training, and Georgia is using 

that ability and interpreting it I think in the correct way. And the 

15 

other way is to actually form your own business, and about half the 

States in the U.S. allow people to use unemployment insurance to 

set up a business plan and support themselves while they are forming their own business. 

Our evaluation of the self-employment one is that for a small 

group of unemployed it is a quite beneficial program that helps in 

moving forward in both getting them employed and creating new 

businesses for others. And the best evidence on these sort of sectoral employment training businesses, where the unemployed receive some support and are linked up with employers, is that those 

are very promising. 

This specific one I don’t know about. But combining the use of 

some supplement, some intermediary and employers with a job at 

the end, can be a very promising approach. And making sure that 

the U.S. Department of Labor and States liberally interpret the 

rule of what approved training is to continue receiving a stipend 

I think is quite important, and it is something I know there are 

a number of efforts in many States right now to try to expand. 

Chair Maloney. A lot of job training is a job training program 

at the end of which there is no job. So by hooking them together 

it seems like a better approach. Can you think of changes that you 

could suggest that would strengthen this approach or to tailor it to 

particular sectors or demographic groups? Or what are your ideas 

for generating training for new jobs? It seems like putting the two 

together is an effective way of doing things. Are there particular 

challenges with this kind of approach that policymakers should be 

aware of as they consider new job training and placement options? 

Dr. Katz. There are a number of challenges. So what we do 

know is we have seen some evaluations of programs that are quite 

successful, that combine a local community group that recruits people or gets people from unemployment insurance that have employers, that do a lot of research in, let’s say, what do the local hospitals need, what sort of positions are they having difficulty finding 

people in, can we sort of set up something that works there. 

Those programs have been quite successful at modest scale in 

places like Project Quest in San Antonio. There is the Jewish Vocational Services in Boston which appears to be quite successful. So 

there are a number of these. 

The issues we face are they take a lot of work and they tend to 

be long-term. They are not things you can just set up in 3 weeks 

and get going. So we don’t know how scalable they are. We don’t 

know how easily transferable they are. But we do know with creativity and the combination of employers having an incentive of 

getting good workers, local communities working with them, and 

workers really getting the support to go through training that leads 

somewhere, the best evaluation show things like 20–30 percent 

persistent earnings increases from such programs. So those are the 

most promising models I have seen in recent years. 

In general, the combination of some financial support for employers to get people into positions, some training, and some intermediary that vouches that the worker is seriously doing the training seem to do better than stand-alone training programs by themselves that aren’t linked to employers, and can supplement giving 

workers things that look like vouchers to go out on their own into 

16 

community colleges, which can be helpful, but this combination 

really does look promising. 

So I think making sure that training money, that UI does not 

rule out that as an appropriate way to find a job is important, and, 

additionally, encouraging these models to be transferred. For example, Project Quest in San Antonio is spreading out into a number 

of other cities in Texas with some of the State support, and there 

are some very nice models out there that are promising for both 

the long-term unemployed and for people with limited education 

from disadvantaged backgrounds. 

Chair Maloney. Thank you very much. 

Congressman Brady. 

Representative Brady. Thank you, Madam Chair. 

I agree with members of our panel who are concerned about the 

mismatch between skills and jobs, and I agree with many of the 

recommendations that we need to modernize our job training programs. We have an eight-track tape stereo job training system in 

an iPad world, and it is serving us very poorly. 

I want to talk about unemployment. Obviously, jobs are the key 

issue. The signature portion of this Administration’s and this Congress’ job creation program has been the stimulus bill, $862 billion, 

plus interest, over $1 trillion. 

If I could have this chart, we were told about three promises if 

Congress went debt to finance the stimulus bill. One is that the unemployment rate wouldn’t rise above 8 percent. We know that 

failed. 

The second one, 90 percent of the jobs would be created in the 

private sector. That is just the opposite. The private sector has lost 

3.7 million jobs. Government has gained some 100,000 jobs. 

But the one that really relates to unemployment is this: We were 

promised that by the end of this year, payroll employment in America would be at 137 million jobs. What this chart shows is what it 

would take in performance on job creation over the next months to 

reach that, which shows we would have to create 866,000 jobs each 

and every month to be able to meet that standard that the White 

House and this Congress set for itself. 

So my question for each of the panelists is, one, is the White 

House and Congress going to be able to keep that promise of reaching 137 million jobs by the end of this year? Secondly, to do that, 

to reach it, what should Congress be doing or not be doing in order 

to create job growth? 

I should point out the only time in American history we have 

ever added 866,000 jobs was one time, September of 1983, only because there was a settlement of an AT&T strike that temporarily 

that month boosted employment. 

My question is, are they going to be able to keep this promise, 

and what should Congress be doing or not doing to create job 

growth over the rest of this year? 

[The chart titled ‘‘Measuring the Stimulus’’ appears in the Submissions for the Record on page 85.] 

I will start with Ms. Furchtgott-Roth. 

Ms. Furchtgott-Roth. There is no way employment is going to 

grow by that much towards the end of the year. Congress should 

say this is an emergency. We are going to freeze tax rates. We are 

17 

not going to increase tax rates on January 1st, 2011. We are going 

to let the minimum wage go down to $5.15 an hour, so low skilled 

workers can get their foot on the first rung of the career ladder. 

We are not going to pass the Employee Free Choice Act, we are not 

going to pass cap-and-trade, and we are going to focus on basic 

measures that help employers create jobs. 

In the way of job training, there are many high-return slots that 

could be funded through our community colleges. I did a study of 

85,000 community college students, including those who got Cs, in 

the State of Florida. When they graduated from community college 

with an AA or a credential in the health care sector, they got jobs 

earning $45,000. 

Education and health services is a sector that has been hiring 

every single month since the recession began, and of course even 

before. We need to make more use of these high-return fields to get 

workers, especially low skilled workers, back into the job market. 

Representative Brady. Thank you very much. 

Dr. von Wachter, will they be able to keep that promise, meet 

that goal? 

Dr. von Wachter. Well, that is a very important question. I am 

not qualified to speak on that particular question as that is very 

hard to predict. That is clearly an enormous task. Several things 

could be done to get towards that. 

First of all, one could subsidize employment through tax breaks 

for employers, and reemploy many unemployed workers by providing wage insurance to raise hiring. This could work together 

with incentives for firms to provide on-the-job training, so this 

could lead to the instant reemployment of large groups of workers. 

This could be complemented with public works programs, although 

this form of spending typically takes longer to take effect. And certainly what is needed is to ramp up the matching of workers and 

firms by providing information on workers where the viable jobs 

are. 

Finally, one version of job sharing that was proposed would probably cut down on continuing job obstructions and immediately raise 

the number of total created jobs. 

Representative Brady. Run that last part by me? 

Dr. von Wachter. Of course. This was laid out in a recent testimony by Mr. Hassett. As others have done, Mr. Hassett has proposed a system of job sharing in which the total number of employment that should be reduced by a firm could be spread across all 

workers by lowering hours instead. Instead of firing workers, you 

lower hours and the government steps in to take part of the wage 

bill. Mr. Hassett calculates that that would lead to an instantaneous increase in jobs. 

Representative Brady. Dr. Katz, are we going to hit that goal? 

Dr. Katz. I would call it an inaccurate forecast rather than a 

promise. But, no, there is no conceivable way that we will have 

that amount of job growth, given how deep the shock to our financial sector was in 2008 and early 2009. So, no, that is not a reasonable forecast. 

What could we do to sort of try to get closer in that direction? 

Well, I think that we could do more on providing short-run tax 

breaks for job creation. I personally think a short-run net job creVerDate Nov 24 2008 13:41 Aug 25, 2010 Jkt 057058 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\DOCS\57058.TXT SHAUN PsN: DPROCT
18 

ation tax credit that provided a hefty tax break to companies that 

expanded employment would both speed up hiring as the economy 

recovers, and it would also target those to jobs that are likely to 

last, because the people who would be using it would be firms that 

are expanding. It should be available to new employers since new 

startups are actually a key part of economic recovery. 

We need to do something to improve credit access to new and 

small businesses. Those would be important things to do in the 

short run. We need to make sure the purchasing power of the unemployed stays reasonable through continuing the current extensions of unemployment insurance both on humanitarian and fiscal 

stimulus grounds, as well as on consumptions moving. And we certainly need to improve access to training and education and do 

something like wage insurance. 

We can do better than the current trend. This economy has faced 

a lot of damage. Employers are going to be very hesitant to expand 

employment greatly. There has been a lot of reorganization and 

productivity improvement. 

And the other thing to remember is, while one talks about job 

sharing, there actually has been a lot of job sharing in this downturn. The number of workers who work part time for economic reasons which we call involuntary part time is at a record level. Just 

getting them back up to normal hours, which is going to happen 

before firms do new hiring, is going to take a long time. And there 

is going to be a lot of temporary hiring also before permanent jobs. 

So all of those things are going to have to take place before we will 

have a sustained jobs recovery. 

Representative Brady. Thank you, Madam Chair. 

Chair Maloney. Mr. Cummings. 

Representative Cummings. I was listening to the testimony, 

and I have always—this issue of minimum wage—a lot of the people who have minimum wage live in my district. And I don’t know 

if anybody ever tried to live off of $5.15 an hour. It is hard. And 

I just want you all to—Dr. Katz and Dr.—I just want you all to 

talk about that for a moment. I want job creation, but I also want 

people to be able to survive. So, Dr. Katz, would you comment on 

that, please? 

Dr. Katz. Yes. We both want job creation, and we want people 

to have jobs of reasonable quality at a reasonable living standard. 

The minimum wage had eroded dramatically. $5.15, if you put it 

into real terms, was much lower than the minimum wage prevailing, say, in 1980 or 1970. The current level of the minimum 

wage is not very high by historical standards. 

Before this downturn hit, the first year of the minimum wage increase, there is no evidence whatsoever of significant employment 

effects on the youth labor market. The best analyses of minimum 

wage research using the sharp changes across States of the Federal 

minimum wage or State minimum wage changes have found in the 

range of minimum wages in the U.S. almost no adverse employment impacts but substantial positive impacts on earnings. 

Furthermore, the notion of lowering a minimum wage from existing standards—in fact, there is a large amount of experimental evidence of what happens in a labor market when you cut back wages 

from what was the prevailing standard. In fact, workers won’t work 

19 

at something that is viewed substandard. The reservation wage, 

which is a technical term in economics, rises with the minimum 

wage. So reversing a pre-existing increase in minimum wage does 

not have the same effect, even if you believe the minimum wage 

has adverse employment effects. 

Furthermore, we have had youth sub-minimum wages and training wages, and firms don’t take them up. They actually don’t believe in paying teenagers lower wages than people doing the exact 

same job standing next to them. It violates their standards. I did 

some of the earliest work on that. 

So I don’t think time is right for a large new increase in the minimum wage, given the state of the labor market, but I think what 

Congress did was a reasonable response to the erosion in the past 

and that what we need to do is have much more demand for workers, improved training so people are really worth over 8 bucks an 

hour. And, if necessary, we need to do the type of net job creation 

tax credit, which is naturally going to be somewhat capped and will 

lower the cost of hiring new workers and at least for some period 

will offset the impact of the minimum wage. But that would not be 

a particularly effective way of either improving employment and it 

certainly wouldn’t improve the living standards of disadvantaged 

workers. 

Representative Cummings. Let me just throw this question 

out to you, Dr. Katz, and you, Dr. von Wachter. You both discuss 

in your written testimonies the fact that falling home values, especially in places like Florida, California, and Nevada, have limited 

workers’ geographic mobility and limit a workers’ ability to move 

to where the jobs have sprung up. 

Now, as the chairlady said a moment ago, there are people probably watching this right now or they may be watching it later on 

on tape; and they are glued to their TVs because they are trying 

to figure out—they are saying, okay, if there is one job, for every 

job there are five folks trying to get it. And they are one of the five, 

and they are trying to figure out, where can I go to get a job? 

So what do you say to people like that? Are there areas that have 

recovered faster? And why have they recovered faster? 

You mentioned a program, something Quest, a moment ago. So 

where do they go, the person who is desperate, has got two kids, 

five and aides, and a husband, a husband and wife? They are just 

trying to make it. Right now, they are both out of a job, or one of 

them has lost a job and now 65 percent of the income is gone. What 

do you say to them? Any of you. 

Dr. von Wachter. As I pointed out—and I should make clear— 

this is more of a medium- to long-term help to help workers once 

the economy has picked up to move to the places where more jobs 

are being created. 

In the short run, as you point out, there is no place to go, and 

we need other measures. We need to match workers and firms with 

firms who want to create jobs or to train workers, and then we 

could pay firms to effectively lower the minimum wage but require 

that workers be trained alongside. Or we need to provide some 

form of wage insurance, or we need to provide unemployment insurance in the short run to help people do their living. 

20 

But in the medium run, helping workers to reset their mortgages 

would be very helpful, and here is a program for workers receiving 

unemployment insurance that is called HAMP that helps them 

reset their mortgage which will in the long run improve mobility. 

So that is the right way to go. 

Representative Cummings. Doctor? 

Dr. Katz. I agree with what Dr. von Wachter just said. I think 

that in an economy that still has a 9.7 percent unemployment rate 

there are some pockets of opportunity. There are a few States out 

there with actually low unemployment rates, but they—the truth 

is, we for a long time have had—the U.S. is a very mobile society. 

There are certain areas that have been attracting workers for the 

last century. As things get better in the Sunbelt and other places— 

and most of those areas are still quite depressed because they were 

some of the areas where the subprime hit the worst. 

So we need a stronger recovery. There will be. Florida will grow 

in the future. Places like Nevada and California will again. And 

there will be new opportunities, but it is going to take some time. 

The key thing is, one, to pick up a set of skills that are going 

to be valuable as the economy recovers. So finding a good community college program, finding a good program through one of these 

sectoral employment things and trying to learn about what are 

your interests and what are the types of things available, some of 

the local programs you talked about and being willing to actively 

search and to take a job that might not have the best wage to start 

but might be a stepping stone to some other place. 

But the truth is we do need more aggregate job creation. Because 

even if we could magically take every unemployed worker and put 

them in the existing openings, we would still have an 8 percent unemployment rate. 

Chair Maloney. Thank you. 

I would like you to comment on younger workers. I have been 

talking to graduating students, and many of them do not have jobs. 

Some of you testified earlier about the impact of long-term unemployment on productivity and on long-term earnings, and it appears that this would have a huge impact, particularly on younger 

workers. So I would like to ask, Dr. von Wachter, if you could comment on what we can do to help get these young people back on 

track. And should training programs for teens and young adults 

look different from those that we are trying to develop for our other 

workers that have lost jobs? And are there training and placement 

strategies that have been particularly effective for younger workers? 

I am particularly concerned about the comments you made earlier about the long-term unemployment having such a huge impact 

on future productivity and earnings, as it seems to be extremely 

challenging for young workers who are not able to find a job upon 

graduation from high school or college. 

Dr. von Wachter. Thank you, Chair Maloney, for your question. 

First, the good news. Compared to a laid-off mature worker, a 

worker, for example, that graduates from college in a recession will 

eventually recover their earnings, on average. The bad news is that 

this will take between 10 to 15 years. 

21 

The recovery process typically works this way. Workers start at 

firms and employers that pay, on average, low wages. They search 

for a better employer. And then, once they arrive at the better employer, say after 5 years, they keep growing within the firm to recover the wage loss. 

So workers have to stay very mobile. And that is the first message that has to go out there to younger workers or young college 

graduates, that they have to stay mobile for the next 5 to 10 years. 

And mobile means being mobile across regions, it means being 

open to new occupations, it means switching jobs and switching industries. And whatever can be done to help these workers in this 

rebuilding of a career that got off the wrong foot should be helpful. 

First of all, informing workers and making them realize two 

things. First, once the economy picks up, they are not going to immediately pick up. It is going to take another 10 years from there. 

And they have to be active. 

Second, they have to realize that something may have to give, 

meaning their ideal career path or their ideal location won’t come 

through anymore. So either they have to change occupation or 

change location. Whatever help can be given, for example, for noncollege graduates or something like the Georgia Works program 

would be an excellent example. Or, for college graduates, help to 

do internship or to match to growing firms would be extremely 

helpful. 

Chair Maloney. Dr. Katz and Ms. Roth, would you like to comment on strategies for our younger workers? 

Dr. Katz. So I think what Dr. von Wachter said was quite sensible. I mean, the first thing I—I would reiterate what he said, 

which is the largest consequences of job loss are actually the more 

mature workers. Young workers luckily, they experience a lot of 

pain, are more flexible and adaptable and more willing to go back 

to school. 

But the first thing I would say is staying in school is always a 

good thing to do, given the economic returns to higher education 

in the U.S. It is even more important given the current employment situation and the fact of having a set of skills that will allow 

you to adapt to things that we don’t understand yet where the jobs 

of tomorrow will be quite important. 

So there are two interesting signs in the current labor market 

and overall experience for young people. One, the Bureau of Labor 

Statistics just released 2 days ago numbers that we have a record 

rate of college enrollment among last year’s high school graduates, 

up to 71 percent. That is something to applaud, because that is 

going to pay off in the long run. In fact, it was the tremendous expansion of people staying in high school in the Great Depression 

that greatly set us up for a GI bill afterwards and for great growth 

afterwards. That is important. 

On the other hand, the youth problem is bifurcated. While more 

people are staying in school, the enrollment rate is up, more people 

are both out of work and out of school. And when you leave school 

and don’t have a job and don’t go any farther, that is where the 

persistent things happen. 

So we need to, one, encourage people to be in school, but, two, 

we need to think about things that are actually going to provide 

22 

employment and training for young workers out. And if you look, 

what we sometimes call the idleness rate for young men now in 

particular in the U.S. is reaching incredibly high levels, and those 

are not the college graduates who all will make it up in a decade. 

We need to keep people out of crime, which has long stigma effects. 

And thinking of something seriously on youth jobs directly being 

created or some form of wage subsidy there I think is a sensible 

thing in the short run. We now have the lowest youth employment 

rate since it has been recorded since World War II. 

Chair Maloney. And we did pass in the House this summer a 

youth program and also the HIRE Act that has a tax incentive to 

hire unemployed workers. 

Mr. Brady. 

Ms. Furchtgott-Roth. I thought you said I could answer the 

question. 

Chair Maloney. Yeah. Absolutely. Go right ahead. 

Ms. Furchtgott-Roth. My research shows that if young people 

get degrees in high-return fields—and it doesn’t necessarily mean 

a 4-year BA; it could also be credentials or an AA degree in a community college—they do very well. Forty-five percent of the Nation’s freshmen are at community colleges; and they need to be 

guided into fields, these high-return fields. 

What is also relevant for these young people is the minimum 

wage. I agree with Dr. Katz, that it doesn’t affect the economy as 

a whole, but it overpoweringly affects teenagers. More than half of 

the people on the minimum wage are teenagers, many of them in 

the leisure and hospitality sector. 

We talked about internships, letting them get internships. Well, 

the Labor Department is now investigating internships at for-profit 

businesses. So not only are we raising the minimum wage so we 

can’t let them have minimum wage jobs, we are not letting them 

work for free to have business experience either. They are just supposed to sit around at home and not do anything. 

If the minimum wage didn’t have any effect, as Dr. Katz says, 

why not raise it to $20 an hour? That way everyone would be better off if there were no costs associated. 

The point is, it does affect, not the economy as a whole but this 

small group of teens. It means that when they graduate from college they will not have the work experience that they would have 

had otherwise. 

By the way, there is still an exemption for teens in the minimum 

wage. They can earn $4.25 an hour. But the reasons firms aren’t 

taking them up is because it is just so complicated to do the paperwork. It is really complicated paperwork. If you only hire them for 

3 months at a time, then they can be employed right now for $4.25 

an hour. 

Chair Maloney. Thank you. 

Mr. Brady. 

Representative Brady. Thank you, Madam Chairwoman. 

The problem with subsidizing employment is the job only lasts 

as long as the taxpayers pay for it, and we are running trillion dollar deficits last year and for this year and for the next decade if 

we don’t change our ways. That is adding a great deal of, I think, 

angst to consumers who are not only worried about their own jobs 

23 

but they are worried about this dangerous level of deficits and debt 

and the drag it will create ultimately on our economy. 

I guess we all know job creation from our local region. In 2007/ 

2008, while unemployment was increasing in Michigan, Ohio, and 

other States, our biggest problem in southeast Texas—we met 

every 2 weeks—is we could not find enough workers for the jobs. 

Yet our Federal training programs actually discouraged relocation 

and discouraged regions from advertising in other areas to tell 

them what the jobs are in that area. 

I think, again, we want our folks to stay in their community and 

to find jobs there. Sometimes regional opportunities occur, and I 

think we ought to be more worker-neutral, geographic-neutral in 

our training programs so that, given other options, if moving is one 

that gives them a standard of living and restores it, that we allow 

the worker to make that choice. 

It has changed in our region. I have run past our small- and midsized business the ideas and the details of the job tax credit and 

they reject it and the reason being is they are fearful of what is 

coming ahead of them. They are fearful about and have been about 

the health care mandates, about cap and trade, which would destroy 200,000 jobs in our region, 30 to $40 billion in new energy 

taxes that would discourage exploration production here in the 

United States and would cost our independent producers 300,000 

jobs. They are very worried about new taxes on real estate partnerships, the ones who construct our apartments and strip centers and 

office buildings and multifamily housing; and I am convinced the 

reason we are having such a subpar economic recovery is that uncertainty that has been created by the agenda up here in Washington. 

But back to the original point. How do we remove that uncertainty and how do we finally reform our job training program so 

that they actually are effective? I see pockets of them. I see models 

of them. But, as a whole, I think they are generally—I don’t want 

to say doing a poor job but not doing a good job of training for the 

skills not just of today but of tomorrow. 

Dr. Katz—I started last time on the other end of the dais. Dr. 

Katz, do you want to weigh in? How do we make them work the 

right way? Because we have all talked about it for an awfully long 

time. 

Dr. Katz. Yeah. So there are a number of ideas out there. One 

is, we should be consistently evaluating programs, using true, scientific, random assignment methods; and then we ought to be 

hardheaded about the ones that don’t seem to be effective, and we 

ought to be much more generous with the types of ones that seem 

to be effective. That is the first important thing to do. 

A second important thing to do is we need to improve the incentives of the job training programs and the one-stops themselves. 

There are some interesting examples, for example, in welfare to 

work, that a number of States have done where they basically use 

intermediaries to try to help people find jobs. Sometimes they are 

community colleges, sometimes they are other nonprofits and community groups. But they basically essentially say, you don’t get to 

choose who your clients are. We are going to assign you ones. 

Those clients can go to other places, but you are responsible for tryVerDate Nov 24 2008 13:41 Aug 25, 2010 Jkt 057058 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 C:\DOCS\57058.TXT SHAUN PsN: DPROCT
24 

ing to make them do well. We are going to compensate you not just 

on a fixed amount of money for each client you see. You are not 

going to get the same amount for your center. We are actually 

going to pay you on the things we care about, not just are they 

placed tomorrow because you got them a temporary job but a year 

from now or 2 years from now, how many of them are sort of earning and how well are you doing versus others. 

We could greatly improve—we use a lot of contractors. We have 

very short-term limited sort of incentives. And in the welfare to 

work area, we have seen the ones where they get sort of longer 

term incentives, don’t just churn people through temporary jobs 

and short-term programs, so we can use the intermediaries better. 

And then we have to empower the workers themselves with better information and choice. These intermediaries ought to have incentives, but they shouldn’t have monopoly power on what sort of 

programs workers use. 

I think if we do all of those things, we could have a much more 

effective system. 

Just to conclude, there was one other important point. We have 

lots of people entering community college. And when you take a 

good program that leads to a certificate, it has very high payoff, 

but a huge number of people in community colleges spend time taking remedial courses, taking courses that are not going anywhere. 

We need to, one, reform, make sure the people up front do some 

sort of intensive, getting over their remedial courses quickly, rather 

than just throwing them, not knowing they are not getting credit; 

and, two, we need much better guidance for students entering community colleges about what types of things are actually leading to 

jobs. 

We could do much better. The graduation rates at many community colleges in the U.S. are in the 15 percent, 20 percent range. 

We need to do better than that. 

Representative Brady. I am out of time. Is there disagreement 

with some of those recommendations? 

Dr. von Wachter. I completely agree that it is sensible, what 

Dr. Katz said. Let me just say that my research shows that people 

who have more math-based subjects, say, in college will do much 

better in a recession. So that is an extremely important point. 

Another point is that the idea of matching firms with potential 

trainees allows an input by employers to what type of training they 

require, and that would be a very helpful step in making the training programs work. 

Ms. Furchtgott-Roth. There is a certain amount of accountability already at One-Stop centers to the extent that they don’t 

take everyone who comes in and wants to be trained. They give 

them tests beforehand. And if they think they can’t be trained 

properly and given a job, they actually don’t take them on. So there 

is a problem also with the people that One-Stop centers turn away. 

What do we do with those? 

One idea—you asked about relocation—that we explored when I 

was in the Bush Administration was career advancement accounts 

or personal reemployment accounts, where someone, instead of getting their 6-month unemployment insurance benefits spread out 

over 6 months, would have it as a fixed sum at the beginning. This 

25 

would give them a fixed sum of money, which they could use either 

for a training program, or to relocate, or to buy a car to get to 

work, or something like that. And, unfortunately, this did not pass 

Congress, but it was a well-developed idea which I think could still 

be considered. 

Representative Brady. Madam Chair, thanks for letting me go 

over time. 

Chair Maloney. Thank you. 

And Mr. Cummings. 

Representative Cummings. Madam Chair, Dr. Katz, I want to 

pick up on where you left off with regard to this community college 

thing. 

You make a very valid point. I know a lot of young people who 

go to community colleges and never graduate because they can’t get 

past the remedial math. In other words, they have taken all the 

courses, they get to the end, and then they are spending all kinds 

of money and time to do remedial math when they have already 

gotten through everything else and some of them with very, very 

good grades. 

I guess this is what I am trying to get to. Based on what you 

are saying, you mean—you don’t mean—you are not saying take 

those courses out, are you? What are you saying? So do they never 

get a degree or what? 

Dr. Katz. No. What I was saying is I think the way we organize 

remedial or what is called developmental education in the community colleges is not working as well as it could in the sense that 

taking all of your regular courses and having this one or not being 

able to go into your regular courses, there are a number of pilot 

programs that seem quite successful that essentially, rather than 

just entering, taking the exam the day you enter school and then 

being told you can’t take any of the courses you want because you 

have to do the remedial, the summer before you enter community 

college we actually do the diagnostic exam. 

If you are going to be needing developmental courses, we have 

an intensive spending the summer—it might be 1 month, it might 

be 2 months—sort of 5 days a week just on that subject with quite 

talented teachers in sort of a group environment to get you to the 

level where you can take the courses you really need. Those programs where it is a group experience, there is an ongoing evaluation of them. That is what these programs like Project QUEST, 

which is quite successful, in Texas uses, seem to be much better. 

Not kids who have always had problems in certain subjects just 

thrown into classes like they had in high school is not going to 

work. 

This seems to be an approach that gets people ready to start 

community college and take the type of valuable courses that lead 

to a career and not get hung up. So it is not that they don’t learn 

math. It is clear that if you ended up at that stage, you have a 

problem with the way it is traditionally taught, not that you can’t 

do math and there has to be a better way of doing it. And just having a large, impersonal community college and throwing you into 

these courses that you are told to take doesn’t seem to be that effective. I think we could do much better with this sort of up front, 

26 

get you past there, and then you enter taking the regular courses. 

That is what I mean. 

Representative Cummings. In addition to my role as a 

Congressperson, I am also on the board of a historically black college, Morgan State University. One of the things I am discovering, 

panel, is that the retention rate is not what I would like for it to 

be, and one of the main reasons why it is not is because the kids 

don’t have money. A lot of people think the kids are just not bright. 

They don’t have the money. And in this recession, the McDonald’s 

job that used to go to that college kid is now going to that 45-yearold man that was just laid off from Bethlehem Steel. 

So it seems to me that when we are talking about reductions in 

various things that government does, one of the things that I think 

is very positive was this whole Pell grant—increasing the amount 

of the Pell grant that folks can get out of the Pell grant. But we 

have got to find ways to help fund this education. 

And then there is another piece. The Commission on Future 

Graduate Education released its report today in which it posited 

that, by the end of the decade, nearly 20 percent more jobs will require a masters degree or Ph.D. However, the report also noted 

that graduation rates in Ph.D. programs are low and relatively few 

minority students go beyond an undergraduate education. 

As we have been so often told, the minority community has suffered disproportionately in current and in past recessions, and I am 

just wondering what policies would be used to encourage minority 

students to continue their education and keep all graduate students in the pipeline to get the doctoral degrees. 

So I am combining two things. The one, a lot of these kids don’t 

even have money to even get out of a community college, let alone 

to get a BA degree. So it just seems to me that we need to put our 

priorities in order a little differently, because I have got kids that 

probably would do fine if they had the financial support. Mamma 

has lost her job, daddy has lost his job, and they are in pretty bad 

shape. 

Panel, respond to what I just said. Dr. Katz, we will start with 

you. 

Dr. Katz. I completely agree that the cost of college and the ability to pay for it is a big barrier to people completing. So there are 

a couple of barriers. One we talked about is people who aren’t prepared need to do remedial courses. The other important one, the 

dirty little secret, is that the vast majority of American college students work simultaneously while being in college. And prior to this 

downturn, far more than half of all college students were working 

20 hours a week or more in the labor market to fund it. So that 

greatly slows down people and the types of credits they can take. 

It disrupts their training. 

So, yes, one, that is exacerbated in this downturn because the 

types of jobs they would get to support are now not available. But, 

two, there are some interesting programs that tie sort of financial 

support to taking a full load and to sort of doing reasonably well 

in it. 

There was an interesting program called the PROMISE scholarship in West Virginia, which basically gave you free tuition and 

support if you took a sufficient load and passed it, that you could 

27 

actually graduate within 4 years at a 4-year college. So there are 

potentially ways of using financial aid that would probably be more 

economical in getting people through in 4 years rather than in 6 

and 7 years and reduce the workloads and having some where we 

have more sort of performance requirements of the students but set 

a new norm that you actually take a full load but we will give you 

support to do that. The evidence is that could be a quite successful 

path. 

And the final thing you mentioned, the returns to going beyond 

a bachelors degree are the one thing that has grown the most in 

the U.S. economy over the last 20 years. So, yes, anything that can 

encourage minority, disadvantaged to continue on, if they have 

done well as an undergraduate, is going to have a very high payoff. 

That has been what we call a convexification, that is, the higher 

up you go in education, the bigger seem to be the marginal returns. 

So that is where the bucks are, and getting people to the point 

where they can take advantage of it is certainly important. 

Representative Cummings. I see my time is up. 

Chair Maloney. I want to—would you like to comment on it further? 

Dr. von Wachter. Let me just add a brief thing. 

Financial aid is typically based on last year’s income of the parents. Now, for the people who have been admitted to a BA and 

their parents lose their job, they might not even show up at the college or while they go to college the parents lose their job, financial 

aid is based on an earnings level that doesn’t really correspond to 

the actual resources. So poor-income kids are more likely to drop 

out. And something that is worth considering is supporting those 

kids whose parents just had a tremendous job loss while they are 

in college or while they got accepted to college. 

Chair Maloney. Thank you so very much. 

When it comes to long-term unemployment, it is clear that we 

have a great deal more to do. The painful aftermath of long-term 

unemployment is borne by the unemployed, their families, and the 

economy as a whole. 

I want to thank our witnesses today for their excellent testimony. 

You have given us some good ideas that I hope we can follow up 

on in a bipartisan way. 

We are shortly going to be called for votes, so I am adjourning 

this meeting. Thank you. 

[Whereupon, at 3:34 p.m., the committee was adjourned.] 

(29) 

SUBMISSIONS FOR THE RECORD 

30 

PREPARED STATEMENT OF CAROLYN MALONEY, CHAIR, JOINT ECONOMIC COMMITTEE

Just over one year ago, the current Administration took office while the country 

was suffering from the worst economic crisis since the Great Depression. 

In fact, last October, Council of Economic Advisers Chair Christina Romer testified to this committee that the shocks we endured in the ‘‘Great Recession’’ were 

actually worse than those of the Great Depression. 

But today, it is clear that America is on a path toward economic recovery: 

• After 4 straight quarters of negative growth, the economy grew during the last 

two quarters of 2009. There is a consensus that when the latest GDP numbers 

are announced tomorrow, we will see that our economy continued to expand 

during the first quarter of 2010. 

• The most recent employment report showed that 162,000 jobs were created in 

March, with three-fourths of those new jobs coming from the private sector. 

• Manufacturing employment has been up for 3 straight months. 

• Sales of cars and light trucks were up in March. 

• Excluding aircraft orders, durable goods orders were up almost 3 percent in 

March. 

• Retail sales were up 1.6 percent in March, the third straight month of growth. 

• Sales of both existing and new homes increased in March with sales of new single family homes rising by almost 27 percent. 

• And many surveys of the economy are optimistic about growth in both the service and manufacturing sectors. 

These improvements in our economy are proof that actions taken by Congress, the 

Fed, and the Administration have put our economy back on track. 

While we are making progress, the road to recovery will not be without bumps. 

Although we saw significant job creation last month we need stronger job creation 

to reduce unemployment. 

In addition, while the unemployment rate rose during this recession, it is the rise 

in the long-term unemployment rate that is especially troubling. Nearly half of the 

unemployed have been without work for over 6 months and more than a quarter 

of unemployed workers have been looking for work for over a year—even before the 

Recovery Act was signed into law. 

Some groups are suffering more than others. Younger workers, less educated 

workers, and African-American workers are among those who are likely to be unemployed and stay unemployed. 

The painful aftermath of long-term unemployment is borne by the unemployed, 

their families, and the economy as a whole. 

While the long-term unemployed earn 30 percent less in their new jobs than before they lost their jobs, even 15 to 20 years later, these workers’ earnings are still 

about 20 percent less than similar workers who didn’t lose their jobs. 

The scarring effect of long-term unemployment also reaches into the next generation. The children of displaced workers have lower earnings and are more likely to 

be unemployed than those whose fathers had stable employment. 

Finally, the costs to the economy in terms of lost output are great, which will have 

an impact on our debt and deficit. $3.1 trillion of the deficit over the next 10 years 

can be attributed to the recession, due to lost and lower incomes and the need for 

government assistance during periods of unemployment. 

While many believe that a ‘‘rising tide will float all boats’’ and that a growing 

economy is all that we need to help the long-term unemployed, it is clear that targeted provisions are needed to move the large numbers of unemployed back into the 

labor force. 

Congress passed legislation to lessen the depth of the recession, including: 

• The Recovery Act, which provided tax relief for 95 percent of American families 

and created jobs while investing in clean energy technologies, infrastructure, 

and education; 

• The Worker, Homeownership & Business Assistance Act, which expanded the 

first-time homebuyer tax credit, and enhanced small business tax relief. 

• And just last month, Congress passed the HIRE Act, which provides tax incentives for businesses that hire out-of-work Americans. 

• The House of Representatives passed the Disaster Relief and Summer Jobs Act 

of 2010, which supports an additional 300,000 summer jobs for young workers. 

But, when it comes to long-term unemployment we need to do more. That is why 

we are particularly fortunate to have such a distinguished panel of labor economists 

before us. We owe it to the unemployed workers—some of whom are watching this 

31 

hearing, their families and to our economy to search for ways of getting all workers 

jobs. 

At a recent JEC hearing, Dr. Berner, Chief Economist of Morgan Stanley, said 

that we have a responsibility to look under every rock for solutions. 

I look forward to looking under new rocks this afternoon with today’s panel as 

we search for solutions to the problem of long-term unemployment. 

PREPARED STATEMENT OF REPRESENTATIVE KEVIN BRADY

I am pleased to join in welcoming today’s witnesses before the Committee. 

Although many economic indicators show signs of a recovery, the employment situation remains dire. As of last month, 15 million Americans were out of work for 

an unemployment rate of 9.7 percent. Moreover, 44.1 percent of the unemployed 

have been out of work for 27 weeks or longer, which is an all-time high. 

Given these grim employment statistics, I thank the Chair for convening this 

hearing on long-term unemployment. I agree with many of the things that today’s 

witnesses have to say. 

Long-term unemployment presents Congress with two distinct challenges: 

• First, what policies will boost economic growth, entrepreneurship, and business 

investment in the private sector so that rapid job creation will slash unemployment? 

• Second, how does America successfully address the mismatch between skills 

and jobs—both today and in the future? Too many of our long-term unemployed 

have limited education and skills, while the high-paying jobs they are seeking 

require higher levels of both. 

Ms. Furchgott-Roth, your written testimony is such a comprehensive indictment 

of the economic policies of President Obama and this Congress that there is little 

to add. To accelerate economic growth, create millions of new jobs and address the 

Obama unemployment bubble, we need to restore America to the best business climate in the world in which to invest, innovate, and produce. 

To do that we must admit America has fallen behind. Other nations have taken 

a page from our successful playbook and have attracted U.S. companies and jobs by 

lowering taxes, rewarding investment, and recruiting research and development facilities. 

To restore our economic strength the United States must lower its punitive taxes 

on business investment. Countries around the world have been slashing their corporate income tax rates to stimulate job-creating business investment while the 

United States has largely stood pat. In 1990, our average combined federal and 

state corporate income tax rate was 6 percentage points lower than the average in 

other OECD countries. We were leading our competitors. Today, it is 9 percentage 

points higher—and now we are losing out to them. 

The same goes for incentivizing research employment in America. In 1981, realizing the importance of research and development for technological leadership and 

economic strength, the United States enacted the R&D tax credit. At the time we 

were leading the world. Seeing the benefits, other countries have enacted more generous R&D tax credits and created incentive packages for U.S. companies to relocate 

these critical jobs elsewhere—and now we are losing out. This Congress stood by 

while our R&D tax credit expired last year. We need to restore, modernize and expand that tax credit immediately and permanently or watch as the exodus of American research workers overseas accelerates. 

Misguided and harmful proposals by this White House and Congress—during an 

economic recession of all times—to levy hundreds of billions of dollars in higher 

taxes on capital gains, dividends, income, U.S. energy production, inventories, and 

U.S. businesses reaching customers around the globe will only ensure America will 

fall further behind its international competitors and fall further behind in creating 

the types of high-paying jobs that will help solve our long-term unemployment crisis. 

If these job killing tax increases become law, America will have tragically gone 

from ‘‘first-to-worst’’ in business climates among the world’s largest economies. 

Instead, we should boldly strive to create the best business climate in the world 

for 21st century jobs by reducing the federal corporate income tax to no more than 

25 percent, modernizing and making permanent the R&D tax credit, eliminating 

taxes on dividends and capital gains, and reforming our international tax code. 

The United States must also seek new customers around the world by ratifying 

this year the three pending free trade agreements with Colombia, Panama, and 

32 

South Korea that represent $13 billion in new sales abroad and 250,000 new highpaying jobs here in America. 

Then, to ensure our companies and workers don’t fall further behind in the global 

marketplace, Washington should renew Trade Promotion Authority, conclude a 

meaningful Doha Round at the World Trade Organization, and aggressively negotiate new free trade agreements beginning with the Trans-Pacific Partnership. 

Shifting gears, Dr. Katz, I would like to thank you for your research identifying 

skill-biased technological change due to the rapidly falling cost of computers and 

computer-driven machinery as the major cause for the growth of income inequality 

in the United States since the 1970s. Skill-biased technological change is a global 

phenomenon that has widened the income gap in developed and developing countries alike. 

Your research indicates that, to address the mismatch between jobs and skills, we 

must improve the educational attainment and skills of our workforce. To compete 

and win in the global economy, the needs of our children in public schools must 

come first. We should sweep away wasteful layers of education bureaucracy, redirect 

tax dollars to classrooms, and free principals to manage their schools. 

We must also focus on the needs of young adults entering college and workers 

seeking continuing education or retraining—not on the needs of politicians, union 

leaders, or bureaucrats. Our current federal retraining programs are too often slow, 

bureaucratic, and driven by special interests rather than the workers. With a worker-driven program, our colleges, universities, and training centers can help both current and future workers improve their skills to qualify for high-paying jobs. 

At the end of the day, the greatest affirmative action program yet invented is a 

good, solid education. 

I look forward to today’s discussion. 

PREPARED STATEMENT OF REPRESENTATIVE ELIJAH E. CUMMINGS

Thank you, Madam Chair. Like many of us in Congress, I have spent the bulk 

of the last week talking about Goldman Sachs and financial regulatory reform. 

We have been able to generate strong support for the SEC casting a wider net 

around the Goldman Sachs ABACUS transactions. I am grateful for the support of 

my colleagues in this endeavor, including members of this committee. 

However, I have consistently told my staff that none of this matters if, at the end 

of the day, it does not result in a benefit for our constituents. 

My constituents and neighbors in Baltimore continue to struggle—to find a job, 

to stay in their homes, and to provide for their families. 

So many have lost jobs in this recession, and as CBO Director Douglas Elmendorf 

told this committee, a large number of those jobs are not coming back. 

That is why the work of one of our witnesses, Dr. Katz, on the benefits of education, is essential to our ongoing recovery. Dr. Katz has argued persuasively on the 

need for educational systems and protocols that produce high returns for young students and adult learners alike. 

He has written that ‘‘although college enrollment rates among new high school 

graduates have been rising since the early 1980s . . . the share of young adults completing four year college degrees has risen only modestly.’’ 

Clearly, as strong as our higher education system is, there are constituencies that 

are not able to thrive within the current infrastructure. 

Therefore we must embrace alternative approaches to higher education that not 

only provide the necessary critical thinking, but also real job training and work 

skills. 

I know that these two goals can be attained through two approaches: 

First, America’s community college system—which offers not only higher education to those who otherwise could not afford it, but also crucial worker and vocational training programs. 

Community colleges also provide a haven for the non-traditional student, offering, 

as Dr. Katz noted in his opening statement, high returns for dislocated workers. 

Unfortunately, the community college system relies heavily on State and local 

governments to meet financial obligations. And as we know, the recession has decimated the state and local government coffers. 

While the Recovery Act provided essential assistance to community colleges, more 

must be done to allow these institutions to continue to meet the needs of a changing 

workforce. 

The second way we can complement our traditional higher education institutions 

is through customized programs developed by business and community organizations. 

33 

A top example of this is the BioStars-to-BioProfessionals program—a product of 

the East Baltimore Development Initiative and the Biotechnical Institute of Maryland. 

The program, one I pushed for, prepares the residents of East Baltimore for careers in biotechnology through not only technical training, but also with the personal and professional skills that are applicable in any vocation. 

This program helps address the ‘‘skill mismatch’’ that plagues our unemployed, 

especially the young and minorities, who are among the most vulnerable in the recession. 

I hope today’s hearing will not only discuss the benefits of programs like BioStars, 

but also what other efforts we must explore and undertake to ensure that none of 

our constituents fall through the cracks during the recovery. 

With that, I look forward to the testimony of our witnesses, and yield back the 

balance of my time. 

PREPARED STATEMENT OF SENATOR SAM BROWNBACK, RANKING MINORITY

Chair Maloney, I want to thank you for scheduling today’s hearing to examine the 

particularly vexing problem of long-term unemployment: the causes, consequences 

and solutions. Our economy continues to struggle through a deep recession. While 

economic growth, as measured by Gross Domestic Product, has returned, the labor 

market continues to struggle. A total of 8.2 million payroll jobs have disappeared 

since the recession began in December 2007. The official national unemployment 

rate stands at 9.7%. We have experienced the first year over year declines in the 

labor force since 1962. If normal labor force growth trends had continued, the official unemployment rate would be well north of 10% and would have registered 

above 11% early in the fourth quarter of last year. 

Recent gains in temporary-help services jobs are encouraging, but since more than 

one million workers have exited the labor force in the last nine months alone, as 

they re-enter the job market we may experience rising payroll employment and a 

rising unemployment rate at the same time. 

There is no room for debate. Getting Americans back to work is job one—and job 

two—and job three. A key part of that job is addressing the problem of long-term 

unemployment. The duration of unemployment is a key indicator of the health of 

the labor market. Short durations of unemployment are often an indicator of a 

healthy labor market because it is a sign that workers are easily able to move in 

and out of jobs and various sectors of the economy. 

The number of long-term unemployed—those unemployed for 27 weeks or more— 

has reached 6.5 million or 44% of the nation’s 15 million workers looking for work. 

I suspect that number would be even more staggering if it included those workers 

who have simply given up looking for a new job. Prior to the current recession, the 

highest previous percentage of long-term unemployment was 26% in June 1983 as 

we were exiting the double-dip recessions of the early 1980s. To put this in perspective, at the start of this recession, 17.3% of all unemployed workers were classified 

as long-term unemployed. The average, since data collection began in 1948, is 

13.4%. 

That the percentage of long-term unemployed is now close to 50% is particularly 

troubling because long spells of unemployment not only adversely affects workers’ 

economic circumstances, but can lead to deterioration in their future job prospects. 

As Federal Reserve Chairman Ben Bernanke stated in testimony before the Joint 

Economic Committee on April 14th, ‘‘Long periods without work erode individuals’ 

skills and hurt future employment prospects. Younger workers may be particularly 

adversely affected if a weak labor market prevents them from finding a first job or 

from gaining important work experience.’’ 

Historically, a primary cause of long-term unemployment has been periods of economic recession in which more unemployed workers are competing for fewer job 

openings, leaving the average unemployed person out of work for a longer period 

of time. The current high rate of long-term unemployment has likely been exacerbated by the housing crisis. Mobility plays a significant part in the ability of unemployed workers to find new jobs, and the recent housing crisis has reduced the mobility of many homeowners. 

With nearly one out of every four mortgage holders ‘‘under water,’’ many people 

cannot afford to move to places that offer better employment prospects because 

doing so would involve taking a significant loss on their homes. Additionally, the 

glut of housing inventory has made it extremely difficult even for homeowners who 

are not under water to find buyers. 

34 

I could speculate on a number of other factors for the current levels of long-term 

unemployment such as the increased presence of two-earner families, the changing 

make up of the economy, or government policies that reduce incentives to hire and 

be hired. We have an outstanding panel of witnesses to discuss these and other 

issues. I am hopeful that their testimony and the questions and answers will provide us with some commonsense solutions that we can pursue on a bipartisan basis. 

As I mentioned earlier, for Congress, jobs one, two and three are getting America 

back to work. 

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