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S. HRG. 112–790 

THE ENDANGERED MIDDLE CLASS: IS THE 

AMERICAN DREAM SLIPPING OUT OF REACH 

FOR AMERICAN FAMILIES? 

HEARING 

OF THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON

EXAMINING THE MIDDLE CLASS, FOCUSING ON IF THE AMERICAN 

DREAM IS SLIPPING OUT OF REACH FOR AMERICAN FAMILIES 

MAY 12, 2011 

Printed for the use of the Committee on Health, Education, Labor, and Pensions 

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

TOM HARKIN, Iowa, Chairman 

BARBARA A. MIKULSKI, Maryland 

JEFF BINGAMAN, New Mexico 

PATTY MURRAY, Washington 

BERNARD SANDERS (I), Vermont 

ROBERT P. CASEY, JR., Pennsylvania 

KAY R. HAGAN, North Carolina 

JEFF MERKLEY, Oregon 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

SHELDON WHITEHOUSE, Rhode Island 

RICHARD BLUMENTHAL, Connecticut 

MICHAEL B. ENZI, Wyoming 

LAMAR ALEXANDER, Tennessee 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

RAND PAUL, Kentucky 

ORRIN G. HATCH, Utah 

JOHN MCCAIN, Arizona 

PAT ROBERTS, Kansas 

LISA MURKOWSKI, Alaska 

MARK KIRK, Illinois 

DANIEL SMITH, Staff Director 

PAMELA SMITH, Deputy Staff Director 

FRANK MACCHIAROLA, Republican Staff Director and Chief Counsel 

(II) 
C O N T E N T S 

STATEMENTS 

THURSDAY, MAY 12, 2011 

Page 

COMMITTEE MEMBERS

Harkin, Hon. Tom, Chairman, Committee on Health, Education, Labor, and 

Pensions, opening statement ............................................................................... 1 

Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, opening 

statement .............................................................................................................. 3 

Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia ....................... 43 

Kirk, Hon. Mark, a U.S. Senator from the State of Illinois ................................. 44 

Blumenthal, Hon. Richard, a U.S. Senator from the State of Connecticut ........ 45 

Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon ............................. 46 

Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee ................ 48 

Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode Island ...... 50 

Roberts, Hon. Pat, a U.S. Senator from the State of Kansas .............................. 51 

Franken, Hon. Al, a U.S. Senator from the State of Minnesota .......................... 53 

WITNESSES

Reich, Robert B., Chancellor’s Professor of Public Policy, Goldman School 

of Public Policy, University of California, Berkeley, CA ................................... 7 

Prepared statement .......................................................................................... 9 

Boushey, Heather, Ph.D., Senior Economist, Center for American Progress, 

Washington, DC ................................................................................................... 17 

Prepared statement .......................................................................................... 19 

Luttig, J. Michael, General Counsel and Executive Vice President, Boeing 

Company, Chicago, IL .......................................................................................... 22 

Prepared statement .......................................................................................... 24 

Fox, Sarah M., Legal Counsel, AFL–CIO, Bethesda, MD .................................... 35 

Prepared statement .......................................................................................... 38 

ADDITIONAL MATERIAL 

Statements, articles, publications, letters, etc.: 

Response to questions of Senator Harkin by J. Michael Luttig ................... 74 

Response to questions of Senator Enzi by: 

Secretary Reich .......................................................................................... 75 

Heather Boushey ....................................................................................... 76 

Response to questions of Senator Blumenthal by: 

Secretary Reich, Heather Boushey and Sarah Fox ................................ 77 

Heather Boushey ....................................................................................... 78 

(III) 

(1) 

THE ENDANGERED MIDDLE CLASS: IS THE 

AMERICAN DREAM SLIPPING OUT OF REACH 

FOR AMERICAN FAMILIES? 

THURSDAY, MAY 12, 2011 

U.S. SENATE, COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, Washington, DC. 

The committee met, pursuant to notice, at 9:15 a.m. in Room 

430, Dirksen Office Building, Hon. Tom Harkin, chairman of the 

committee, presiding. 

Present: Senators Harkin, Enzi, Merkley, Franken, Whitehouse, 

Blumenthal, Alexander, Isakson, Roberts, and Kirk. 

OPENING STATEMENT OF SENATOR HARKIN

The CHAIRMAN. The Senate Committee on Health, Education, 

Labor, and Pensions will please come to order. 

This is another in a series of hearings that we are holding on, 

‘‘The Endangered Middle Class: Is the American Dream Slipping 

Out of Reach for American Families? ’’ 

As I have traveled through Iowa and across the country I have 

heard more and more from middle class families who feel their 

dream, American dream is slipping away. I just received a letter 

from one of my constituents who wrote, 

‘‘My own disposable income has disappeared and I am not 

alone. Where I once joined friends occasionally for a lunch out, 

that no longer happens. I don’t buy new clothes. I don’t travel. 

My friends and neighbors, formerly middle class all, are in the 

same boat. We are the new poor.’’ 

Unfortunately she said she is not, by any means alone. Take, for 

instance, the town of Webster City, IA. Webster City, IA, small 

town, middle class families, work hard, play by the rules, sacrifice 

for their children. It is a town where a decent, middle class way 

of life is threatened. Recently in Webster City the Electrolux plant 

that had been the town’s economic engine for 80 years closed its 

doors. Production moved to Juarez, Mexico. In the final round of 

layoffs in March, 500 Iowans lost their middle class jobs. This most 

recent factory closing comes on the heels of 222 plant closings in 

my State last year, destroying nearly 12,000 good paying jobs. 

The American dream used to mean something, that if you put in 

a hard days work you could expect good American wages, decent 

benefits and a better life for your kids. Today we are in danger of 

losing that dream and our middle class. For the first time in history the majority of Americans believe their kids will have fewer 
2 

opportunities than they had. Now Americans don’t expect to be rich 

or privileged, but they do expect to be treated fairly. And they deserve to have the opportunity to build a better life for their children, again, these are in jeopardy. 

It wasn’t always like this. In the decades after World War II a 

rising tide lifted all boats. Worker productivity and family income 

grew together at about 2 percent annually. This chart shows that 

in those years, down from about 1947 up to about 1970, that the 

two went together at about 2 percent a year. 

From about 1947 to 1977 the blue bars show that the share of 

the national wealth was fairly distributed, about 2.5 percent across 

the board for every quintile. But as you can see now, from 1977 

until now, the red bars show what has happened, that more of the 

wealth has gone only to the top quintile and down at the bottom 

they haven’t even grown at all, they have actually lost. 

These are the two pictures. The blue bars are what happened 

during the Great Prosperity, as Secretary Reich has pointed out, as 

he has stated, but during the last 30 years the share of wealth has 

only basically gone to the top quintile. 

As productivity has continued to climb and Americans have 

worked harder than ever, middle class incomes have stagnated, 

wages and salaries fell to the lowest share of total national income 

since 1929, in the last 10 years. Corporate profits have skyrocketed, income and wealth at the very top has surged, but Americans haven’t shared in this prosperity. 

Families in Webster City and across the country are under enormous strain because of the changes in our economy. Their paychecks aren’t keeping pace with the soaring costs of everyday expenses, like education and housing, gas. Jobs are insecure. Savings 

and pensions have disappeared. People are profoundly worried 

about the future. 

Now when I talk to business owners today one of the things I 

hear is that they aren’t hiring new workers because they don’t 

know whether the workers can buy the things they make. These 

are smart business people, they will readily expand and invest if 

they sense demand, but demand is weak. Unless middle class families have the resources available to purchase gas and pay rent and 

buy groceries and clothes and new cars and things like that, our 

economy is going to suffer and be driven by boom and bust cycles 

on Wall Street. 

Let me state what I think is a simple truth. We can’t have a 

strong economy unless we have a strong middle class to make and 

buy the every day items a family needs to live a decent life. Now 

it is true that our economy has undergone fundamental changes in 

recent years but I don’t think these changes should be viewed as 

the inevitable result of forces beyond our control, things like new 

technology and globalization. While these forces have presented 

challenges we have also made deliberate policy choices that have 

hurt the middle class. Ordinary Americans know this is true. 

Again, one of my constituents just put this in a letter to me, ‘‘Why 

is Washington determined to make the rich richer and to turn its 

back on the middle class? ’’ 

For years our economy has operated on the flawed premise that 

if we just let powerful corporations basically do whatever they want 
3 

to reap huge profits, then everyone will prosper. Many people here 

in Washington bought into this vision that if corporate profits 

surged and the rich got richer they would magically create jobs and 

prosperity would trickle down to everyone else. Instead what we 

got was the Great Recession, falling real incomes and a real unemployment rate close to 16 percent. 

The only problem was it didn’t work. Instead a few powerful people gamed the system and got very, very rich at the expense of the 

middle class. And they used their influence to change the rules so 

they could bust unions, refuse to pay their fair share of taxes and 

collect big bailouts while leaving ordinary working people to suffer 

the consequences of an unstable and dangerous economy. 

I don’t believe we can keep moving down this same failed path. 

If we do, frankly we may not have a middle class two decades from 

now. We have to look closely at what went wrong and how we can 

make smarter policy choices to restore the fundamental promise of 

the American dream that if you work hard and play by the rules 

you should be able to build a better life for you and your family. 

One of those smarter policy choices is to restore the voice of 

working Americans by strengthening workers’ rights and defending 

the agency that protects those rights, the National Labor Relations 

Board. Recently the dedicated career employees who impartially 

administer the law through this important agency have come under 

a vicious and unfair political attack for carrying out their duties 

under the law. 

Also, something is seriously out of whack when a Midwestern 

governor vilifies teachers and other public employees as, ‘‘the privileged elite.’’ This is an unfortunate distraction. These kinds of 

things won’t help the people of Webster City or any middle class 

community suffering across the country. 

The fact is, unions have played a critical role in building the middle class in this country by standing up for good American wages, 

decent benefits and a 40-hour work week. This again is a track. If 

you look at the red line, it is the middle class share of national income. You can see it going down. The green line is the percent of 

workers covered by collective bargaining agreements, going down. 

And union membership the blue line. They all track each other. By 

giving workers the opportunity to negotiate their pay and benefits, 

the same opportunity that corporate executives already have, 

unions will help restore and rebuild the middle class. 

But restoring the right to form unions is only one of many steps 

to put our country back on track. I look forward to hearing more 

from our witnesses today about the causes of the crisis facing the 

middle class and how we can move forward to build better opportunities in the future. One thing I am certain of, there can be no sustainable economic recovery without the recovery of the middle class 

and I hope today’s hearing can help start us down that path at 

really looking, realistically, at what we need to do to rebuild the 

middle class in America. I look forward to a lively discussion. 

Senator Enzi. 

STATEMENT OF SENATOR ENZI

Senator ENZI. Thank you, Mr. Chairman and good morning. I am 

pleased that we are holding this hearing on the middle class and 
4 

the American dream. Central to achieving the American dream is 

one element, a job. As I travel around Wyoming and the rest of the 

country, I hear one refrain more than any other. Where are the 

jobs? 

As this chart shows, unemployment has remained around 9 percent since May 2009 reaching a high of 101⁄10th percent in October 

2009. The last 2 months have been the first time in almost 2 years 

that it has decreased below 9 percent and job creation numbers 

were finally where they should be for an actual recovery. Let me 

just say, I was very pleased to see those numbers. I understand 

they have increased a little bit now, though. 

But the so-called true unemployment rate or U.S. rate has 

reached almost 18 percent. This figure includes underemployed individuals who are working part-time but would like to work fulltime and those who have left the labor force entirely because they 

simply have given up on the search for employment. You can’t 

blame the American people for being frustrated. Although we have 

heard a lot of talk about job creation, often this Administration’s 

actions have been counterproductive and come at a steep cost to 

our growing debt and deficit. 

One of the first actions was the enactment of the stimulus bill 

in February 2009, a bill I did not support. To date, this bill cost 

more than a trillion dollars, when you add in interest, and was primarily a spending bill funding pet projects but creating few jobs. 

Two years later some of that money still hasn’t been distributed, 

even though it was supposed to be timely, targeted and shovel 

ready. 

The American people were promised that the passage of the 

stimulus bill would keep unemployment below 8 percent. As you 

can see from this chart, that was not the case. The red line was 

where it actually went, the blue line is where it was projected to 

go with the stimulus. However, the bill did considerably add to the 

national debt and is one of the reasons it jumped from 10.6 trillion 

in January 2009 to more than 14.3 trillion today. That is a 35 percent increase. 

For over a year the Administration and the Democrat majority 

in Congress focused, like a laser, on the healthcare law that will 

drive up costs and paralyze employers who are uncertain of their 

future obligations. They enacted a financial services reform bill 

that failed to ease the flow of credit to the small businesses that 

are the Nation’s economic engine. The Administration has adopted 

an energy policy that will result in increased prices for Americans 

by limiting the use of the Nation’s cheapest, most abundant energy 

source, coal. The President’s decision to allow the EPA to regulate 

greenhouse gasses under the Clean Air Act will kill jobs throughout the country. Additional job-crushing regulations are in the 

works and the continued threat of tax increases will continue to 

paralyze our job creators. 

Meanwhile, the Workforce Investment Act, WIA, which would 

help Americans retrain for good jobs in this modern economy, continues to languish. The findings of the National Deficit Commission 

are being ignored and a major credit rating company lowered its 

outlook for the U.S.A. from stable to negative. I was in China re-
5 

cently and the China bondholders, the government, brought up the 

debt and deficit everywhere we went. 

Instead of taking actions to create a positive job growth environment, this Administration has taken some steps that actually discourage and prevent job growth. One of the driving forces behind 

these actions is the ideology that every employee should be a union 

member, paying union dues. It has become increasingly clear that 

when some members of the Administration say they want good jobs 

for everyone, they mean only union jobs. 

Let me be clear, I fully support the National Labor Relations Act 

and the right of employees to collectively bargain when they freely 

choose to do so. What I do not support is government stepping in 

to limit employees’ ability to exercise their right not to form or join 

a union. We have seen rulemaking from the National Mediation 

Board, changing the way election results are counted to favor 

unions and actions by both the Department of Labor and the National Labor Relations Board, that limit the information provided 

to employees to exclude their right to refrain from union political 

activities. 

The President issued Executive orders aimed at boosting unionization among Federal contractors and most importantly, we have 

seen dozens of decisions from the National Labor Relations Board 

limiting the ability of employers to make their case to employees 

and restricting the ability of workers to decertify their union. These 

government-sponsored efforts to increase union density have done 

nothing to create jobs, and in some cases they have been counterproductive to that goal. 

For example, on April 20, 2011 the National Labor Relations 

Board acting general counsel filed a complaint against the Boeing 

Company alleging the company committed an unfair labor practice 

by opening a new production line for the 787 Dreamliner aircraft 

at a nonunion plant in South Carolina. The complaint argues that 

Boeing is opening the South Carolina production line in retaliation 

for past strikes in Washington State by the machinists union and 

seeks to have the second production line moved out of South Carolina to Washington State. 

The outrage over this agency’s attempt to intervene in a U.S. 

company’s legitimate business decision and take jobs away from 

South Carolina has been very widespread. I am pleased that we 

were able to have a representative from Boeing here today, J. Michael Luttig. Judge Luttig is the general counsel and executive vice 

president of Boeing and prior to that served as a Federal judge in 

the Fourth Circuit Court of Appeals for 15 years. We thank you for 

appearing here today. 

The Boeing story illustrates this Administration’s focus on favoring unions at the cost of creating the kind of middle class jobs we 

all want. In early 2009, Boeing announced that it was going to 

build a second production line for 787 Dreamliners in order to meet 

increased demand. The existing collective bargaining agreement between Boeing and the Union did not require union consent if the 

company sought to open new worksites outside of Washington. 

Still, Boeing voluntarily entered into discussions with the machinists union about bringing the second production line to Washington 

State. No agreement was reached and Boeing announced that it 
6 

would locate its second production line at a facility it had recently 

purchased in South Carolina. The employees at this facility had 

been represented by the International Machinists Union, but in 

September 2009 they exercised their legal right to decertify their 

union by a vote of 199 to 68 in a secret ballot election. 

Boeing moved forward with plans to expand their manufacturing 

in the United States in the middle of a deep recession. They hired 

over 1,000 new employees in South Carolina and invested millions 

of dollars in the plant facility there. At the same time, production 

and hiring were also increasing in Puget Sound. Boeing created 

over 2,000 new union jobs in the Puget Sound area since 2009, 

again, all during the height of a recession. The jobs they created 

are among the highest paid aerospace workers in the United 

States. 

Mr. Chairman, this company deserves our congratulations and 

respect not demonization. 

But, 17 months after Boeing announced the second production 

line and just 3 months before production was set to begin, the National Labor Relations Board acting general counsel issued this 

complaint and an accompanying press release trumpeting that action. Employers across the country have been greatly disturbed by 

this complaint and the possibility that a government bureaucrat 

serving in an acting capacity could direct U.S. companies about 

where to locate facilities, what work to do there and who to hire. 

It sounds like China, not the United States. 

This is not the way to encourage new job creation in the United 

States or even keep the jobs we currently have. This complaint has 

also raised considerable concern that the National Labor Relations 

Board is now targeting the 22 Right-to-Work States which have 

been an engine of new job creation and attracted many foreign 

companies to manufacture in the United States. Many States that 

did not have a wide manufacturing base historically have found a 

path to significant new job creation by offering high-skilled job 

training for its workforce and attracting foreign employers. 

I will join my colleagues in fighting any attempts to deter investment in Right-to-Work States in order to prop up union bosses. 

Freedom is the quintessential American value. Freedom to build 

a new plant, to create a new job, to join a union, to reject a union. 

All of these choices are threatened by the National Labor Relations 

Board complaint. While I hope the complaint will ultimately not be 

successful as it works through the process, it will create a chilling 

effect nationwide. 

With last month’s positive job numbers, I hope we are truly at 

the brink of an actual recovery that will create more jobs and get 

this country back on track. Job creators are trying to do their part, 

but as the National Labor Relations Board complaint against Boeing shows, this Administration has yet to get the message. We have 

heard speeches and seen opinion pieces, it is time to see action and 

real changes in policy. New job creation is the key to preserving 

this country, to preserving the middle class, and to preserving the 

American dream for future generations. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Enzi. 
7 

Now we will proceed to our witnesses. We will just go from my 

left over to the right in sequence. We will ask you each to make 

a statement of about 7 minutes. I have put the clock at 7 minutes. 

If you could sum up your testimony in that period of time, then we 

can get into a more open discussion. 

First it is my distinct honor to introduce Robert Reich our former 

22d Secretary of Labor under President Clinton. He is currently 

the chancellor’s professor of public policy at the Goldman School of 

Public Policy at the University of California. In addition to his time 

in the Clinton administration he has served in two other presidential administrations. Mr. Reich was the 2003 recipient of the 

Vaclav Havel Vision Foundation prize for his work on economic and 

social thought. He is the author of 12 books, I haven’t read them 

all, a couple of them. But his most recent book called ‘‘Aftershock: 

The Next Economy in America’s Future,’’ I recommend to all. As 

the New York Times book review said, ‘‘Important and well executed. Reich is fluent and fearless,’’ and there is no doubt about 

that. 

A long time friend and someone who is a keen observer and interpreter of the economy in this country, our former Secretary of 

Labor, Secretary Reich, welcome and please proceed. 

By the way, all of your statements will be made a part of the 

record in their entirety and we are just asking you to kind of sum 

them up. 

Secretary Reich. 

STATEMENT OF ROBERT B. REICH, CHANCELLOR’S PROFESSOR OF PUBLIC POLICY, GOLDMAN SCHOOL OF PUBLIC 

POLICY, UNIVERSITY OF CALIFORNIA, BERKELEY, CA 

Mr. REICH. Mr. Chairman, Ranking Member, members of the 

committee, thank you for having this hearing. And as you suggest, 

Mr. Chairman, I am going to submit for the record my formal remarks and keep my informal remarks down to under 7 minutes. 

Let me just say that we are in a recovery but it is the most lopsided recovery I can remember. The gross domestic product, GDP, 

is now higher than it was before the Great Recession. What we 

hear from the Wall Street Journal recently is that corporate executive pay is up 11 percent last year. The stock market is doing very 

well, the stock market is almost back up to what it was before. Corporate profits are very high, in fact big American corporations are 

sitting on almost $2 trillion of cash. They are not investing it in 

new job creation, they don’t need tax cuts, there is just not enough 

demand for the products and services that they otherwise would be 

creating. 

The fundamental problem here is not so much that the economy 

is not expanding, the economy is expanding. The problem is that 

the average working person in this country is not getting very 

much out of this expansion. Yes, new jobs are being created but 

most of those new jobs are in health, in retail, restaurants, surface 

transportation. These jobs don’t pay very much. And this is part of 

a pattern. 

Mr. Chairman, you mentioned it in your beginning statements, 

we have seen, over the last 30 years that the American middle 

class, including what we used to call the working class, that is the 
8 

bottom 90 percent of Americans in terms of their income, they are 

not getting ahead, even before the Great Recession. We saw that 

over the last 30 years, adjusted for inflation, the typical American 

worker in that bottom 90 percent ended up the 30 years earning 

$280 a year more than 30 years before. That is a 1 percent gain 

over 30 years. 

The American economy expanded dramatically. The American 

economy almost doubled in size, but the typical American worker 

did not benefit. What did the typical American family do to maintain their living standards? First of all, women went into paid 

work, because male wages were starting to drop, again adjusted for 

inflation. But there is a limit to how many women with young children can go into paid work. In the 1960s only 12 percent of American women, with young children, and we are talking about children under 6, were in the workforce. By the 1990s I remember 

looking at the data when I was Secretary of Labor, we had 55 percent of American women with young children in the workforce, 

propping up family wages. I wish I could attribute this to the wonderful professional opportunities open to women, but most of the 

reason that women with young children went into the workforce 

was because male wages were dropping. 

And then the second coping mechanism many families used when 

that one was exhausted was for everybody to work longer hours. 

By the last 1990s when we had that wonderful economic boom that 

I, as Secretary of Labor, take full credit for. 

[Laughter.] 

The typical American was working 350 hours more a year than 

the typical European, more hours even than the extraordinarily industrious Japanese. But there is a limit to how many hours people 

could work, even when times are good. 

And so it was the third coping mechanism American families 

used when wages were flat, well they went into debt. Housing 

prices were going up and they could easily refinance their homes 

or they could use their homes as collateral for new loans. In fact, 

between 2002 and 2007 American families extracted about $2.3 

trillion from their homes. And that was enough to keep things 

going. But, when the housing bubble burst, that was the end of 

that last coping mechanism. 

And so one of the problems Americans are having right now, and 

it is a problem for the American economy overall, is that there is 

not enough money in the middle class and the working class to 

keep the economy going. And this is a fundamental problem. It is 

a problem that we can no longer disguise. 

Now I do understand concerns that people have about budget 

deficits. Obviously those are real problems, we have got to do something about those over the long-term. But when you see what has 

happened to American incomes over the last 30 years, flat, you see 

what is happening with the American economy, doubled in size, 

you have got to wonder where did all that money go. Well, the simple answer is it went to the top. Thirty years ago the top 1 percent 

of Americans, by income, were taking home roughly 9.5 percent of 

total national income. By 2007, just before the great crash of 2008, 

they were taking home 23.5 percent of total national income. Their 

income as a total percentage of total national economy almost dou-
9 

1Sources for the following can be found in my most recent book, Aftershock: The Next Economy 

and America’s Future (Alfred A. Knopf, 2010, Vintage paperback, 2011). 

bled. In fact the top .1 of 1 percent of Americans saw their portion 

of the American total income triple over those years. And so, people 

who say we can’t increase taxes on the top in order to deal with 

the long-term budget deficit, I frankly don’t know what they are 

talking about. 

Mr. Chairman, members of this committee, I envy you in a sense 

that we have a lot of work to do, you have a lot of work to do. Your 

work over the last 30 years, not all of you, but this committee’s 

work has been central to reviving the American economy. Central, 

and it will be in the future, central to reviving the economy because human resources, education and healthcare and the other 

things you deal with are so central to the American economy. 

But let me just add one final point because Senator Enzi raised 

it and I think it needs to be responded to. Thirty years ago 35 percent of Americans were members of labor unions in the private sector. And that was such a large percentage that even in the nonunionized sector of the economy employers provided the prevailing 

wages in those labor contracts because employers were afraid, obviously, that if they didn’t they would be unionized next. And it was 

the right thing to do. 

Employers of big corporations only had about 30 times, in terms 

of their pay, CEO pay, was only about 30 times greater than the 

average worker. Now where are we? In the private sector fewer 

than 8 percent of private sector workers are unionized and CEO 

pay is greater than 300 times that of the average worker. The lines 

are diverging and people know this out there in the country. 

People are upset, they are frustrated, they are worried, they feel 

like the game is stacked against them. And hopefully this committee, this committee’s work, Congress’ work, the Administration’s 

work can put this right. 

We, in the Clinton administration, are on the right track, I am 

sure and convinced we were on the right track, we just did not 

have a chance to finish the agenda we started. Thank you, Mr. 

Chairman. 

[The prepared statement of Mr. Reich follows:] 

PREPARED STATEMENT OF ROBERT B. REICH

Mr. Chairman and members of the committee, the jobs and wage crisis of the 

American middle class began decades before the Great Recession. It was hidden 

from view by households borrowing against their homes and, before that, by millions 

of women entering the paid workforce to prop up declining male wages. The crisis 

contributed to the severity of the Great Recession and is a principal reason why 

America is having such difficulty emerging from it. 

If the American dream is to be restored, this long-term crisis must be understood, 

and policies adopted to reverse it. 

Let me explain.1

THE GREAT PROSPERITY: 1947–1977

How did we go from the Great Depression to 30 years of Great Prosperity? And 

from there, to 30 years of stagnant incomes and widening inequality, culminating 

in the Great Recession? And from the Great Recession into such an anemic recovery? 

During three decades from 1947 to 1977, the Nation implemented what might be 

called a basic bargain with American workers. Employers paid them enough to buy 

what they produced. Mass production and mass consumption proved perfect com-
10 

2 In fact, Nixon didn’t actually say this although he is widely credited with it. He said ‘‘I am 

now a Keynesian in economics.’’ 3 J. Kahl, The American Class Structure (New York: Holt, Rinehart, 1956), pp. 109–10. 

plements. Almost everyone who wanted a job could find one with good wages, or at 

least wages that were trending upward. During these three decades everyone’s 

wages grew—not just those at or near the top. 

Government enforced the basic bargain in several ways. It used Keynesian policy 

to achieve nearly full employment. It gave ordinary workers more bargaining power. 

It provided social insurance. And it expanded public investment. Consequently, the 

portion of total income that went to the middle class grew while the portion going 

to the top declined. But this was no zero-sum game. As the economy grew almost 

everyone came out ahead, including those at the top. 

The pay of workers in the bottom fifth grew 116 percent over these years—faster 

than the pay of those in the top fifth (which rose 99 percent), and in the top 5 percent (86 percent). By the late 1940s, the Nation was ‘‘more than halfway to perfect 

equality,’’ as the National Bureau of Economic Research wryly observed. 

Productivity also grew quickly, defying the predictions of those who said wide inequality was necessary for rapid growth. Labor productivity—average output per 

hour worked—doubled. So did median incomes. Expressed in 2007 dollars, the typical family’s income rose from about $25,000 to $55,000. The basic bargain was 

cinched. 

The middle class had the means to buy, and their buying created new jobs. As 

the economy grew, the national debt shrank as a percentage of it. ‘‘We’re all Keynesians now,’’ Richard Nixon purportedly proclaimed in 1971.2 By then even Nixon had 

accepted government’s ability to keep people employed when consumers and businesses did not spend enough, by filling the breach. 

The Great Prosperity also marked the culmination of a reorganization of work 

that had begun during the Depression. Employers were required by law to provide 

extra pay—time-and-a-half—for work stretching beyond 40 hours a week. This created an incentive for employers to hire additional workers when demand picked up. 

Employers also were required to pay a minimum wage, which improved the pay of 

workers near the bottom as demand picked up. When workers were laid off, usually 

during an economic downturn, government provided them with unemployment benefits, usually lasting until the economy recovered and they were rehired. Not only 

did this tide families over but it kept them buying goods and services—an ‘‘automatic stabilizer’’ for the economy in downturns. 

Perhaps most significantly, government increased the bargaining leverage of ordinary workers. They were guaranteed the right to join labor unions, with which employers had to bargain in good faith. By the mid-1950s more than a third of all 

American workers in the private sector were unionized. And the unions demanded 

and received a fair slice of the American pie. Non-unionized companies, fearing their 

workers would otherwise want a union, offered similar deals. UAW president Walter 

Reuther, among others, explicitly invoked the basic bargain: ‘‘Unless we get a more 

realistic distribution of America’s wealth, we won’t get enough to keep this machinery going.’’ As employers boosted wages, the higher wages did indeed keep the machinery going by giving average workers more money to buy what they produced. 

The result was that as corporations did better, so did all their employees. A college sociology textbook of 1956 entitled The American Class Structure noted that 

‘‘[t]he trend of income distribution has been toward a reduction in inequality. Owners have been receiving a smaller share relative to employees; professionals and 

clerks have been losing some of their advantages over operatives and laborers.’’ 3

Americans also enjoyed economic security against the risks of economic life—not 

only unemployment benefits but also, through Social Security, insurance against 

disability, loss of a major breadwinner, workplace injury, and inability to save 

enough for retirement. In 1965 came health insurance for the elderly and the poor 

(Medicare and Medicaid). Economic security proved the handmaiden of prosperity. 

In requiring Americans to share the costs of adversity it enabled them to share the 

benefits of peace of mind. And by offering peace of mind, it freed them to consume 

the fruits of their labors. 

The government sponsored the dreams of American families to own their own 

home by providing low-cost mortgages and interest deductions on mortgage payments. In many sections of the country government subsidized electricity and water 

to make such homes habitable. And it built the roads and freeways that connected 

the homes with major commercial centers. The interstate highway system—40,000 

miles of straight four-lane freeways to replace the old two-lane Federal roads that 

meandered through cities and towns—became the single most ambitious public 

works program in American history. Begun under Dwight Eisenhower and justified 
11 

in the halls of Congress as a means of speeding munitions across the Nation in the 

event of war, it did much more than that—generating sprawling suburbs and shopping malls, boosting auto sales, vastly enlarging the construction industry, creating 

an entire trucking industry, and radically reducing the cost of transporting and distributing goods across America. 

Government also widened access to higher education. The GI Bill paid college 

costs for those who returned from war. The expansion of public universities—whose 

tuitions averaged about 4 percent of median family incomes during the Great Prosperity in contrast to the 20 percent then demanded by private universities—made 

higher education affordable to the American middle class. Consequently, college enrollments surged. By 1970, 70 percent of the Nation’s 4-year students were in public 

universities and colleges. The Federal Government, especially the Defense Department, also underwrote a growing portion of university research, especially in the 

sciences. 

Notwithstanding all this, the Nation also found the time and money in these 

years to rebuild Western Europe and Japan—spending billions of dollars to restore 

foreign factories, roads, railways, and schools. The effort proved an astounding success. The years 1945 to 1970 witnessed the most dramatic and widely shared economic growth in the history of the world, which contributed to America’s Great 

Prosperity. In helping restore the world’s leading economies and thus keep communism at bay, the new global system of trade and assistance created vast new opportunities for American corporations—far richer, larger, and more technologically 

advanced than any other—to expand and prosper. 

Government paid for all of this with tax revenues from an expanding middle class 

with rising incomes. Revenues were also boosted by those at the top of the income 

ladder whose marginal taxes were far higher. The top marginal income tax rate during World War II was over 68 percent. In the 1950s, under Dwight Eisenhower, 

whom few would call a radical, it rose to 91 percent. In the 1960s and 1970s the 

highest marginal rate was around 70 percent. Even after exploiting all possible deductions and credits, the typical high-income taxpayer paid a marginal Federal tax 

of over 50 percent. But contrary to what conservative commentators had predicted, 

the high tax rates did not reduce economic growth. To the contrary, they enabled 

the Nation to expand middle-class prosperity and fuel growth. 

Support for the government’s new role was founded in the crucible of the Great 

Depression and World War II, in whose wake Americans shared a larger sense of 

common purpose. We were all in it together, rising or falling together, connected to 

one another in ways we had barely noticed before the Depression. None of us could 

prosper unless prosperity was widely shared. The historian James Truslow Adams 

coined the phrase ‘‘the American dream,’’ and defined it as ‘‘a better, richer, and 

happier life for all our citizens of every rank.’’ 

America of the era still harbored vast inequalities, of course. But the Nation responded to the reality of unequal opportunity with court decisions and legislation 

designed to overcome racial and gender discrimination, and with public investments 

in education intended to enable many more of our young to get ahead regardless 

of circumstance. The Great Prosperity significantly expanded the American middle 

class. And it proved that widely-shared income gains were not incompatible with 

widespread economic growth; they were, in fact, essential to it. 

THE MIDDLE CLASS SQUEEZE, 1977–2007

During the Great Prosperity of 1947–77, the basic bargain had ensured that the 

pay of American workers coincided with their output. In effect, the vast middle class 

received an increasing share of the benefits of economic growth. But after that 

point, the two lines began to diverge: Output per hour—a measure of productivity— 

continued to rise. But real hourly compensation was left in the dust, as you can see 

below. 
12 

It’s easy to blame ‘‘globalization’’ for the stagnation of middle incomes, but technological advances has played as much if not a greater role. Factories remaining in 

the United States have shed workers as they automated. So has the service sector. 

Remember bank tellers? Telephone operators? The fleets of airline workers behind 

counters who issued tickets? These and millions of other jobs were lost to automation. Any routine job that requires the same steps to be performed over and over 

can potentially be done anywhere in the world by someone working for a fraction 

of an American wage or by automated technology. By the late 1970s, all such jobs 

were on the endangered species list. By now they are nearly extinct. 

But contrary to popular mythology, trade and technology have not reduced the 

overall number of American jobs. Their more profound effect has been on pay. Rather than be out of work, most Americans have quietly settled for lower real wages, 

or wages that have risen more slowly than the overall growth of the economy per 

person. Although unemployment following the Great Recession remains high, jobs 

are slowly returning. But in order to get them, many workers have to accept lower 

pay than before. 

Starting more than three decades ago, trade and technology began driving a 

wedge between the earnings of people at the top and everyone else. The pay of wellconnected graduates of prestigious colleges and MBA programs—the so-called ‘‘talent’’ who reached the pinnacles of power in executives suites and on Wall Street— 

has soared. But the pay and benefits of most other workers has either flattened or 

dropped. And the ensuing division has also made most middle-class American families less economically secure. 

The real puzzle is why so little was done in response to these forces conferring 

an increasing share of economic growth on a small group at the top and leaving 

most other Americans behind. With the gains from that growth, the Nation could, 

for example, have expanded our educational system to encompass early-childhood 

education and have better equipped our public schools. It could have supported affordable public universities, created more job retraining, and better and more extensive public transportation. 

In addition, the Nation could have given employees more bargaining power to get 

higher wages, especially in industries sheltered from global competition and requiring personal service. We could have enlarged safety nets to compensate for increasing anxieties about job loss—unemployment insurance covering part-time work, 

wage insurance if pay dropped, transition assistance to move to new jobs in new 
13 

locations, insurance for entire communities that lose a major employer so they can 

lure other employers. We could have financed Medicare for all. Regulators could 

have prohibited big, profitable companies from laying off a large number of workers 

all at once; required them to pay severance—say, a year of wages—to anyone they 

let go; and train them for new jobs. The minimum wage could have been linked to 

inflation. 

We could have raised taxes on the rich and cut them for poorer Americans—including payroll taxes, capital-gains taxes, and estate taxes. America could have attacked overseas tax havens by threatening loss of U.S. citizenship to anyone who 

keeps their money abroad in order to escape U.S. taxes. We could have expanded 

public investments in research and development, and required any corporation that 

commercialized such investments to create the resulting new jobs in the United 

States. And we could have insisted that foreign nations we trade with establish a 

minimum wage that’s half their countries’ median wage. That way, all citizens could 

share in gains from trade, setting the stage for the creation of a new middle class 

that in turn could participate more fully in the global economy. 

In these and many other ways, government could have enforced the basic bargain. 

But it did the opposite. Starting in the late 1970s, and with increasing fervor over 

the next three decades, it deregulated and privatized. It slashed public goods and 

investments—whacking school budgets, increasing the cost of public higher education, reducing job training, cutting public transportation, and allowing bridges, 

ports, and highways to corrode. It shredded safety nets—reducing aid to jobless families with children, tightening eligibility for food stamps, and cutting unemployment 

insurance so much that by 2007 only 40 percent of the unemployed were covered. 

It halved the top income tax rate from the range of 70 to 90 percent that prevailed 

during the Great Prosperity of 28 to 35 percent; allowed many of the Nation’s rich 

to treat their income as capital gains subject to no more than 15 percent tax; and 

shrunk inheritance taxes that affected only the top-most 1.5 percent of earners. Yet 

at the same time, America boosted sales and payroll taxes, both of which took a bigger chunk out of the pay of the middle class and the poor than of the well-off. 

We allowed companies to break the basic bargain with impunity—slashing jobs 

and wages, cutting benefits, and shifting risks to employees (from you-can-count-onit pensions to do-it-yourself 401 (k)s, from good health coverage to soaring premiums 

and deductibles). Companies were allowed to bust unions and threaten employees 

who tried to organize (by 2010, fewer than 8 percent of private-sector workers were 

unionized). And nothing impeded CEO salaries from skyrocketing to 300 times that 

of the average worker (from 30 times during the Great Prosperity), while the pay 

of financial executives and traders rose into the stratosphere. We stood by as big 

American companies became global companies with no more loyalty or connection 

to the United States than a G.P.S. satellite. Now, firms such as Caterpillar, GE, and 

Oracle and other so-called ‘‘American’’ firms are selling more outside the United 

States than in it, and are creating more jobs outside the United States as well. 

Most telling of all, Washington deregulated Wall Street while insuring it against 

major losses. In so doing, it allowed finance—which until then had been the servant 

of American industry—to become its master, demanding short-term profits over 

long-term growth, and raking in an ever-larger portion of the Nation’s profits. Between 1997 and 2007, finance became the fastest-growing part of the U.S. economy. 

Two-thirds of the growth in the Gross National Product was attributable to the 

gains of financial executives, traders, and specialists. By 2007, financial companies 

accounted for over 40 percent of American corporate profits and almost as great a 

percentage of pay, up from 10 percent during the Great Prosperity. Henry Ford’s 

legacy was a company that no longer made its money off selling cars; in 2007, Ford’s 

financial division accounted for almost half of the company’s earnings. 

As the financial economy took over the real economy, Treasury and Fed officials 

grew in importance. The expectations of bond traders dominated public policy. And 

the stock market became the measure of the economy’s success—just as it had before the Great Depression. 

We in the Clinton administration tried our best to reverse course. We raised the 

minimum wage and guaranteed workers time off from their jobs for family or medical emergencies. We tried for universal health care. We offered students from poor 

families access to college, and expanded a refundable tax credit for low-income 

workers. We tied executive compensation to company performance. All these were 

helpful but frustratingly small in light of the larger backward lunge. 

Federal Reserve Chief Alan Greenspan insisted that President Clinton cut the 

Federal budget deficit rather than deliver on his more ambitious campaign promises, and Greenspan reciprocated by reducing interest rates. This ushered in a 

strong recovery. By the late 1990s the economy was growing so fast and unemployment was so low that middle-class wages started to rise a bit for the first time in 
14 

two decades. But because the rise was propelled mainly by an upturn in the business cycle rather than any enduring change in the structure of the economy, it 

turned out to be temporary. Once the economy cooled, family incomes were barely 

higher than where they had been before. 

WHY DIDN’T WE ACT?

Why didn’t America counteract the market forces that were shrinking the middle 

class’s share of the American pie? Answers to these questions offer clues about when 

and how the pendulum will swing in the other direction. 

Some argue there was simply no need for government intervention. The economy 

did better on its own, without so much government and with lower taxes on the 

rich. They point to the great expansion of the 1980s and the long recovery of the 

1990s, and to the wildly exuberant bull market of the era. They blame the Great 

Recession on Alan Greenspan, who by 2002 reduced interest rates so low that too 

many people got loans who had no business getting them. And, of course, they 

blame those who did the borrowing. 

This argument is bunk. It equates the stock market with the economy, and turns 

a blind eye to the revocation of the basic bargain—a revocation resulting in stagnating wages, increased insecurity, and widening inequality. The argument refuses 

to acknowledge the consequences for an economy when the middle class lacks the 

means to buy what it produces. 

Others see the reversal of the pendulum as the inevitable result of declining confidence in government. After all, they say, the era began with the Vietnam War and 

continued with the Watergate scandal. It culminated in the tax revolts double-digit 

inflation of the late 1970s—which candidate Ronald Reagan blamed ‘‘not on Americans living too well but on government living too well.’’ 

Confidence in government did drop, but proponents of this view have cause and 

effect backwards. The tax revolts that thundered across America starting in the late 

1970s were not so much ideological revolts against government—Americans still 

wanted all the government services they had before, and then some—as against 

paying more taxes on incomes that had stagnated. Inevitably, government services 

deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s capacity to do anything right. 

The real reason for the reversal of the pendulum was political. As income and 

wealth became more concentrated in fewer hands, politics reverted to what former 

Federal Reserve Chair Marriner Eccles described in the 1920s when people ‘‘with 

great economic power had an undue influence in making the rules of the economic 

game.’’ With hefty campaign contributions, and platoons of lobbyists and PR flacks, 

the rich pushed legal changes that enabled them to accumulate even more income 

and wealth—including tacit permission to bust unions, slash corporate payrolls, and 

reduce benefits; lower taxes for themselves; and deregulation of Wall Street. Since 

so much of their wealth depends on the performance of the stock market, they particularly wanted to free up the Street to put greater pressure on companies to perform. The plan worked. The Dow Jones Industrial Average took off—rising tenfold 

between 1980 and 2000. 

The rich and powerful also had substantial influence ‘‘in conditioning the attitude 

taken by people as a whole toward [the] rules,’’ as Eccles described the pre-Depression years. They generously financed think-tanks, books, media, and ads designed 

to persuade Americans that free markets always know best. Ronald Reagan, Margaret Thatcher, Alan Greenspan, Milton Friedman, and other apostles of free-market dogma reiterated a simple story: The choice was between a free market and big 

government. Government was the problem. Free markets were the solution. 

But how could the public have been so gullible as to accept this story? After all, 

America had gone through a Great Depression and suffered the consequences of an 

unfettered market and unconstrained greed. Even Marriner Eccles, chairman of the 

Federal Reserve Board, saw that left to its own devices markets concentrate wealth 

and income—which is disastrous to an economy as well as to a society. Americans 

had also experienced the Great Prosperity, which depended so obviously on public 

goods, safety nets, and public investment. Now that the basic bargain was coming 

apart once again, the need for them was even greater. 

One way to understand the paradox is loss of generational memory. While the 

trauma of the Great Depression echoed in the memories of people who came to 

adulthood in the 1930s (and who carried its lessons into the forties and fifties), their 

children became adults during the Great Prosperity. And their grandchildren, born 

during the Great Prosperity, had no actual, palpable memory of their grandparents’ 

experience. So when this last generation became adults (from around the end of 

1970s onwards), all they recalled was the failure of government and the apparent 
15 

success of the market. This made them particularly susceptible to the seductive 

rants of the free-marketeers who wanted to blame government for the economy’s 

failings. They had no clear memory of a society whose members were all in it together. They witnessed instead an economy in which, increasingly, each of us was 

on his own. 

HOW AMERICANS KEPT BUYING ANYWAY: THE THREE COPING MECHANISMS

Americans also accepted the backward swing of the pendulum because they mitigated its effects. Starting in the late 1970s, the American middle class honed three 

coping mechanisms, allowing it to behave as though it was still taking home the 

same share of total income as it had during the Great Prosperity, and to spend as 

if nothing substantially had changed. Not until these coping mechanisms became exhausted in the Great Recession would the underlying reality be exposed. 

Coping mechanism # 1: Women move into paid work. Starting in the late 1970s, 

and escalating in the 1980s and 1990s, women went into paid work in greater and 

greater numbers. For the relatively small sliver of women with 4-year college degrees, this was the natural consequence of wider educational opportunities and new 

laws against gender discrimination that opened professions to well-educated women. 

But the vast majority of women who migrated into paid work did so in order to prop 

up family incomes, as households were hit by the stagnant or declining wages of 

male workers. 

This transition of women into paid work has been one of the most important social and economic changes to occur over the last four decades. It has reshaped 

American families and challenged traditional patterns of child-rearing and child 

care. Its magnitude has been extraordinary. In 1966, 20 percent of mothers with 

young children worked outside the home. By the late 1990s, the proportion had 

risen to 60 percent. For married women with children under the age of 6, the transformation has been even more dramatic—from 12 percent in the 1960s to 55 percent 

by the late 1990s. 

Families seem to have reached the limit, however—a point of diminishing returns 

where the costs of hiring others to see to the running of a household or to take care 

of the children, or both, exceeds the apparent benefits of the additional income. 

Coping mechanism # 2: Everyone works longer hours. By the mid-2000s it was not 

uncommon for men to work more than 60 hours a week, and women to work more 

than 50. Professionals put in more ‘‘billable’’ hours. Hourly workers relied on overtime. A growing number of people took on two or three jobs, each demanding 20 

or more hours. All told, by the 2000s, the typical American worker worked more 

than 2,200 hours a year—350 hours more than the average European worked, more 

hours even than the typically industrious Japanese put in. It was many more hours 

than the typical American middle-class family had worked in 1979—500 hours 

longer, a full 12 weeks more. 

Here too, though, Americans seemed to have reached a limit. Even if they can find 

the work, they can’t find any more time. 

Coping mechanism #3: Draw down savings and borrow to the hilt. After exhausting the first two coping mechanisms, the only way Americans could keep consuming 

as before was to save less and go deeper into debt. During the Great Prosperity the 

American middle class saved about 9 percent of their after-tax incomes each year. 

By the late 1980s and early 1990s, that portion had been whittled down to about 

7 percent. The savings rate then dropped to 6 percent in 1994, and on down to 3 

percent in 1999. By 2008, Americans saved nothing. Meanwhile, household debt exploded. During the Great Prosperity debt had averaged around 50 to 55 percent of 

after-tax income. That included what people owed on their mortgages. But starting 

in 1980 debt took off. In 2001, Americans owed as much as their entire after-tax 

income that year. But the borrowing didn’t even stop there, especially after the Federal Reserve Board lowered interest rates and made borrowing easier. By 2007, the 

typical American owed 138 percent of their after-tax income. 

Mortgage debt exploded. As housing values continued to rise, homes doubled as 

ATMs. Consumers refinanced their homes with even larger mortgages and used 

their homes as collateral for additional loans. As long as housing prices continued 

to rise, it seemed a painless way to get additional money (in 1980 the average home 

sold for $62,000; by 2006 it went for $245,000). Between 2002 and 2007, American 

households extracted $2.3 trillion from their houses, putting themselves ever more 

deeply into the hole. 

Eventually, of course, the debt bubble burst. With it, the last coping mechanism 

ended. 

It has been easy to place blame ever since. Some observers blame consumers for 

borrowing too much. Others fault banks for lending so carelessly. Others blame for-
16 

eign lenders—especially the Chinese—who were happy to send so much money our 

way. Or they blame the Federal Reserve, which made borrowing too easy by lowering interest rates too much. Or they blame regulators who didn’t adequately oversee the banks that did the lending. 

All of this misses the point. The huge amount of debt that middle-class consumers 

took on was the last of a series of coping mechanisms, undertaken because median 

wages had stopped growing and the proportion of total income going to the middle 

continued to shrink. The only way most Americans could keep consuming as if 

wages hadn’t stalled was for women to move into paid work, for everyone to put 

in more hours and, finally, for households to take on more debt. But each of these 

mechanisms reached its inevitable limit. And when the debt bubble burst, most 

Americans woke up to a startling reality: They could no longer afford to live as they 

had been living; nor as they thought they should be living, given the growth in the 

economy; nor as they expected to be living, given how their pay used to grow when 

the economy grew; nor as they assumed they could be living, given the lavish lifestyles of people at the top of the income ladder. 

THE FUTURE WITHOUT COPING MECHANISMS

The fundamental economic challenge ahead is to restore the vast American middle 

class. That requires resurrecting the basic bargain linking wages to overall gains, 

and providing the middle class a share of economic gains sufficient to allow them 

to purchase more of what the economy can produce. 

It is both an economic challenge and a moral challenge. The Nation cannot 

achieve nearly full employment, a higher median income, and faster growth without 

a reorganization of the economy on a scale similar to that which occurred during 

and after the Great Depression. 

The Great Recession accelerated the structural change in the economy that began 

in the late 1970s. More companies have found ways to cut their payrolls for good— 

discovering new ways to use software and computer technologies to substitute for 

employees. The spread of such technologies around the world has simultaneously 

made many more workers in Asia and Latin America almost as productive as Americans, and the Internet has allowed more work to be efficiently outsourced to them. 

Consequently, large numbers of Americans will not be rehired unless they are willing to settle for lower wages and benefits. 

The official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a growing percent have accepted lower 

pay as a condition for keeping them. Or they have lost higher-paying jobs and are 

now in new ones paying less. Eventually jobs will return, but if the trend continues 

more people will be working for pay they consider inadequate, more working families will be at or near poverty, and inequality will have widened. 

Nor will households be able to borrow as before. Banks and other lenders that 

got burned will be far more careful in the future. Furthermore, lending standards 

have tightened, and bank regulators and new regulations will require prudence. 

Housing values will not regain their speculative peak for a long time—which means 

homeowners cannot use their homes as sources of easy money through home equity 

loans and refinancing deals. A large number of Americans are paying off, paying 

down, or walking away from trillions of dollars of outstanding loans—in a vast 

‘‘deleveraging’’ of household finances that is likely to continue for years. At the same 

time, tens of millions of boomers are approaching retirement with nest eggs that 

have shrunk to the size of peanuts, and must save in earnest. 

Where will demand come from without a buoyant American middle class? Absent 

their spending, companies have little incentive to buy new equipment or software, 

new commercial buildings or factories; entrepreneurs have little incentive to embark 

on new research and develop new products and services. Government can fill the 

gap for a time, but government cannot continue indefinitely to stimulate the economy with deficit spending or by printing money. Nor can we rely on exports to fill 

the shortfall. Exports will remain a relatively small proportion of our economy. 

Other economies—even the Chinese—are relying on net exports to maintain their 

employment. It is impossible for every large economy, including the United States, 

to become a net exporter. 

Hence our challenge. As we should have learned from the Great Prosperity—the 

30 years after World War II when America grew because most Americans shared 

in the Nation’s prosperity—we cannot have a growing and vibrant economy without 

a growing and vibrant middle class. 

The CHAIRMAN. Thank you, Secretary Reich. 
17 

Now we will turn to Heather Boushey a senior economist at the 

Center for American Progress where her research focuses on employment, social policy and family economics. She holds a Ph.D. in 

economics from the New School for Social Research and was previously an economist at the Joint Economic Committee. 

Ms. Boushey, welcome and again your statement will be made a 

part of the record in its entirety and if you could please sum it up. 

Please proceed. 

STATEMENT OF HEATHER BOUSHEY, Ph.D., SENIOR ECONOMIST, CENTER FOR AMERICAN PROGRESS, WASHINGTON, DC 

Ms. BOUSHEY. Thank you. Thank you, Chairman Harkin and 

Ranking Member Enzi for inviting me to talk to you today. 

My name is Heather Boushey and I am a senior economist with 

the Center for American Progress Action Fund. 

Undermining the economic vitality of the middle class is bad for 

families, especially as it has led to not only declining incomes but 

also to rising hours of work and greater economic insecurity. The 

evidence in front of us also points to the conclusion that the middle 

class matters for economic growth and economic stability. A solid 

and growing middle class strengthens our economy and leads to 

more stable growth. Policies that focus on building, supporting and 

expanding opportunity for the middle class are not only good for 

families but good for our businesses and our economy overall. 

To understand how the middle class matters for families we 

must begin by asking where economic growth comes from. Supplysiders believe that the key to economic growth is to increase the 

supply of goods and services and to spur investment government 

should limit taxation and regulation. But this argument starts in 

the middle not the beginning of the story, and therefore supplysiders get the story fundamentally wrong. Firms won’t invest if 

they don’t see a willing and able customer to buy their goods or 

services. Ask any business owner, will you open a new factory, purchase inventory for a retail store or add another employee if you 

don’t see customers? In fact, having a deep market with demand 

from a strong middle class is what tells businesses where there are 

profitable opportunities to invest. In short, demand drives growth. 

The false logic behind the supply-side economics is that lowering 

wages is the key to economic growth. In fact, lowering wages and 

a hollowed out middle class means that consumers can demand less 

and less each year, this puts the brake on growth unless another 

source of demand is found. 

Over the past few decades America’s middle class has found innovative ways to cope with an increasingly low-wage economy. 

Over the 1980s and 1990s families put more adults into the labor 

force—the labor force participation rate of wives, and as Secretary 

Reich had said, especially mothers rose remarkably. In fact, it is 

only because of the additional earnings of wives that married couples have seen any income growth at all since the mid-1970s. The 

hollowing out of middle class jobs made it necessary for middle 

class families to have two breadwinners, not just one. 

While women certainly have more economic opportunity than in 

prior generations, families now struggle with how to provide care 

for the young, the aged and the ill, given that many work in in-
18 

flexible workplaces. Working families need workplace flexibility, including predictable hours that work for families, paid sick days for 

a worker’s illness or to care for a sick family member and paid family leave to provide care during longer illnesses or when a new 

child comes into the family. 

To deal with falling incomes, especially over the 2000s, families 

took on increasing levels of debt. Family debt rose from about 60 

percent of annual income in the 1980s to a whopping 130 percent 

in December 2007. Over the 2000s greater indebtedness allowed 

families to continue to spend even as their incomes fell. But as we 

now know, it also increased the fragility of the U.S. economy. 

Our Nation’s leaders used to understand the critical role of the 

middle class in our economy. In 1914 Henry Ford began paying his 

workers the then princely sum of $5 a day. He did this to reduce 

turnover on his assembly line. He also saw this as a win-win. He 

embraced the idea that paying workers a livable wage meant that 

he was helping to create a solid consumer base, a large middle 

class that would create deep markets for the goods and services 

that he and others produced. Paying decent wages became so thoroughly embedded in the popular imagination as the driver of economic growth, that President Franklin D. Roosevelt said that, ‘‘A 

sounder distribution of buying power,’’ was a reason to enact the 

Fair Labor Standards Act, which included the minimum wage, into 

law. 

There are other reasons that the middle class is good for growth. 

The middle class invests in human capital which is a key driver of 

economic growth and contributes to higher labor productivity. Stagnant incomes, however, limit families’ ability to invest in education, 

reducing productivity. The middle class is also a platform for 

entrepreneurism and innovation. With the economic security of a 

middle class family, individuals have the means and the security 

to take on risks. But greater economic inequality and insecurity 

limits the capacity of ordinary people to become entrepreneurs or 

followup on an invention or innovative idea. 

The decline of a broad middle class has implications for the poorest among us as well. With fewer middle class jobs what hope do 

the poor have for working their way up into the middle class? 

Now, we have lived through a great experiment in supply-side economics. For years we have been told that growth in income and 

equality and having more rich people wasn’t taking something 

away from the rest of us, it was a reward for the best and the 

brightest who would then reinvest in our economy. But we now 

know the truth. A strong middle class is important because it allows a decent standard of living for most of our Nation’s families 

and because it creates a stable market for businesses to invest. I 

encourage you to focus on policies that will rebuild our middle 

class, to strengthen our families and our economy. 

I also want to make a point on the issue about allowing workers 

to bargain collectively without fear of retaliation. The growth of 

unions in this country helped create the middle class and policies 

that allow workers the right to collectively bargain, the right to 

make that decision, without fear that their company is going to retaliate against them, is an important step toward ensuring that we 

can have a middle class in the future. 
19 

Thank you for focusing on these issues. 

[The prepared statement of Ms. Boushey follows:] 

PREPARED STATEMENT OF HEATHER BOUSHEY, PH.D. 

Thank you, Chairman Harkin and Ranking Member Enzi, for inviting me to talk 

to you about the importance of a broadly prosperous middle class to the future of 

our Nation. My name is Heather Boushey and I’m senior economist at the Center 

for American Progress Action Fund. 

This hearing could not be timelier. Our country has experienced a widening income gap and a hollowing out of our middle class since the late 1970s and these 

trends threaten our Nation’s economic growth and stability. 

Many academics, pundits and politicians point to rising income inequality as a social concern or a concern for the viability of our democracy. Economists, on the other 

hand, tend to posit that such income gaps between the wealthy and the rest of the 

citizens in developed countries are not incompatible with economic growth and thus 

not a key economic concern. The economic argument goes like this—focusing on income equality for equality’s sake, or because high inequality leaves too many in poverty, or because the wealthy are pulling so far out ahead of the middle class misses 

the point that, in fact, this may be good for the economy as those at the top of the 

income scale can make the economy grow if they invest their additional income. 

Empirical reality, however, has come into direct conflict with this argument. 

Beginning in the 1970s, with the decline in union membership across our Nation 

and the arrival of products made by cheaper workers abroad, businesses began relentless efforts to cut labor costs in union and non-union manufacturing operations 

across our country. Middle class families struggled to cope, with women entering the 

labor market in droves to make up for lackluster single-wage earner’s income 

growth. 

This lack of broad-based income growth for the American middle class was clearly 

exacerbated by the Great Recession. The factors that led to the recession were many 

of the same ones that led to higher income inequality in the previous decades. While 

the jury is still out on whether rising inequality was a causal factor in creating the 

conditions for the still-existing economic crisis for our middle class, there is no question that the wealthy took greater and greater shares of our Nation’s income in the 

2000s and right up to today—and then failed to reinvest it in renewed economic 

growth. 

At the same time, middle-class incomes failed to keep pace with the cost-of-living, 

requiring families to increasingly live on credit just to maintain the lifestyle of their 

parents, send their kids to college, and take care of their aging parents. The lack 

of income growth for the broad middle class had devastating consequences for the 

U.S. economy when the housing market collapsed—almost taking our financial markets with it. 

Unless we focus wholeheartedly on policies aimed at rebuilding our middle class, 

our economy will remain fragile and millions will continue to fall down the income 

ladder. In the remainder of my testimony, then, I will make two key points. 

First, the evidence in front of us points to the conclusion that the middle class 

matters for economic growth and economic stability. Not having a solid and growing 

middle class weakens our economy and leads to slower, more fragile growth. 

Second, undermining the economic vitality of the middle class is bad for families, 

especially as it has led to not only declining incomes but also to sharply rising hours 

of work and greater economic insecurity. 

Policies that focus on building, supporting, and expanding opportunity for the 

middle class will not only be good for families, but good for our businesses and our 

economy overall as well. 

WHERE DOES ECONOMIC GROWTH COME FROM?

To understand how the middle class matters for our economy, we have to begin 

with the question where does economic growth come from? 

Supply-siders argue that economic growth comes from increasing the supply of 

goods and services, which means expanding the capacity to invest. Supply-siders 

thus believe that the key to growth is for government to reduce taxes and limit regulation to spur investment. 

It is true that investment is the key to growth. But this argument starts in the 

middle, not the beginning of the story. The supply-siders get the story fundamentally wrong because firms won’t invest if they don’t see a willing and able customer 

to buy their goods or services. Ask any business owner: Will you open a new factory, 
20 

1William C. Dunkelberg and Holly Wade. ‘‘NFIB Small Business Economic Trends.’’ (Washington, DC: National Federation of Independent Business, 2011), available at http:// 

www.nfib.com/Portals/0/PDF/sbet/sbet201104.pdf. 2 Bureau of Labor Statistics. 2011. ‘‘Current Population Survey, Table A–1.’’ (http://bls.gov/ 

webapps/legacy/cpsatab1.html [May 09, 2011]). 3 U.S. Census Bureau. 2009. ‘‘Income, Poverty, and Health Insurance Coverage in the United 

States: Table F–7.’’ (http://www.census.gov/hhes/www/income/data/historical/families/ 

index.html [May 9, 2011]). 4 Christian Weller and Jessica Lynch. ‘‘Household Wealth in Freefall: Americans’ Private Safety Net in Tatters.’’ (Washington, DC: Center for American Progress, 2009), available at http:// 

www.americanprogress.org/issues/2009/04/pdf/wealthldeclines.pdf. 5 Bureau of Economic Analysis. 2011. ‘‘National Income and Product Accounts Table 1.1.6.’’ 

(http://bea.gov/national/nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=2009& 

LastYear=2011 [May 9, 2011]). 

purchase inventory for a retail store, or add another employee if you don’t see customers? 

In fact, having a deep market with demand from a strong middle class is what 

tells businesses where there are profitable opportunities to invest. 

This, by the way, is the problem our economy continues to face today. Small businesses report that their single largest concern is poor sales. They say this is more 

of a problem than regulations, taxes, inflation, or the cost of labor.1

And, in here lies the crux of the issue: Supply alone does not create growth; it 

must be balanced by demand. Supply-side policies have led us to where we are 

today: Unbalanced growth and a crisis-prone economy. 

It is demand for goods and services, backed up by an ability to pay for them, 

which drives economic growth. The hollowing out of our middle class limits our Nation’s capacity to grow unless firms can find new customers. 

Today, many believe that to be competitive, employers must always focus on reducing costs. This is a supply-side argument: If employers keep more of the money, 

they will have more to invest. The false logic behind our ‘‘Wal-Mart’’ economy is that 

lowering wages is the key to growth. 

In fact, lowering wages and a hollowed out middle class means that consumers 

can demand less and less each year. This puts a brake on economic growth, unless 

another source of demand is found. 

Of course, many U.S. firms do business in countries around the world and may 

not care one iota about whether U.S. consumers can afford to buy their wares. But 

we, as a nation, need to care. 

Over the past few decades, the middle class found innovative ways to cope with 

the Wal-Mart economy. Over the 1980s and 1990s, as I noted earlier, families put 

more adults in the labor force, with the labor force participation rate of wives and 

mothers rising remarkably.2

In fact, it is only because of the earnings of wives that married couples have seen 

any income growth. From the late 1940s through the mid-1970s, married-couple 

families with and without a working wife saw their income rise at about the same 

pace, about 3 percent per year after inflation.3 But since the mid-1970s, married 

couples with a stay-at-home wife experienced no increase in income, after inflation, 

while those with a working wife watched their income grow by less than a percent 

per year—not impressive, but not backsliding. 

Working more means families have less time together and less time to care for 

one another. This is a net loss for the typical middle class family, who works longer 

than their parents, but has seen slower income gains than their parent’s generation. 

Families also began taking on increasing levels of debt. Up until the 1980s, family 

debt was about 60 percent of annual income.4 But as middle class incomes began 

falling, the share of debt rose enormously, so much so that debt was a whopping 

130 percent of income by December 2007. With wage growth not keeping pace with 

inflation, and with falling asset values slamming middle class families at the onset 

of the housing and financial crises at the end of the last decade, even as families 

try to pay off debt, debt continues to be at near-historic highs. 

Over the 2000s, the median family saw their income fall from the economic peak 

in 2000 to the peak in 2007, a first in the post-World War II. Since consumption 

is about 70 percent of the total U.S. economy, this lack of income growth would have 

reduced our economic growth if families had not borrowed to make ends meet.5

Indebtedness, however, especially in light of the lack of income growth, increased 

the fragility of the U.S. economy. 

The idea that the middle class was important to our economy was one American 

business leaders used to understand. In 1914, Henry Ford announced that he’d 
21 

6Ford Motor Company. 2011. ‘‘Henry Ford’s $5-a-Day Revolution.’’ (http://corporate.ford.com/ 

about-ford/heritage/milestones/5dollaraday/677-5-dollar-a-day [May 9, 2011]). 7 ‘‘I came to the conclusion that the present-day problem calls for action both by the government and by the people, that we suffer primarily from a failure of consumer demand because 

of lack of buying power. Therefore it is up to us to create an economic upturn. . . . I am again 

expressing my hope that the Congress will enact at this session a wage and hour bill putting 

a floor under industrial wages and a limit on working hours—to ensure a better distribution 

of our prosperity, a better distribution of available work, and a sounder distribution of buying power (emphasis added).’’ Franklin Delano Roosevelt, ‘‘Fireside Chat 12: On the Recession,’’ 

(Miller Center for Public Affairs University of Virginia, 1938). 8 John Schmitt and Heather Boushey, ‘‘The College Conundrum: Why the Benefits of a College 

Education May Not Be So Clear, Especially to Men’’ (Washington, DC: Center for American 

Progress, 2010). 9David H. Autor, ‘‘The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings’’ (Washington: MIT Department of Economics, National Bureau of Economic Research, 2010). 

begin paying his workers the then-princely sum of $5 a day.6 He did this because 

at the time, the assembly line was not a good job and turnover was exceptionally 

high. By offering workers a better wage, Henry Ford was taking the ‘‘high road’’ to 

economic development. 

It wasn’t until later that Ford embraced the idea that paying workers a live-able 

wage also meant that they could become his consumer base. But today, that’s the 

notion we associate with Fordism: The win-win concept that if you create a solid 

consumer base—a large middle class—then you’ll have deep markets for the goods 

and services produced. 

Paying decent wages became so thoroughly embedded in the popular imagination 

as a driver of economic growth that President Franklin D. Roosevelt was able to say 

that ‘‘a sounder distribution of buying power’’ was a key reason to enact the Fair 

Labor Standards Act into law, which established the minimum wage.7

Decades of empirical research demonstrates that the middle class is good for 

growth. The middle class invests in human capital—they learn, work and spend— 

which are key drivers of economic growth and contributors to higher labor productivity. 

Today, stagnant incomes not only limit our economy’s capacity to grow, it limits 

families’ ability to invest in education and improve our Nation’s stock of human capital, which reduces our Nation’s productivity. 

Indeed, the hollowing out of the middle class actually reduces the incentives for 

young people to get a higher education. Among 25- to 34-year-old men, one-in-five 

(19.4 percent) who has a college degree actually earns less than the average male 

high school graduate—and yet is saddled with debt (as are his parents) from the 

cost of education. This is also the case for women, although less so, as one-in-seven 

women with a college degree (14.0 percent) earns less than the typical female high 

school graduate.8

Then there’s the loss of the middle class as a platform for entrepreneurship and 

innovation. With the economic security of a middle-class family, individuals have 

the means and the security to take on risks. But greater economic inequality and 

insecurity limits the capacity of ordinary people to become entrepreneurs or followup on an invention or innovative idea are increasingly limited. With a hollowed-out 

middle class, families have less access to resources that could float an entrepreneur 

while her vision takes shape. 

The decline of a broad middle class has real implications for the poorest among 

us as well. With fewer middle-class jobs, what hope do the poor have for working 

their way up into the middle class? 9

Certainly, economic competitiveness requires that firms produce the highest quality products for the lowest price. This is a key feature of a capitalist mode of production. However, in the Wal-Mart economy, when every employer focuses solely on reducing wages at the expense of all else, this has devastating consequences for the 

economy overall. 

My generation lived through a great experiment in supply side economics. The result? Our Nation experienced more growth in income inequality than any other developed nation. For years we were told that this was OK, that having more rich people wasn’t taking away from the rest of us, it was a reward for the best and the 

brightest, who would then reinvest in our economy. 

What we now know is that a strong middle class creates stable markets for businesses to invest. The decline of America’s middle class entails real hardships for 

families and limits opportunity. But, it also appears that the demise of our middle 

class is a part of what ails our economy overall. 
22 

Thank you for your attention to this matter. I encourage you to focus on policies 

that will rebuild our middle class, to strengthen our families and our economy. 

Thank you. 

The CHAIRMAN. Thank you, Ms. Boushey. Bou-shee or Bou-shay? 

Ms. BOUSHEY. Bou-shay. 

The CHAIRMAN. Bou-shay. Thank you, Ms. Boushey. 

Next we have J. Michael Luttig, he is the executive vice president and general counsel at the Boeing Company. He joined Boeing 

after having served for 15 years on the U.S. Court of Appeals for 

the Fourth Circuit, to which he was appointed in 1991. Prior to his 

appointment Mr. Luttig served as Assistant Attorney General of 

the United States. 

Welcome, Mr. Luttig. And again your statement will be made a 

part of the record and if you could sum it up for us we would be 

appreciative. Thank you. 

STATEMENT OF J. MICHAEL LUTTIG, GENERAL COUNSEL AND 

EXECUTIVE VICE PRESIDENT, BOEING COMPANY, CHICAGO, IL 

Mr. LUTTIG. Thank you, Chairman Harkin and Ranking Member 

Enzi, it is a privilege to be here today. 

I have been invited by the committee to discuss a complaint recently filed by the acting general counsel of the National Labor Relations Board against my company, the Boeing Company. That 

complaint challenges a decision to build a new final assembly line 

in South Carolina for the company’s revolutionary new airplane, 

the 787 Dreamliner. 

The legal and public policy issues raised by the NLRB’s complaint are enormously consequential, indeed profound. If the principle of law the NLRB seeks is ultimately validated by the Federal 

courts, the effect will be that no company with a unionized workforce, in a non-Right-to-Work State, will be permitted to locate additional work in another State. But I urge this be understood as 

well, neither will companies be willing to locate new production facilities in non-Right-to-Work States because they will not, thereafter, be free to locate additional work outside of those States. 

The implications of this extraordinary and unprecedented action 

against my company, for the particular subject on which the committee has convened today are self-evident. This one action by the 

NLRB puts at risk thousands of American jobs. If enforced against 

companies across the company it will put at risk literally hundreds 

of thousands of jobs that would otherwise be created for America 

and for American workers. 

I would be pleased to discuss any of these larger issues presented 

by the NLRB’s complaint. I will begin, however, with the narrower 

question of the propriety of that complaint. 

The 787 Dreamliner is the world’s most efficient, technologically 

advanced passenger airplane in aviation history. It is also the fastest selling airplane in history. Almost 850 of this historic new airplane have already been ordered and demand for the airplane 

grows daily. 

As you are aware, the Boeing Company is America’s largest exporter and most of this enormous order book will be exported to 

countries and to customers around the world. At a time when 

American companies are locked in a fierce, global competition with 
23 

overseas competitors, the Dreamliner is a testament to the preeminent skill and promise of American manufacturing and the 

American worker. 

It was this demand that promoted and necessitated Boeing’s decision to build a second final assembly line. While Boeing’s contract 

with the IAM gave the company the unfettered right to place new 

work wherever it chooses, we engaged in discussions with our 

union in an effort to reach agreement to locate the second line in 

Washington State. When these discussions were unsuccessful, Boeing made the considered business judgment to place the second line 

in South Carolina. Our decision was based on a host of business 

considerations including the desirability of geographic diversity for 

our commercial operations, the national security benefits of a multiple site airplane production capability, the comparative labor 

costs of the competing States, the significant financial incentives 

that Boeing was offered by the State of South Carolina and as well, 

production stability for the 787’s global production system. 

Boeing has since spent hundreds of millions of dollars to build 

this massive, state-of-the-art final assembly facility in South Carolina which promises to create thousands upon thousands of new 

jobs and in short order. It is the location of this billion dollar airplane production facility that the NLRB seeks to prevent. 

The complaint filed by the board’s acting general counsel alleges 

that Boeing located its facility in South Carolina in order to retaliate against the IAM for its history of repeated strikes. Of course 

this claim is preposterous on its face. No company commits billions 

of dollars of capital to build a massive production facility out of 

spite. And as I have been detailed in a separate letter to the general counsel, not one of the statements by our executives cited in 

support of this claim even remotely evidences such retaliation. 

In an unprecedented remedy the complaint would order Boeing 

to locate and build its second final assembly line instead in Washington State and this, Senators, a year and a half after Boeing 

broke ground on its new facility and only weeks before the doors 

are to open for final assembly in the State of South Carolina. 

The general counsel’s complaint represents a radical departure 

from long and clearly established Federal labor law in numerous 

respects. The NLRB has never before charged a violation of this 

sort where union workers did not lose jobs, wages, benefits or otherwise have the terms and conditions of their employment affected 

in any way whatsoever. Since the decision to open the second line, 

Boeing has actually added over 2,000 union jobs in the State of 

Washington. 

The board has never before charged an employer with engaging 

in conduct that is ‘‘inherently destructive,’’ of union rights whereas 

here such conduct is expressly permitted in the collective bargaining agreement. The board has never before asserted that an 

employer’s decision to anticipate the economic affect of potential future strikes constitutes an unfair labor practice. And the board has 

never before ordered an employer actually to construct or expand 

a facility in a particular State in what is frankly a breathtaking 

substitution of the board for management in the running of an 

American company. 
24 

The implications of the NLRB’s complaint are sweeping, not just 

for Boeing, not just for the States of Washington and South Carolina. If this complaint prevails it will effectively prevent employers 

with unionized workforces from expanding into Right-to-Work 

States, but it will also effectively prevent them from expanding into 

other non-Right-to-Work States. It will just as certainly discourage 

businesses from choosing to locate in non-Right-to-Work States in 

the first place. And it promises to quicken what is already a troubling flight of American business and American jobs out of this 

country and to countries overseas. 

For all of these reasons this action should be a matter of utmost 

concern to all States, to all American businesses, to all employees, 

whether represented or not, and to both the Congress and the Administration. The NLRB’s complaint is both legally unfounded and 

it is irresponsible. It should never have been brought. If it is allowed to proceed it will disserve the interest of both represented 

employees and unrepresented employees alike, it will disserve the 

companies and businesses that employ and hope to employ these 

workers, it will disserve non-Right-to-Work States as it will also 

disserve Right-to-Work States. And in the end this complaint will 

greatly disserve a country that is struggling to recover from prolonged recession and in desperate need of economic growth and the 

concomitant job creation that will power that recovery, if recovery 

is to come. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Luttig follows:] 

PREPARED STATEMENT OF J. MICHAEL LUTTIG

Thank you Chairman Harkin, Ranking Member Enzi and members of the Senate 

Committee on Health, Education, Labor, and Pensions, for inviting me to testify before the committee today. 

The complaint filed by Acting General Counsel Lafe Solomon of the National 

Labor Relations Board (‘‘NLRB’’) against ‘‘The Boeing Company’’ that is at issue before the committee arises from Boeing’s selection of North Charleston, SC, as its location for a second final assembly facility for the 787 Dreamliner. The Dreamliner 

is Boeing’s revolutionary new wide-body commercial airplane that will be significantly more energy efficient than comparably sized airplanes, with advanced electric 

systems. The assembly of the 787 began (and continues) in Everett, WA, at the site 

where Boeing builds its other twin-aisle commercial airplanes, including the 747 

and the 777. In response to extraordinary customer demand for the 787, Boeing decided in 2008 to create significant new production capacity by establishing a second 

787 assembly line. 

The decision to place the second line in North Charleston was one of the more 

important decisions in Boeing’s recent history, and was made only after extensive 

deliberation by the company’s senior management. Boeing was predisposed to place 

the second assembly line in Everett, where the company could draw upon a pre-existing, skilled workforce and benefit from the lower construction costs of expanding 

its existing footprint. But there were also good reasons to consider locating the second assembly line in North Charleston. South Carolina offers an exceptional business environment for manufacturing companies, which in this case included a significant package of financial incentives in its effort to persuade Boeing to build the 

new line there. Further, North Charleston would provide Boeing, for the first time, 

with desirable geographical diversity for its commercial airplanes operations. 

Boeing’s desire to protect the future stability of the Dreamliner’s global production 

system was also a significant factor in its decisiomaking process. An International 

Association of Machinists and Aerospace Workers (‘‘IAM’’) strike in 2008 shut down 

787 production, costing the company more than a billion dollars and damaging 

Boeing’s reputation for reliability with its airline customers, suppliers, and investors. 

Boeing’s collective bargaining agreement with IAM authorizes it to place work at 

locations of its choosing. The Company, however, recognized the potential advan-
25 

tages of locating the second line in Everett and invited the IAM to discuss the issue 

during the time that Boeing was evaluating several key issues that would ultimately frame the business decision as to where to place the second line. Boeing’s 

intense discussions with the IAM continued for more than a month, and focused on 

Boeing’s interest in obtaining a long-term contract, with a no-strike clause, which 

would ensure future production stability for the 787. The IAM, however, would not 

agree to a long-term extension of the collective bargaining agreement unless Boeing 

would agree to material changes in the contract, including significant guaranteed 

wage and benefit increases, an assurance that all future commercial aircraft work 

be placed in the Puget Sound area, and a commitment that Boeing would remain 

neutral in future IAM organizing efforts in other parts of the country. Those conditions were unacceptable to Boeing. At about the same time that the IAM provided 

Boeing with its final position, South Carolina confirmed Boeing’s eligibility for several hundred million dollars in incentives were it to locate its second line in North 

Charleston. Weighing the business case presented by the two alternatives, Boeing 

decided to build the second line in North Charleston. 

Contrary to what Acting General Counsel Solomon’s complaint asserts, Boeing’s 

conduct in selecting South Carolina for the second line did not violate the NLRA 

for two independently sufficient reasons. First, the law unambiguously requires a 

showing of an adverse employment action caused by the challenged action. Again 

contrary to what the acting general counsel says in the complaint, Boeing’s decision 

concerned the placement of new work, not the movement of existing work to North 

Charleston. No IAM member in Puget Sound was (or will be) laid off, or saw (or 

will see) a reduction in his or her benefits, as a result of the company’s decision. 

And Boeing’s right to place new production capacity at a location of its choosing is 

not only permissible under settled Board doctrine; it is expressly authorized by 

Boeing’s collective bargaining agreement with the IAM, and has been for over 45 

years. Far from any IAM member suffering an adverse employment action from 

Boeing’s decision to place the second line in Charleston, Boeing has already hired 

new employees and plans to hire additional employees in the Puget Sound area as 

the rate of production of the 787 and other airplanes increases over time. The new 

employees will become members of the IAM bargaining unit in the Puget Sound 

area. That even more IAM employees might have been hired, if all production were 

in Everett, could not possibly result in an adverse employment action with respect 

to any current IAM member. 

Second, even if the Board were to conclude—contrary to clear precedent and supported by none—that locating the second 787 final assembly line in North Charleston somehow resulted in an adverse employment action, the Board would still be 

required to establish that Boeing’s actions were ‘‘inherently destructive’’ of protected 

activity, or that Boeing was motivated by anti-union animus. Neither conclusion can 

plausibly be drawn from the facts. Boeing was predisposed to place the second line 

in Everett, and it would have done so had the business case been superior (or at 

least equal) to locating the new facility in North Charleston. While Boeing did consider the need for future 787 production stability in making its decision, that was 

only one factor in the decision process. Even if analyzed in isolation (which is certainly not the test), that business consideration was entirely consistent with settled 

precedent. The Board and the Supreme Court have long held that an employer is 

fully entitled to make business decisions that may blunt the effectiveness of future 

strikes. And, as Boeing’s choice of production sites is explicitly allowed by the IAM’s 

collective bargaining agreement, that consequence cannot reasonably be viewed as 

inherently destructive toward the Union. 

Nor can it be credibly claimed that Boeing’s actions and business decisions show 

anything resembling anti-union animus. Quite the contrary: The placement of the 

787 second line was a multibillion-dollar decision—one that Boeing must live with 

for decades to come. The decision was about economic reality and the future of the 

company. Indeed, the company’s decision to negotiate with the IAM as part of the 

decisionmaking process—a step the company was not required to take under its collective bargaining agreement—as well as Boeing’s plan to expand work for IAM 

members in the Puget Sound area shows that Boeing was and is trying to work with 

the IAM, not to punish it, as the complaint incorrectly alleges. 

For these reasons, which are discussed in detail below, the unfair labor practices 

alleged in the complaint make no sense on the facts and constitute a sweeping departure from clearly established law. The theory espoused by the complaint is tantamount to a claim that no American corporation may permissibly decide to locate future work at any location other than the one where union work is currently being 

performed, and never in a Right-to-Work State. 
26 

I. 

Among other products, Boeing makes large jet airplanes for customers around the 

world. Boeing is the Nation’s largest exporter with $29 billion in overseas sales in 

2009. 

Boeing’s latest generation of commercial aircraft is the 787 Dreamliner. Built with 

lightweight composite materials, the 787 is one of the most fuel-efficient, technologically advanced passenger airplanes in the world. In addition to novel materials 

and technologies, the 787 is manufactured through a new production process involving a global supply chain. In 2003, when selecting the site for the first Dreamliner 

final assembly line, Boeing considered several possibilities. In addition to Everett, 

WA, where the first line ultimately was placed, Boeing seriously considered other 

locations, including the Charleston, SC area. In choosing the site for final assembly, 

Boeing considered a variety of factors, including construction costs, labor costs, supply chain logistics, and the overall business climate. After weighing these factors 

carefully, Boeing chose Everett, and began operation of the first Dreamliner final 

assembly line there in 2007. 

The 787 became the fastest-selling airplane in aviation history. Since the 787 was 

first announced, customers have placed orders for almost 850 airplanes valued at 

a list price of up to $150 billion. This has produced a backlog of orders extending 

through approximately 2020. At the same time, Boeing has faced challenges in the 

787 program that have resulted in significant delays in the airplane’s delivery. To 

execute on its large backlog for the 787, and in an attempt to mitigate the risk of 

additional delays to its customers, Boeing decided in 2008 to significantly expand 

787 production capacity. To that end, it decided to establish a second final assembly 

line. 

As it had done when establishing the first final assembly facility, Boeing considered multiple locations for the second line, including both Right-to-Work and nonRight-to-Work States. After extensive study of potential sites, the choice came down 

to the Puget Sound area, where all of Boeing’s commercial aircraft are currently assembled, and North Charleston, where the aft and mid-body sections of the 787 are 

constructed and assembled and where, as a result, Boeing had already established 

a significant manufacturing footprint. 

In making its decision, Boeing considered a wide range of factors designed to ensure the long-term competitiveness of the 787 program. In addition to construction 

and labor costs, logistics, and general business climate, Boeing factored in the particular economic incentives available in South Carolina, the benefits associated with 

geographic diversity in its final assembly capability, and its ability to maintain the 

stability of the 787 production system in the event of future strikes. 

Boeing’s concern for production stability was far from hypothetical. Boeing’s workforce in the Puget Sound area is heavily unionized. The IAM represents approximately 25,000 Boeing employees in the Puget Sound region and has represented 

Boeing’s production and maintenance workers there since 1934. All the assembly 

line workers at Boeing’s various Puget Sound facilities are represented by the IAM. 

The IAM has struck Boeing seven times at its Puget Sound facilities since 1934, and 

four times since 1989. In 2008, when the IAM’s last collective bargaining agreement 

expired, union members—including those assigned to the 787 production line—went 

on strike for 58 days. 

At the time of the 2008 strike, the Dreamliner program was already 15 months 

behind schedule and under severe stress, in significant part because of ‘‘traveled 

work’’ from suppliers—work that should have been completed by suppliers before 

shipment, or was completed improperly, which Boeing then had to fix and address 

as an ongoing matter with the challenged suppliers. Given the stress on the production system, the 2008 strike had a cascading effect, delaying 787 construction and 

delivery far more than the 58-day duration of the strike. The 2008 strike also cost 

Boeing $1.8 billion in lost revenues that year, and decreased all aircraft deliveries 

by 105 for 2008. Boeing’s airline customers were upset, and in some cases publicly 

critical, including suggesting that the lack of production stability at Boeing could 

affect future orders. 

For example, Virgin Blue Group CEO and Boeing customer Richard Branson succinctly described the consequences of the delay caused by the IAM strike as ‘‘catastrophic,’’ and stated that ‘‘if there’s a risk of further strikes in the future, he may 

not buy Boeing again.’’ See Dominic Gates, Boeing’s top customer predicts big production cuts, Seattle Times (Feb. 6, 2009). Mr. Branson explained the effect the 

strike had on his airline because planes were not available: ‘‘It was a horrible mess 

that Boeing was on strike. We messed up tens of thousands of passengers over 

Christmas. . . . We had to buy tickets on other airlines and scramble to get seats 
27 

which weren’t available.’’ Id.; see also Bill Virgin, Boeing, unions should listen to 

Richard Branson, Seattle Post-Intelligencer (Feb. 9, 2009). 

In assessing its options for the second final assembly line, Boeing was legitimately 

concerned with, among other factors, the economic impact of potential future IAM 

strikes, the delivery delays that might be caused by such strikes, and the perceptions of its commercial airline customers that could affect future orders. 

A. 

In considering different locations for the additional assembly line (as well as sites 

for the second line’s component and interior parts manufacturing facilities), Boeing 

relied on its right in section 21.7 of the collective bargaining agreement with the 

IAM. Section 21.7 has been in place in every collective bargaining agreement with 

the IAM for the last 45 years, since at least 1965. It gives Boeing the right to ‘‘designate the work to be performed by the company and the places where it is 

to be performed’’ (emphasis added), without any obligation to bargain with the 

IAM. 

Boeing nevertheless negotiated with the IAM regarding placement of a second line 

in Puget Sound. Boeing recognized the benefits of locating the second line in the 

Puget Sound area, which included a skilled workforce, Boeing’s deep roots in the 

area, and the lower construction costs of expanding an existing footprint. Notwithstanding the significant business climate, economic incentives, geographic diversity, 

and labor advantages associated with the potential North Charleston location, Boeing believed the balance would tip in favor of Everett if, among other things, it could 

stabilize 787 production with a longer-term collective bargaining agreement that 

would prevent strikes for an extended period. Boeing also wanted to slow the growth 

of future wage increases and benefit costs. As the President and CEO of Boeing 

Commercial Airplanes, Jim Albaugh, said in a later interview, his predisposition 

was to locate the expansion in Puget Sound, not Charleston. 

Boeing first mentioned the second line to the IAM in the summer of 2008. In June 

2009, Boeing notified the IAM that a decision on the placement of the second assembly line was forthcoming. The IAM agreed to discuss the issue, and negotiations 

began in earnest that August. Representatives of the IAM and Boeing met seven 

times between August 27 and October 21. Boeing made clear from the start that, 

regardless of the outcome, the issue needed to be resolved by October 15 because 

Boeing needed to start construction on the second line, whether in Everett or in 

North Charleston. 

At the request of the IAM, neither party took notes of the extensive discussions, 

but the IAM did submit a written offer to Boeing that reflects the distance between 

the parties on key issues. The Union was willing to agree to extend the existing collective bargaining agreement only through 2020 (not 2022 as Boeing wanted), but 

set forth, among others, the following conditions: 

• Boeing would have to select Everett as the site for the second 787 final assembly line. • Boeing would have to notify the Union 6 months before making any decisions 

on where to place new production capacity for any ‘‘next generation’’ product. If the 

parties did not reach agreement at the end of the 6-month negotiation period, the 

IAM could terminate the collective bargaining agreement, relieving it of the nostrike obligation. • Boeing could not move any bargaining unit work currently being performed by 

IAM members or contract with a supplier to perform the same type of work being 

performed by IAM members. 

In addition, though not listed in the written set of conditions, the IAM’s negotiators consistently insisted that any agreement would also require that Boeing remain neutral in all IAM organizing or decertification campaigns. Boeing told the 

IAM that it could not accept such significant changes to section 21.7 and its right 

to make major entrepreneurial-level decisions. The IAM’s insistence on neutrality in 

organizing and decertification campaigns was also identified early on as a roadblock 

to moving forward. But Boeing continued to negotiate with the IAM, hoping to reach 

a mutually acceptable agreement. As Boeing CEO Jim McNerney said in a contemporaneous interview, Boeing’s goals remained production stability and a slowing in 

wage growth. Mr. McNerney also said that the tone of the then-ongoing negotiations 

was constructive. 

As the October 15 deadline for making the final decision approached, Boeing 

agreed to an IAM request for a 1-week extension of the deadline so that the Union 

could submit its ‘‘best and final offer.’’ On October 20, the eve of the last scheduled 

meeting, Boeing’s representatives made specific suggestions about what the company would likely accept, so as to better inform the IAM in preparing its proposal. 

Among other things, Boeing’s representatives suggested that the company could ac-
28 

1The complaint also claimed that Boeing had violated Section 8(a)(1) of the NLRA, alleging 

the Boeing executives made ‘‘coercive’’ statements to IAM-represented employees, threatening to 

remove work from the Puget Sound area because employees had struck in the past, and that 

the company would move work in the event of future strikes. 

cept (1) a guaranteed annual wage increase of 2 percent; (2) a cost-of-living formula 

of 1.5 percent; (3) cost sharing of increase in health care costs; and (4) a 2 percent 

annual increase in pension benefits. Boeing’s representatives stressed to their IAM 

counterparts that the company could not accept ‘‘neutrality’’ or a ‘‘guarantee’’ to locate future work in the Puget Sound area. 

The IAM’s final offer came the next afternoon, October 21. In exchange for extending the existing contract to 2020 (again, not 2022, as Boeing wanted), the IAM continued to demand that (1) existing bargaining unit work could not be moved; (2) 

Boeing would be precluded from setting up additional or ‘‘dual’’ sources for 787 component production and support; and (3) the IAM would have the right to terminate 

the collective bargaining agreement and strike if new work were not placed in the 

Puget Sound area. Boeing’s nationwide neutrality in any future union organizing 

campaigns was an ‘‘absolute necessity,’’ according to the IAM. 

The IAM’s offer fell short on other grounds as well. Among other things, the IAM 

required three lump-sum bonuses of $5,000 or 10 percent of earnings, whichever 

was greater, in 2009, 2013, and 2016. It requested an annual pension increase of 

$2.50 per month for the life of the agreement, as well as general wage increases 

of 3 percent on top of cost-of-living adjustments. 

B. 

Boeing made its decision concerning the placement of the second line in late October 2009. Given its significance, the decision involved the most senior members of 

management undertaking a thorough comparison of the business cases for each 

site—Everett and North Charleston. The company’s inability to reach agreement 

with the IAM on a mutually agreeable approach to ensure long-term production stability in Everett was an important consideration in the discussion, and it made the 

overall business case for North Charleston more persuasive, as did the general business climate, the desire for geographical diversity in final assembly, labor costs, and 

South Carolina’s willingness to make available hundreds of millions of dollars of incentives. After considering those factors and others, the company chose North 

Charleston. Boeing publicly announced its decision on October 28, 2009. 

Shortly after making its announcement, Boeing began to build the second assembly line in North Charleston on an aggressive construction schedule, and to hire 

workers to staff it. This was one of the most massive construction projects in the 

country in recent years. On November 6, 2009, Boeing awarded a contract to BE&K 

Building Group and Turner Construction to design, build, and deliver the 1.2-million square foot North Charleston assembly line facility, which would include the 

final assembly line, a delivery center, a welcome center, a central utilities building, 

and a support building. 

Boeing estimates that it has committed over $1 billion to date to its North 

Charleston operations. Construction on the second final assembly line is now virtually complete. Boeing expects to start 787 production in North Charleston by July 

2011, and to deliver the first airplanes in 2012. Well over 1,000 employees have already been hired to work in the North Charleston final assembly facility and plans 

are in place to hire more in the next few months. A large team of managers and 

employees—many of whom have moved to the North Charleston area from other 

parts of the country—have been working tirelessly to staff the new facility. 

C. 

In March 2010, following a delay of 5 months after Boeing announced its decision, 

and with construction in Charleston well underway, the IAM filed an unfair labor 

practice charge with the Board. The IAM alleged that Boeing had, inter alia, violated section 8(a)(3) by ‘‘beginning the process of transferring work . . . to a new 

plant employing non-union workers in retaliation for bargaining unit workers’ protected concerted activity.’’ In late 2010 and early 2011, Boeing representatives had 

discussions with NLRB officials, including Acting General Counsel Lafe Solomon, 

about the charge. Although Boeing believed it had reached an agreement with Solomon to resolve the matter, the acting general counsel ultimately directed that a 

complaint be issued. 

On April 20, 2011, the complaint was issued, charging that Boeing had violated 

Section 8(a)(3) of the National Labor Relations Act.1 The complaint focused on 

Boeing’s allegedly unlawful actions in deciding to place its second assembly line in 

North Charleston, as opposed to the Puget Sound area, and in describing that deci-
29 

sion to employees. According to the complaint, Boeing actions were taken in retaliation for IAM-represented employees for having gone on strike in 2008 and for having the continued ability to go on strike in the future. 

The complaint alleged that Boeing had ‘‘decided to transfer’’ its second Dreamliner 

production line and its sourcing supply program ‘‘because [IAM-represented] employees assisted and/or supported the Union by, inter alia, engaging in the protected, concerted activity of lawful strikes.’’ See id. at ¶¶ 7–8. According to the complaint, these actions violated Sections 8(a)(3) of the Act by ‘‘discriminating in regard 

to the hire or tenure or terms or conditions of employment of its employees, thereby 

discouraging membership in a labor organization.’’ See id. at ¶ 10. The complaint 

found the company’s actions ‘‘inherently destructive’’ of employees’ rights. See id. at 

¶ 7–8. See id. at ¶ 12. The key remedy sought by Acting General Counsel Solomon 

was ‘‘an Order requiring [Boeing] to have the [IAM] operate [Boeing’s] second line 

of 787 Dreamliner aircraft assembly production in the State of Washington.’’ See id. 

at ¶ 13(a). 

II. 

Before exposing the fatal legal defects of the complaint, a correction of the factual 

errors, mischaracterizations, and misquotations upon which the complaint is based 

is in order. 

A. 

As an initial matter, the complaint repeatedly alleges that Boeing ‘‘removed work’’ 

from Puget Sound (¶ 6), ‘‘decided to transfer its second 787 Dreamliner production 

line’’ to South Carolina (¶ 7(a)), and ‘‘decided to transfer a sourcing supply program’’ 

to South Carolina (¶ 8(a)). 

In fact, no work was ‘‘removed’’ or transferred’’ from Everett. The second line for 

the 787 is a new final assembly line. As it did not previously exist in Everett or 

elsewhere, the second assembly line could not have been ‘‘removed’’ from Everett, 

or ‘‘transferred’’ or otherwise ‘‘moved’’ to North Charleston. Simply put, the work 

that is and will be done at Boeing’s North Charleston final assembly facility is new 

work, required and added in response to the historic customer demand for the 787. 

No member of the IAM in the Puget Sound area has lost his or her job, or otherwise 

suffered any adverse employment action, as a result of the placement of this new 

work in the State of South Carolina. 

The Regional Director, whose office has been tasked with prosecuting this case, 

understands that, and has accurately and publicly described the matter. As the Seattle Times reported last year, ‘‘Richard Ahearn, the NLRB regional director investigating the complaint, said it would have been an easier case for the union to argue 

if Boeing had moved existing work from Everett, rather than placing new work in 

Charleston.’’ Dominic Gates, Machinists File Unfair Labor Charge Against Boeing 

over Charleston. Seattle Times, June 4, 2010. 

Since no work was ‘‘transferred,’’ NLRB officials now appear to be transforming 

the theory of the complaint, via public statements, to say that the building of airplanes in South Carolina constitutes ‘‘transferred’’ or ‘‘removed’’ work because Boeing committed to the State of Washington that it would build all of the company’s 

787s in that State. For example, on April 26, an NLRB spokeswoman, Nancy 

Cleeland, apparently told a news organization that, 

‘The charge that Boeing is transferring work away from union employees 

stems from the company’s original commitment to the State of Washington that 

it would build the Dreamliner airplanes in this State.’’ 

The premise underlying that assertion—that Boeing committed to the State of 

Washington to build all of the company’s 787s there—is false. Boeing fully honored 

all of its contractual commitments to the State of Washington long before the decision to locate the company’s new production facility in South Carolina. The notion 

that Boeing had somehow committed to Washington State to build all 787s in that 

State is neither mentioned nor even suggested either in the IAM’s charge or in the 

complaint. 

B. 

The complaint alleges that senior Boeing executives showed a purpose to ‘‘punish’’ 

union employees and to ‘‘threaten’’ them for their past and possible future strikes. 

These allegations and other public statements by NLRB officials to the same effect, 

which are based on misquotations, selective quoting, and mischaracterizations of 

statements by Boeing executives, are groundless. 

For example, the complaint alleges that Boeing Commercial Airplanes CEO Jim 

Albaugh stated that Boeing ‘‘decided to locate its 787 Dreamliner second line in 
30 

South Carolina because of past Unit strikes, and threatened the loss of future Unit 

work opportunities because of such strikes.’’ (Complaint ¶ 6(e).) In addition, the 

NLRB’s Web site offers a ‘‘fact sheet’’ that quotes Mr. Albaugh as saying ‘‘the overriding factor’’ in transferring the line was work stoppages. In fact, Mr. Albaugh’s 

full statement shows that he was referencing two ‘‘overriding factors,’’ only one of 

which was the risk of a future strike, and that far from seeking to punish the union, 

Mr. Albaugh’s predisposition was to place the second line in Washington State. 

Mr. Albaugh’s full statement on this point was: 

I think you can probably say that about all the States in the country right 

now with the economy being what it is. But again, the overriding factor was 

not the business climate and it was not the wages we’re paying people today. 

It was that we can’t afford to have a work stoppage every 3 years. We can’t afford to continue the rate of escalation of wages as we have in the past. Those 

are the overriding factors. And my bias was to stay here but we could not get 

those two issues done despite the best efforts of the Union and the best efforts 

of the company. 

The italicized sentences, omitted from the complaint and the NLRB’s Web site, 

are critical omissions that directly contradict the NLRB’s apparent theory of this 

case. No reasonable reader of Mr. Albaugh’s interview would depict it as part of a 

‘‘consistent message’’ that Boeing sought to ‘‘punish’’ its union employees. When not 

misquoted, it is apparent from the interview statement that if Mr. Albaugh had a 

bias, it was in favor of Puget Sound as the place for the second assembly line; that 

the company’s preference was to locate the new line in Everett; and that both the 

company and the union made good-faith efforts to accomplish that shared objective. 

On these facts, it is not even arguable that Mr. Albaugh’s statement constitutes a 

‘‘message’’ of ‘‘punishment’’ to the union for past or future strikes. 

The complaint also attempts to depict a statement during an earnings call by Jim 

McNerney, Boeing’s chairman and chief executive officer, as a threat to punish 

union employees. The complaint alleges that Mr. McNerney ‘‘made an extended 

statement regarding ‘diversifying [Boeing’s] labor pool and labor relationship,’ and 

moving the 787 Dreamliner work to South Carolina due to ‘strikes happening every 

3 to 4 years in Puget Sound.’ ’’ (Complaint ¶ 6(a) (emphasis added). 

He did not say that at all. First, Mr. McNerney was not making an ‘‘extended 

statement’’ about why Boeing selected North Charleston; indeed, the decision about 

where to locate the new line had not even been made at the time he participated 

in that earnings call. He was responding to a reporter’s question about the cost of 

potentially locating a new assembly line in North Charleston, and he answered only 

the question regarding comparative costs that was asked. Thus, in the passages misquoted and mischaracterized in the complaint, he discussed the relative costs of a 

new facility in a location other than Everett, versus the potential costs associated 

with ‘‘strikes happening every 3 to 4 years in Puget Sound.’’ He did not say, as the 

NLRB alleged, that Boeing selected North Charleston ‘‘due to’’ strikes. 

Nor did Mr. McNerney remotely suggest that what would later turn out to be the 

decision to open a new line in North Charleston was in retaliation for such strikes. 

His answer simply cannot be cited in support of the complaint’s legal theories, much 

less in support of the sweeping statement made by Mr. Solomon to the New York 

Times about Boeing’s ‘‘consistent message’’ that the company and its executives 

sought to ‘‘punish’’ their union employees. 

Finally, Mr. McNerney’s answer to a reporter’s question was not ‘‘posted on 

Boeing’s intranet Web site for all employees,’’ much less posted for the purpose of 

sending an illegal message under the NLRA, as the complaint incorrectly and 

misleadingly suggests. 

Nor do any of the other statements cited in the complaint remotely suggest an 

intent to ‘‘punish’’ the company’s unionized employees. Quite the contrary: these 

statements show, at most, that the company considered (among multiple other factors) the risk and potential costs of future strikes in deciding where to locate its 

new final assembly facility. In fact, Boeing reached out to the IAM in an effort to 

secure a long-term agreement that would have resulted in placing the second line 

in Everett. Although those negotiations were not successful, that effort completely 

undermines the proposition that Boeing executives sent a ‘‘consistent message’’ that 

Boeing’s decision was intended to ‘‘punish’’ the union for past strikes. 

C. 

The complaint seeks an order directing Boeing to ‘‘have the [IAM] operate 

[Boeing’s] second line of 787 Dreamliner aircraft assembly production in the State 

of Washington.’’ Notwithstanding that, the NLRB has said on its Web site that its 

complaint would not have the effect of closing the North Charleston facility. As a 

practical matter, however, if the Board were to order Boeing to produce in Everett 
31 

the additional three 787s per month that are planned for Charleston, that would 

of course require the production of all planned 787 capacity in Everett, leaving 

North Charleston with nothing to do. 

III. 

The principal allegations of the complaint and the significant remedy sought— 

that the second line should be moved to Everett, WA—pertain to the claim that Boeing violated Section 8(a)(3) of the NLRA. To establish a section 8(a)(3) violation, the 

Board must, under its own precedents as confirmed by the courts, show: 

(1) that ‘‘an employee’s employment conditions were adversely affected;’’ and 

(2) that the adverse employment action ‘‘was motivated by’’ the employee’s ‘‘union 

or other protected activities.’’ 

Wright Line, 251 N.L.R.B. 1083, 1083 (1980); see also Ark Las Vegas Restaurant 

Corp. v. NLRB, 334 F.3d 99, 104 (D.C. Cir. 2003). As a factual and legal matter, 

it is not even arguable that these elements can be established here. 

A. 

An adverse employment action is one that discriminates in the ‘‘hir[ing] or tenure 

of employment or any term or condition of employment.’’ See §8(a)(3). An employer’s 

conduct constitutes an ‘‘adverse employment action’’ only if it ‘‘actually affect[s] the 

terms or conditions of employment.’’ NLRB v. Air Contact Transport Inc., 403 F.3d 

206, 212 (4th Cir. 2005); Lancaster Fairfield Community Hosp., 311 N.L.R.B. 401, 

403–04 (1993) 

An employer’s decision to build a new factory—unaccompanied by layoffs, a reduction in wages or benefits, or another change in working conditions at existing facilities—does not constitute an adverse employment action and thus cannot form the 

basis for a section 8(a)(3) complaint. See, e.g., Weather Tamer, Inc. v. NLRB, 676 

F.2d 483, 491 (11th Cir. 1982) (‘‘A runaway shop exists when an employer, in retaliation against union activities, transfers work from the closed facility to another 

plant or opens a new plant to replace the closed plant. If no transfer of work has 

taken place . . . then there has been no unfair labor practice.’’); see also Cynthia 

L. Estlund, Economic Rationality and Union Avoidance: Misunderstanding the National Labor Relations Act, 71 Tex. L. Rev. 921, 943 n.80 (1993) (‘‘I have been unable 

to locate any decisions holding that a withholding of capital investment from a 

union plant, or a decision not to place new or expanded operations at the plant, was 

discriminatory under §8(a)(3). It appears to be necessary under Board law to show 

that existing unit work was eliminated, subcontracted, or relocated.’’). 

No IAM employees were or will be laid off, demoted, relocated, suffer a reduction 

in wages, benefits, or work hours, or have their job duties changed as a result of 

the decision to locate the second 787 assembly line in North Charleston. And the 

complaint does not allege that any of those adverse employment actions have happened or even that they are likely to occur in the future. The lack of any adverse 

employment action against IAM members is fatal to the section 8(a)(3) claim. The 

NLRA, by its plain terms, does not grant unions the unbargained right to have potential new work put in a unionized plant. Neither a court nor the Board has ever 

held otherwise. 

Nor can an ‘‘adverse employment action’’ be based upon some sort of ‘‘diffuse’’ injury to a union, such as ‘‘chilling’’ support for the union, as opposed to a tangible 

injury to identifiable employees. There is simply no precedent for that novel theory 

suggested in the complaint. Indeed, such a standard would effectively eliminate the 

adverse-action element of a section 8(a)(3) violation, and would allow the Board to 

find an unfair labor practice based upon any employer action—even actions that are 

expressly permitted by the collective bargaining agreement, and harm no employees—that may nevertheless have the effect of reducing union bargaining power, or 

have incidental effects on unionization. 

In addition to being contrary to the plain language of the statute—which speaks 

in terms of concrete enumerated actions—the interpretation suggested would effectively conflate the ‘‘adverse action’’ requirement with the provision’s distinct motive 

element. If that were permitted, essentially any action that is even arguably adverse 

to the union’s interests could be dubbed an unfair labor practice. ‘‘Chill’’ is plainly 

not a substitute for the threshold adverse action element. See Textile Workers v. 

Darlington Mfg. Co., 380 U.S. 263, 269 (1965). 

As the D.C. Circuit has explained, the fact that an employer’s action may chill 

or diminish a union’s relative bargaining power ‘‘can have no bearing on the lawfulness of the employer’s [action]’’ under section 8(a)(3) because ‘‘it is not the role of 

the NLRB, and certainly not that of the courts, to regulate the bargaining power 

of the parties to a labor dispute.’’ Int’l Bhd. of Boilermakers, Local 88 v. NLRB, 858 
32 

F.2d 756, 766 (D.C. Cir. 1988) (emphasis added) (citing Am. Ship Bldg. Co. v. NLRB, 380 U.S. 300, 309 (1965)). Were it otherwise, companies would have to be 

neutral regarding unionization (which is not the law), neutral towards unions in selecting job sites (which is not the law), and neutral regarding the effects of future 

strikes (which is not the law). 

Accordingly, Boeing’s decision to place an additional 787 final assembly facility in 

Charleston was not an adverse action under the plain language of the statute and 

clearly settled law. 

B. 

Separate and apart from showing an adverse action, the Board also must establish either that (1) Boeing’s choice of North Charleston was ‘‘inherently destructive’’ 

of protected activity, or (2) was motivated by anti-union animus. The acting general 

counsel’s complaint fails here, as well. Boeing’s decision to place the second line in 

North Charleston was based upon the company’s overall assessment of the business 

cases for each of the two locations, and was made only after extensive voluntary ne- gotiations with the IAM. Boeing’s desire to maintain long-term production stability 

for the 787 was a significant consideration, but there were other important factors, 

including a large economic incentive package. There is simply no case to be made 

for a single-minded focus upon the IAM, much less a single-minded, vindictive focus 

to punish the Union. 

Even if it had been the case that Boeing’s decision had been based solely on its 

concern regarding future strikes—for which there is not a single shred of evidence— 

such consideration would not be unlawful or even illegitimate. To the contrary, it 

is established law that an employer has the right to make legitimate business decisions in an effort to limit the impact of future strikes, and such decisions are—as 

a matter of law—not ‘‘inherently destructive’’ of protected activity and do not provide evidence of any ‘‘anti-union animus.’’ Further, there is no legitimate claim that 

Boeing violated the collective bargaining agreement. Thus, even if the focus were 

limited solely to how Boeing factored into its decision the potential economic impact 

of future union actions, there would have been no resulting violation of the NLRA. 

1. 

To the extent that Boeing considered labor stability issues in its decisiomaking 

process, it is beyond question that, as a matter of law, such consideration does not 

constitute ‘‘inherently destructive’’ conduct. An employer’s conduct qualifies as inherently destructive only if it ‘‘carries with it an inference of unlawful intention so 

compelling that it is justifiable to disbelieve the employer’s protestations of innocent 

purpose.’’ Am. Ship Bldg. Co., 380 U.S. at 311–12. The conduct must be ‘‘so destructive of employee rights and so devoid of significant service to any legitimate business end that it cannot be tolerated consistently with the Act.’’ NLRB v. Brown, 380 

U.S. 278, 286 (1965). Such cases are ‘‘relatively rare.’’ Boilermakers, 858 F.2d at 762 

(quoting Loomis Courier Serv., Inc. v. NLRB, 595 F.2d 491, 495 (9th Cir. 1979)). 

Where, as here, the governing collective bargaining agreement expressly permits the 

challenged action, an exercise of that agreed-upon contract right by the employer 

cannot be ‘‘inherently destructive’’ of protected rights. 

The Supreme Court has made it clear that there is a ‘‘wide range of employer actions taken to serve legitimate business interests in some significant fashion, even 

though the act committed may tend to discourage union membership.’’ Am. Ship 

Building, 380 U.S. at 311 (citing NLRB v. Mackay Radio & Telegraph Co., 304 U.S. 

333 (1938)). And the Court in American Ship Building also made clear that, 

‘‘there is nothing in the [NLRA] which gives employees the right to insist on 

their contract demands, free from the sort of economic disadvantages that frequently attend bargaining disputes.’’ 

380 U.S. at 313. Indeed, the Act ‘‘do[es] not give the Board a general authority to 

assess the relative economic power of the adversaries and to deny weapons to one 

party or the other because of [the Board’s] assessment of that party’s bargaining 

power.’’ Id. at 317. But that is precisely what the complaint against Boeing seeks 

to do, overturning 45 years of policy and precedent. In order to protect the right of 

IAM employees to strike to obtain their collective agenda, Acting General Counsel 

Solomon would deny to Boeing well-established and legitimate defensive actions 

long available to employers. 

Boeing’s decision to put the second 787 line in North Charleston, grounded in part 

in an interest to mitigate the effects of a future IAM strike on 787 production, is 

precisely the sort of defensive employer action that does not violate section 8(a)(3). 

In Brown—still a leading case in this area—the Supreme Court held that there was 

no ‘‘inherently destructive’’ conduct where an employer, in response to a strike, 
33 

locked out its regular employees and used temporary replacements to carry on business. In discussing the legitimate defensive measures that an employer may take, 

the Court noted ‘‘the Board[’s] conce[ssion] that an employer may legitimately blunt 

the effectiveness of an anticipated strike’’ by, among other tactics, ‘‘transferring 

work from one plant to another, even if he thereby makes himself ‘virtually 

strikeproof.’ ’’ 380 U.S. at 283 (emphasis added). The Court repeated that rule in 

much the same words in Charles D. Bonanno Linen Service, Inc. v. NLRB, 454 U.S. 

404, 416 n.9 (1982) (‘‘[An employer can] try to blunt the effectiveness of an anticipated strike by,’’ inter alia, ‘‘transferring work from one plant to another.’’). 

If ‘‘transferring work from one plant to another’’ is not ‘‘so destructive of employee 

rights and so devoid of significant service to any legitimate business end that it cannot be tolerated consistently with the Act,’’ then choosing to locate new work at one 

site (North Charleston), without reducing work at another (Everett)—and in fact increasing work at that other site—could not possibly be ‘‘inherently destructive’’ either. See Brown, 380 U.S. at 284, 287. 

It comes as little surprise, then, that Boeing’s actions do not fall within the two 

established categories of ‘‘inherently destructive’’ conduct. The first involves clearcut discrimination between workers ‘‘based on their participation (or lack of participation)’’ in protected union activity. Esmark, Inc. v. NLRB, 887 F.2d 739, 748 & 749 

n.14 (7th Cir. 1989) (collecting cases). Boeing plainly did not apply differential punishments or rewards to Puget Sound area employees based on their varying degrees 

of union activity. 

A second, narrower category of inherently destructive action involves conduct that 

‘‘discourages collective bargaining in the sense of making it seem a futile exercise 

in the eyes of employees.’’ Boilermakers, 858 F.2d at 764. There is no authority for 

treating an employer’s exercise of its contractual right to add new production wherever it chooses as ‘‘inherently destructive’’ under that category—and considerable 

contrary authority. Indeed, under the Board’s own decision in Milwaukee Spring II, 

268 N.L.R.B. 601 (1984), enf ’d, Auto Workers v. NLRB, 765 F.2d 175, 179 (D.C. Cir. 

1985), even a work relocation is not ‘‘inherently destructive’’ of protected rights if 

consistent with the employer’s rights under the governing collective bargaining 

agreement. The acting general counsel’s complaint would set aside that longstanding precedent as well. 

2. 

While Boeing’s decision was based on a number of factors, including business climate, incentives, geographical diversity, labor and construction costs, and production stability, to the extent the potential impact of future strikes was considered 

among those factors, the facts here do not support a claim that the company’s decision was motivated by anti-union animus. As previously discussed, the statements 

of Boeing executives cited in the complaint fall far short of evidencing anti-union 

animus, however, much of the complaint takes those statements out of context, misquotes others, and selectively quotes still others. Statements of concern about future 

strikes are simply not evidence of anti-union animus as a matter of law. And neither do these statements reflect a backward-looking desire to punish the IAM for 

the 2008 strike. Instead, these statements reflect Boeing’s forthright acknowledgement that production setbacks caused by strikes are economically damaging to its 

aircraft manufacturing operation, and that its economic need—and its customers’ 

demands—for future production stability contributed to its choice of North Charleston, after the IAM’s demands in exchange for a long-term extension of the existing 

collective bargaining agreement proved unacceptable. Boeing operates in a highly 

competitive industry that runs on long-term production commitments. That business 

reality was one consideration in Boeing’s decision to build a new production facility 

in a location that will allow some 787 production to continue during any future IAM 

strike in Everett. 

That Boeing considered as one part of its business decision the benefits of improving production stability by avoiding strikes is not improper anti-union animus. Both 

Supreme Court precedents and the consistent position of the Board since 1965 make 

plain that an employer’s interest in avoiding or mitigating the economic harm 

caused by anticipated strikes is a legitimate business objective. In its brief to the 

Supreme Court in American Ship Building, the Board said that an employer’s decision ‘‘transferring work from one plant to another’’ was a ‘‘legitimate defensive 

measure[],’’ even if doing so makes the employer ‘‘virtually ‘strikeproof ’ during the 

period following the expiration of a contract.’’ Brief for the NLRB at 17, Am. Ship 

Building Co. v. NLRB, 380 U.S. 300 (1965) (No. 255). As previously noted, the Court 

in Brown embraced and adopted the Board’s view, 380 U.S. at 283, as the Court 

did again in Charles D. Bonanno Linen Service, Inc., 454 U.S. at 416 (employers 
34 

2Those statements are neither threats nor attempts to coerce or restrain IAM members from 

engaging in protected activities and do not violate section 8(a)(1), notwithstanding the complaint’s contrary allegations. 3The IAM voted to strike Boeing’s St. Louis facility, and other unions have struck Boeing’s 

other facilities, since Boeing announced its decision to place the second line in North Charleston. 

Boeing is unaware of any objective or subjective evidence of decreased interest in union activity 

by employees at Puget Sound or elsewhere. Indeed, the IAM’s membership in the Puget Sound 

area is about 25,000 strong, with hiring continuing, and the bargaining unit works on building 

component parts for and assembling Boeing’s 737, 747, 757, 767 and 777 airplanes. In those 

circumstances, even without control of all Dreamliner production, the IAM’s bargaining power 

remains massive. 

may legitimately ‘‘try to blunt the effectiveness of an anticipated strike’’). See 

Birkenwald Distributing, 282 N.L.R.B. 954 (1987) (employer motivation to avert economic damage caused by anticipated strike was legitimate); Betts Cadillac Olds, 

Inc., 96 N.L.R.B. 268, 285 (1951) (‘‘[An employer] has, and needs, the right to protect himself by reasonable measures from harmful economic or operative consequences of a strike.’’). The complaint filed by the acting general counsel simply 

ignores the Board’s own precedents and the controlling Supreme Court decisions. 

Boeing’s public statements explaining its reasons for choosing North Charleston 

are consistent with legitimate defensive actions that the courts and the Board have 

held that employers may take without violating section 8(a)(3), and are protected 

statements under Section 8(c) of the NLRA, not to mention the First Amendment.2

And those statements cannot be viewed as pretexts for anti-union motivation. It is 

simply implausible, on both economic and labor-relations grounds, that Boeing 

would undertake a multi-billion-dollar expansion in North Charleston simply to retaliate against the IAM for past strikes, rather than to improve future production 

stability for the 787. Moreover, Boeing’s decision did not involve a transfer of any 

work from its existing operations and by no means made the company ‘‘strikeproof.’’ 

Boeing remains heavily invested in, and committed to, the Puget Sound area, where 

all of its commercial aircraft are currently assembled, and where the IAM represents 25,000 members of the bargaining unit.3

Indeed, that Boeing reached out to the IAM to try to negotiate a long-term contract before it made its decision as to where to place the new 787 assembly line 

wholly undermines any suggestion that the company wanted to punish the IAM. 

Significantly, the complaint fails to mention Boeing’s efforts in that regard, although 

the acting general counsel and his staff were fully aware of those negotiations. First, 

Boeing had no obligation to negotiate with the IAM about the location of the second 

final assembly line; Section 21.7 of the collective bargaining agreement gave Boeing 

the unilateral right to decide where the work would be placed. In fact, Boeing’s decision to invite the IAM to negotiate, even when it was not contractually required to 

do so, raises an almost irrefutable inference of good faith and a desire to cooperate 

with the Union. See Democratic Union Organizing Comm. v. NLRB, 603 F.2d 862, 

887 (D.C. Cir. 1978) (‘‘[T]he fact that the companies informed the union that they 

were considering leasing and ‘invited discussion before their final decision’ evinces 

a greater commitment on their part to the collective bargaining process than was 

reflected by the Union.’’). Even if Boeing had not negotiated with the Union and had 

merely exercised its rights under the collective bargaining agreement, and following 

its decision, simply announced it was locating a second line in North Charleston, 

that alone would not even arguably be evidence of punishment. 

Second, Boeing’s conduct during the course of the negotiations with the IAM similarly does not support an inference of animus. Boeing could not reach agreement 

with the IAM due to the Union’s demands for, among other things, a neutrality 

agreement and a modification of section 21.7 that would require Boeing to place future work in Puget Sound or face a perhaps-crippling strike by the IAM. Because 

of the timeline for reaching a decision on the second line, Boeing reasonably asked 

the IAM for its last, best offer and even gave it additional time to make that offer. 

That Boeing did not accept the IAM’s best and final offer was simply Boeing’s exercise of its right not to agree to a tradeoff that was materially adverse to the interests of its shareholders, customers, and employees. 

No inference of anti-union animus can plausibly be drawn from the fact the IAM 

was unsuccessful in its negotiation to have the second 787 assembly line established 

in Puget Sound. At most, an inference can be drawn that Boeing was only willing 

to agree to place the second line in Everett on terms it found acceptable. But where, 

as here, ‘‘the intention proven is merely to bring about a settlement of a labor dispute on favorable terms, no violation of §(a)(3) is shown.’’ Am. Ship Building, 380 

U.S. at 313. Put another way, the NLRA is not so slanted in favor of unions that 

a union’s failure to achieve its goals at the bargaining table establishes that the employer was acting from anti-union animus, rather than for legitimate business rea-
35 

sons. And that is true even if the failure to achieve a favorable result lessens the 

union’s bargaining power. As the D.C. Circuit explained on this very point: 

It is clear . . . that any effect on the parties’ relative bargaining power—so 

long as it does not substantially impair the employee’s ability to organize and 

to engage in concerted activity—is simply outside the scope of proper inquiry 

under sections 8(a)(1) and (3). 

Boilermakers, 858 F.2d at 765. The notion that Boeing’s contractually-sanctioned 

decision—an action that does not affect any terms or conditions of a current IAM 

member’s employment—could somehow cause ‘‘substantial impairment’’ of the IAM’s 

25,000-strong Puget Sound bargaining unit’s ability to organize and function, is simply not credible. 

Boeing considered many factors in making its decision. And Boeing’s taking into 

account the economic effects of a potential future strike, as one element of that analysis, was entirely proper under the law. Boeing considered the importance of ensuring stable production of the 787, not whether the IAM should be punished for past 

conduct. 

IV. 

Boeing’s business decision to construct a new 787 production facility in Charleston 

was based on a number of legitimate considerations, all of which were plainly permissible under the relevant collective bargaining agreement and established law. To 

the extent Boeing considered the possibility of future strikes by the IAM among 

many other factors, Boeing was entitled to rely on the provisions of its contract with 

the IAM and settled precedent under the NLRA in making an economic decision 

where to place the second 787 final assembly line. 

At bottom, the acting general counsel is seeking to change radically the balance 

between management and unions struck by the NLRA, as the Act has been interpreted for the last 75 years. He seeks to change the law so that what a union cannot 

achieve at the bargaining table it will be able to achieve through the Board. But 

the Act simply does not provide the Board or the courts with the authority to ‘‘assess the relative economic power of the adversaries in the bargaining process and 

to deny weapons to one party or the other because of [the Board’s] assessment of 

that party’s bargaining power.’’ Am. Ship Building, 380 U.S. at 317. To do so would 

amount to ‘‘the Board’s entrance into the substantive aspects of the bargaining process to an extent Congress has not countenanced.’’ Id. at 317–18. 

Again, thank you. I will be glad to answer any questions the committee may have. 

The CHAIRMAN. Thank you, Mr. Luttig. 

And now our final witness is Ms. Sarah Fox, legal counsel to the 

American Federation of Labor—Congress of Industrial Organizations, AFL–CIO. Prior to her employment at the AFL–CIO she 

served for 5 years as a member of the National Labor Relations 

Board, also previously served on the staff of this committee under 

Chairman Kennedy. 

Ms. Fox, welcome back, I guess, and in a different capacity. 

Again, your statement will be made a part of the record in its entirety and if you could sum it up we would appreciate it. 

STATEMENT OF SARAH M. FOX, LEGAL COUNSEL, AFL–CIO, 

BETHESDA, MD 

Ms. FOX. Thank you. Mr. Chairman and members of the committee, as you stated, for 5 years, from 1996 through 2000 I had 

the privilege of serving as a member of the National Labor Relations Board and to be part of the administration of that act, which 

is a statute whose passage, as several of the witnesses have testified here, really played an instrumental role in the subsequent creation of a strong and vibrant middle class. 

I am going to talk today about really what is the continuing relevance of those rights and the National Labor Relations Act to the 

effort to restore that class. And I want to start with a little bit of 

legislative history. And it is a very interesting legislative history 
36 

and part of the history of this committee as well, because Senator 

Wagner who was the chief sponsor of the National Labor Relations 

Act was a member of this committee and the committee did a lot 

of work in developing that legislation. 

There are a lot of parallels between the situation, the economic 

situation the country was facing then, and the current situation. 

Massive—it was the middle of the Great Depression, massive unemployment and millions of workers were out of work and wages 

were depressed. It was then the case, as it is now, that there was 

a widespread recognition of what you have talked about here which 

is that prospects for economic recovery were being hindered by insufficient consumer demand which was attributable to the lack of 

consumer purchasing power. 

When Congress enacted the NLRA it did it in part as a very intended response to the economic crisis that reflected a congressional belief that equalizing bargaining power between workers and 

employers, through the practice of collective bargaining would enable workers to obtain fairer wages and a better standard of living 

which would in turn spur greater business activity and restore 

what Congress at that time would refer to as the flow of commerce. 

So, it is important to keep in mind that in enacting this legislation, 

the 1934–35 Congress sought, not just as a benefit to individual 

workers, but part of a positive national economic strategy. And I 

think that motive is as relevant today as it was then. And it is reflected, if you read the preamble of the National Labor Relations 

Act specifically, those concerns and that intention to raise wages, 

raise income, and equalize bargaining power. 

We saw, after the war in particular, millions of workers join 

unions and through the exercise of their right to collective bargaining that had been created by this act made steady improvements in their wages, in their working conditions, in benefits which 

really, for decades, put them in the vanguard of a newly advancing 

and expanding middle class. And not only as Secretary Reich has 

alluded to, not only did union members benefit but because other 

employers also increased their wages to keep up with these trends 

that were being set, it benefited millions of nonunion workers as 

well. Many of the benefits that became standard offerings for nonunion employers, healthcare, retirement, pension plans, began as 

negotiated benefits at the bargaining table and were key to this. 

And of course today we see, after decades of decline, those things 

going away. We have, as Secretary Reich has said, the majority of 

workers experiencing stagnant or declining wages, we see the percentage of workers who have healthcare benefits or pension benefits through their employment decreasing. And we see, at the same 

time, just astounding increases in inequality to the point, as Secretary Reich was saying that now the top 1 percent of income earners have captured almost a quarter of national income. 

It is against that backdrop that I think we need to reassess the 

importance of the act and put a particular emphasis on the protection of those rights. This has been a subject of a lot of debate in 

this Congress, in the context of the Employee Free Choice Act. I 

believe that compelling arguments have been made for passage of 

that act, and I am not going to go through them again today. But 

I do think that the very least we can expect is that those rights 
37 

that do exist within the tools that the National Labor Relations 

Board as an agency has, should be respected and that we have 

every right to expect that they will be vigorously enforced. Those 

rights are the right to freedom of association, the right to freely 

form unions and most importantly and significantly, the right to 

engage in collective bargaining for purposes of affecting wages and 

working conditions. 

For that reason, I think I personally find it disturbing and I 

think many do, to see the kinds of attacks that there have been recently on actions by the National Labor Relations Board in carrying out what are their statutory responsibilities with regard to 

enforcement of the act. And since Judge Luttig is here today to talk 

about the recent issuance of the Boeing compliant, I want to focus 

a little bit on that and the particular firestorm that that has created. 

As I understand it, the facts are that in April of this year the 

National Labor Relations Board, through its acting general counsel, 

issued a complaint against Boeing which alleged that Boeing has 

transferred work from its facility in the State of Washington— 

made a decision to transfer this work to the facility in the State 

of South Carolina because the employees at the—as a motivating 

factor that employees at the State of Washington facility had repeatedly exercised their statutorily protected right to engage in 

strikes. 

To explain a little about how the agency works, it is really a twoheaded agency. And it consists of, and it is run by six presidentially appointed persons. One end of the agency is the five 

member National Labor Relations Board which really acts as kind 

of a court in a quasi-adjudicative way to decide cases. At the other 

end of the agency is a general counsel who acts really as the prosecutor. He cannot initiate any kind of prosecution on his own, any 

enforcement action that he takes is initiated in the first instance 

through charges that people can file with the board. They come to 

the regional offices, they are investigated by personnel working 

under the authority of the general counsel. And if that investigation, as a result the general counsel finds reasonable cause to believe that there has been a violation of the act, he issues a complaint. He becomes the prosecutor, through his staff, of that complaint. It is tried before an administrative law judge and if either 

party is unhappy with the decision of the administrative law judge 

they have an automatic appeal to the full five member board in 

Washington and from there an automatic right of appeal to the 

Courts of Appeals. So, in that situation this is what we are facing 

now. 

I think it is important to note that there is really nothing extraordinary about this complaint. There is a long history of cases 

before the board that say that an employer may not move work 

from one facility to another in response to the exercise of protected 

activity. That is exactly the allegation here. It is an allegation that 

the work was transferred. And the standard remedy for this—if it 

is found that there has been a violation—is to instruct the employer to return the work. 

The CHAIRMAN. Yes. Thanks. Thank you. 

Ms. FOX. And, I think I just will conclude with that. 
38 

[The prepared statement of Ms. Fox follows:] 

PREPARED STATEMENT OF SARAH M. FOX

My name is Sarah Fox and I am legal counsel to the AFL–CIO. For 5 years, from 

1996 through 2000, I was privileged to serve as a member of the National Labor 

Relations Board and to participate in the administration of the National Labor Relations Act, a statute whose passage in 1935 contributed significantly to the creation 

and growth of a strong American middle class. I appreciate the opportunity to testify today regarding the rights established in the NLRA and the continuing relevance of those rights to any effort to reverse what has now been a decades-long 

slide in the fortunes of the middle class. 

Let me begin with some comments about the context in which the NLRA was enacted and the significance of that context in light of present day circumstances. In 

1935, the country was of course in the throes of the Great Depression. Then, as now, 

millions of workers were unemployed and wages were depressed. Then, as now, 

prospects for economic recovery were hindered by insufficient consumer demand attributable to the lack of consumer purchasing power. The NLRA, enacted as a response to the economic crisis, reflected a congressional belief that equalizing bargaining power between workers and employers through the practice of collective 

bargaining would enable workers to obtain fairer wages and a better standard of 

living, which would in turn spur and support greater business activity and restore 

what Congress referred to as ‘‘the flow of commerce.’’ In short, the Congress that 

enacted the NLRA viewed giving workers the right to form unions and bargain collectively not just as a benefit for individual workers, but as a positive economic 

strategy for the Nation as a whole. That view is as valid today as it was in 1935. 

As Congress explained in Section 1 of the NLRA, which sets forth the findings 

and policy concerns underlying the legislation: 

The inequality of bargaining power between employees who do not possess 

full freedom of association or actual liberty of contract and employers who are 

organized in the corporate or other forms of ownership association substantially 

burdens and affects the flow of commerce, and tends to aggravate business depressions, by depressing wage rates and the purchasing power of wage earners 

in industry . . . 29 U.S.C. §151. Section 1 therefore goes on to declare that it 

is ‘‘the policy of the United States’’ to ensure the efficient functioning of the 

economy by ‘‘encouraging the practice and procedure of collective bargaining’’ 

and by ‘‘protecting the exercise by workers of full freedom of association, selforganization, and designation of representatives of their own choosing, for the 

purpose of negotiating the terms and conditions of their employment or other 

mutual aid or protection.’’ Id. 

The new statute, as adopted in 1935 and subsequently amended in 1947, did four 

important things. 

First, it formally established in what is now section 7 of the Act the rights of private sector employees to form and join unions of their own choosing, to collectively 

bargain with their employers, and to engage in strikes and other forms of concerted 

activity—and to refrain from such activities. 

Second, it established an affirmative duty on the part of employers to recognize 

and bargain with representatives chosen by employees without employer interference. 

Third, it defined and prohibited a series of ‘‘unfair labor practices’’ by employers 

and unions which interfere with or discriminate against employees on the basis of 

the exercise of rights protected by the Act. 

Fourth, it established an independent agency overseen by individuals appointed 

by the President and confirmed by the Senate to administer and enforce the Act: 

These consist of a 5-member Board which, in the case of unfair labor practices, acts 

in an adjudicative body, and an independent, separately appointed General Counsel 

who, through representatives employed in Regional Offices around the country, investigates charges filed with the agency against employers and unions and, where 

it is determined that there is reasonable cause to believe an unfair labor practice 

has been committed, acts as a prosecutor in issuing complaints and prosecuting 

them before the Board. 

Following the passage of the Act, and particularly after the end of World War II, 

millions of workers, by joining unions and exercising the right to collectively bargain 

provided by the Act, were able to win improvements in wages, benefits and working 

conditions that for decades put them at the vanguard of a steadily advancing and 

expanding middle class. Gains achieved at the bargaining table by union workers 

caused employers to raise wages for millions of non-union workers as well, and ben-
39 

efits such as health insurance and retirement plans, initially negotiated for union 

workplaces, became standard offerings by nonunion employers too. Prosperity was 

broadly shared by families at all income levels. 

Today, however, as previous witnesses have compellingly testified, the middle 

class is in serious decline, with wages for the majority of workers stagnant or falling, increasing percentages of the workforce without access to health insurance or 

pension benefits, and more and more workers employed on a contingent basis, with 

no job security. Instead of broadly shared prosperity, we have levels of inequality 

unheard of for more than a century, with the percentage of total income captured 

by just the richest 1 percent of Americans now exceeding 24 percent. Not surprisingly, these developments parallel a similar downward trend in the percentage of 

private sector workers covered by collective bargaining agreements, which is now 

back to its lowest point since the National Labor Relations Act became law. 

The reasons for this decline are various, and include the hollowing out of the 

country’s manufacturing base and the concomitant loss of manufacturing jobs; steep 

employment declines in other industries that have historically been highly unionized, such as mining and utilities; and the increasing percentage of the private 

workforce that has no right to unionize because of exclusions from statutory coverage. But there can be no question that a large part of the decline is due to fierce 

opposition to unionization by employers and weaknesses in the NLRA that allow 

employers to engage with impunity in intense and protracted anti-union campaigns—campaigns that are often accompanied by illegal threats, firings, and other 

forms of coercion, but even where conducted in accordance with current law, are 

typically designed to generate high levels of tension and conflict in the workforce 

that the employer can blame on the union and thereby dissuade workers from supporting a unionization drive. 

The compelling case for reform of the NLRA has been made repeatedly before this 

committee and elsewhere in the Congress in the context of the debate over the proposed Employee Free Choice Act, and it is not my intention to rehearse those arguments here. But in the absence of reform, it is certainly appropriate to expect that 

those protections for workers that do exist in the Act are fully and vigorously enforced. It is in that context that the recent and increasingly vehement attacks on 

agency personnel for simply carrying out their statutory obligations should be considered deeply disturbing. Since Mr. Luttig has appeared to testify today regarding 

the complaint recently authorized by the Acting General Counsel alleging that the 

Boeing Co. has committed unfair labor practices I refer in particular to the uproar 

that has been generated over that action. 

The complaint in question was issued on April 11 of this year. Briefly summarized, it alleges that the company has violated sections 8(a)(1) and (3) of the NLRA 

in connection with an alleged decision to transfer the assembly work for some of the 

787 Dreamliner airplanes it is producing from an existing Boeing facility in the 

State of Washington to a new company plant in South Carolina. These allegations 

are based on alleged statements by company officials that they would transfer or 

had decided to transfer the assembly work to South Carolina because of past strikes 

engaged in by the workforce at the Washington State facility. 

It is important to note at the outset that the issuance of the complaint does not 

constitute a finding by the agency that Boeing has violated the NLRA. It reflects 

only a conclusion by the General Counsel, after an investigation of charges against 

the company filed with the agency by the union representing workers at the Washington State, that there is reasonable cause to believe that a violation has occurred, 

which is the standard for initiating an enforcement action under the NLRA. 

As Mr. Luttig’s testimony makes clear, the company vehemently contests both the 

legal theory on which the case is based on and certain of the factual allegations on 

which the complaint is based—most notably whether the assembly work in question 

is work that the company plans to transfer from the Washington State facility to 

South Carolina or new work, as well as the complaint’s assertions as to the company’s motive for the decision. It is certainly not unusual for the Respondent in an 

unfair labor practice to deny the commission of unfair labor practices; indeed that 

is obviously true in every case that proceeds to a hearing. And like all other Respondents, Boeing will have a full opportunity at a hearing before an ALJ (which 

I understand has been scheduled for next month) to present its defense. If any aspect of the ALJ’s decision is adverse to the company, it can file exceptions to the 

decision with the Board in Washington, DC, and it will also have the right to appeal 

any subsequent decision by the Board to a Federal Court of Appeals. 

Contrary to many statements that have been made to the press and in other forums, the legal theory on which the complaint is based is neither novel nor exceptional. Section 8(a) prohibits employers from interfering with, restraining or coercing employees in the exercise of rights guaranteed by section 7 of the Act; section 
40 

8(a)(3) from discriminating against employees because of their exercise of section 7 

rights. It is beyond question that the right to strike is among the rights guaranteed 

by section 7, and there is ample precedent in Board law for the proposition that the 

decision to transfer work from one facility to another because workers at the first 

facility have exercised a right protected by section or to prevent employees from exercising. There is even a name for this line of cases—it’s called the ‘‘runaway shop’’ 

doctrine. 

What is exceptional about this case is not the novelty of the legal theory, but the 

size and power of the company that has been charged, and the magnitude of the 

decision that is at issue. But there is no warrant in the NLRA for making enforcement decisions on the basis of such distinctions—or on whether a particular decision 

will be politically unpopular. 

This is most emphatically not to say that I believe Boeing to be guilty of unfair 

labor practices, and I would not presume to make any such suggestion. That is a 

judgment that can only be made by the ultimate decisionmaker after thorough examination of the facts as presented at the hearing before the ALJ, and careful consideration of the application of the law to that particular set of facts. And that is 

precisely why it is ultimately pointless—and destructive of the processes established 

by law for the resolution of such matters—for Boeing and others to attempt to litigate the case in the press or, for that matter, in Congress. 

Two final points: First, the uproar in response to the NLRB’s complaint has, not 

surprisingly, muddied the legal issues at stake. For instance, some critics are now 

claiming that this complaint is an attack on legally protected ‘‘Right-to-Work’’ laws, 

given that South Carolina is a Right-to-Work State. This is a red herring. 

There is no question that States are expressly permitted by section 14(b) of the 

NLRA to enact so-called Right-to-Work laws, which prohibit unions from requiring 

the payment of dues or fees from individuals in the bargaining whom the union is 

obliged to represent but who do not choose to actually join the union. However, the 

legal theory on which the complaint is based has nothing to do with the fact that 

South Carolina happens to be a Right-to-Work State. 

Boeing could have moved this work to Oregon, Illinois, New York or any other 

non-Right-to-Work State and the analysis, as well as the acting general counsel’s 

duty to enforce the Act, would be the same. The issue is not where the work was 

allegedly relocated to—indeed that is entirely irrelevant to the legal theory of the 

complaint. The issue here is why the work was relocated, and whether that reason 

involves considerations that are unlawful under the Act. 

Nor does the issuance of the complaint constitute unprecedented government 

intervention in legitimate business decisions. It is commonplace among labor and 

employment lawyers to say that employers in this country are generally free to 

make business decisions affecting individuals’ employment status for good reasons, 

bad reasons or no reasons at all. But an employer may not make such decisions 

based on considerations that Congress has declared to be impermissible as a matter 

of law. This is true whether the decision discriminates on the basis of race, of gender, or religion or because the individuals have exercised rights guaranteed by section 7. And where unlawful discrimination has occurred, it is standard to require 

the guilty party to restore the status quo ante. As the NLRB complaint specifically 

states, 

It does not seek to prohibit [Boeing] from making non-discriminatory decisions with respect to where work will be performed, including non-discriminatory decisions with respect to work at its North Charleston, South Carolina, facility.’’ 

As I noted at the outset of my testimony, the ability of employees to exercise section 7 rights without fear of retaliation played an important role in the growth of 

collective bargaining and the expansion of the middle class throughout the 40s, 50s 

and 60s. It is time now for Congress to focus on revitalizing those rights as a key 

element of any strategy to restore the middle class. 

The CHAIRMAN. Thank you very much, Ms. Fox. Thank you to 

the rest. Thank you all for your testimonies. 

We will now begin a round of 5-minute questions. I hope to set 

the standard by keeping mine to 5 minutes. 

Secretary Reich, again I want to talk about this basic bargain 

that we had following World War II with workers—employers and 

employees, that bargain being that if you worked hard, if you had 

increases in productivity you would also share in that by better 

wages and benefits. During your time in the Clinton administration 
41 

we created over 20 million new jobs, incomes began to rise—at the 

end of the administration we had a budget surplus. CBO said we 

could pay off the national debt in 10 years. What was it that was 

done in the 1990s when you were there, what was it that moved 

the ball in that direction? What were some of the policies that 

helped move us in that direction? 

Mr. REICH. Mr. Chairman, if you look back on the 1990s, in fact 

if you look back on the three decades after World War II, that era 

of great shared prosperity, you find three particular sets of policies. 

No. 1, strong unions. And we in the Clinton administration did everything we could to enforce, vigorously, the right to collective bargaining. In that three decades after the Second World War, as I 

have alluded to, we had a far greater portion of the American 

workforce in unions, giving them greater bargaining leverage to get 

higher wages and better benefits. That is No. 1. 

No. 2, is investments in education, job training, health, 

healthcare, that is human capital. In the Clinton administration we 

did our best. We didn’t finish that agenda. In the first three decades, that era of prosperity after the Second World War, massive 

investments in education and healthcare, in infrastructure, that is 

the major investment. I mean, President Dwight David Eisenhower, Republican President, former general, nobody would accuse 

him of being a socialist, but some of the major investments in 

America, in terms of infrastructure and the expansion of higher 

education were commenced in that Administration. We tried, in the 

Clinton administration, to do that and again our efforts didn’t get 

as far as some of us would have wanted and certainly the President 

wanted. 

The third ingredient is a progressive tax structure. That enables 

average working people to have enough money in their pockets so 

that they can turn around and spend. 

In fact, all three of these, strong unions, public investment and 

a progressive tax structure enable average working people to turn 

around and spend their money and therefore create jobs and enable 

the economy to expand. It is a virtuous cycle. That is the basic bargain that you alluded to a moment ago. 

In terms of progressive taxes though, we have seen a movement 

away from progressivity. I mean again, under Eisenhower, the 

marginal income tax rate on the highest earners was 91 percent. 

I mean we are having this debate now about whether it should go 

back to Bill Clinton’s marginal tax rate or we ought to extend the 

tax cuts that were undertaken under President George Bush. This 

is a completely displaced debate, in light of what we had in the 

three decades after the Second World War. 

Those are the ingredients. And unfortunately we have moved, 

particularly in the last 10 years, although President Obama has 

made every effort to move us back on track, the movement of the 

Nation has been away from those three principal pinnacles or 

undergirdings of middle class prosperity. 

The CHAIRMAN. Thanks, Secretary Reich. 

Ms. Boushey, one of the points that I heard you make in your 

testimony, your written testimony anyway, is about the impact 

that the squeezing of the middle class has had on our families. 

When parents are desperately looking for work, or they are work-
42 

ing two jobs to make ends meet, when they can’t afford quality 

childcare, they have no savings, no retirement plans, no paid sick 

days, that the stresses on families can be overwhelming. Yet all too 

often these stresses are thought of as private problems, not public 

policy concerns. 

Is this another area where our policy failures have contributed 

to the decline of the middle class? And speak about it in terms of 

is this just a private thing that we shouldn’t worry about or is this 

something we ought to worry about in a public policy setting? 

Ms. BOUSHEY. Certainly. Thank you. 

I think there is a couple of issues. First and foremost, it really 

is the decline of the middle class that has led to many of these 

squeezes on families. As Secretary Reich talked about in his testimony, as you saw male wages declining over the 1970s and 1980s 

you saw a lot of families needing that second earner and having 

an increased labor force participation of wives and mothers, which 

means that today most children grow up in a family where there 

is no stay-at-home caregiver, and that means both that families 

need to provide care substitutes while parents are at work, not just 

for children, but also for ailing family members in the family. Who 

is caring for Grandma or taking her to the doctor, things like that. 

And at the same time you—it is now the case that every employer, as they are looking out at their workforce, sees a workforce 

for whom most of those workers now have care responsibilities. But 

the reality is that we haven’t changed our policies, at the workplace or in terms of our public policies, to address this need for 

workers to have flexibility and for families to have care substitutes 

when everyone needs to be out there in the labor force working. 

So these really are not private problems, they are public problems and they are ones that virtually every family faces. There is 

a number of pieces of legislation that I know that this committee 

has considered that would address that. In particular I would point 

to the Healthy Families Act which would provide every worker the 

ability to earn paid sick days. With so many workers not having 

anyone to care for a sick child or an ailing family member, that is 

of utmost importance for families and something they can’t solve 

on their own. 

The CHAIRMAN. Thank you, Ms. Boushey. Thank you. 

Senator Enzi. 

Senator ENZI. Mr. Chairman, I appreciate you moving up the 

hearing because all the Republicans are invited to the White House 

this morning and—— 

The CHAIRMAN. Oh, what time do they have to leave? 

Senator ENZI. They have to leave right now, but I think that 

Senator Isakson was the first one here so I will let him—I will 

defer my chance for questions to him. 

The CHAIRMAN. And I—— 

Senator ENZI [continuing]. That he can maybe make the bus yet. 

The CHAIRMAN [continuing]. And we moved it up to 9:15 to try 

to accommodate that, I am told. 

Senator ENZI. Yes. 

The CHAIRMAN. And I will be more than happy to accommodate 

Senators who—on the Republican side—have to leave to go to the 

White House. 
43 

STATEMENT OF SENATOR ISAKSON

Senator ISAKSON. Thank you, Ranking Member Enzi for your 

courtesy. Thank you, Mr. Chairman. And I do have to leave, but 

I really appreciate the opportunity to do two things. 

First to associate myself, word by word, with the testimony or 

the statement of Senator Enzi. I think he hit the topics right on 

top of the head as far as I am concerned. I do think it needs to 

be expressed that the pattern of practice that has been exhibited 

over the last 2 years, in terms of changing the level playing field 

that we have had, is alarming to me as one who ran a company 

for 22 years, worked hard to provide jobs. 

The NLRB decision is just as egregious as what the National Mediation Board did to retroactively try and change a 75-year precedent in the unionization vote requirements for transportation 

unions. I mean to just unfettered make those changes at the drop 

of a hat, to me, makes no sense at all and shows a bias that is really going to cost the American worker jobs and opportunity and is 

one of the reasons we are having a protracted recovery. 

Since I have to go, I just want to ask one question. And Mr. 

Reich, I have great respect for your service to the country and I appreciate all that you have done and I have read a couple of your 

books, not all 10 of them, but a couple. They are good. They are 

smarter than I am, I can tell you that. 

But I have to ask. You obviously support what NLRB is trying 

to do in the Boeing case. Is that right? Just a short answer, because I have got a followup. 

Mr. REICH. Senator I am not going to try to prejudge that case. 

I think it is a distraction, quite frankly, to talk about what the general counsel has done before the NLRB has done a thing, before the 

administrative law judge has decided, before it has gone to appeal. 

I think that the preface of this hearing, as I understand it, is to 

talk about the fundamental problems of the middle class in this 

country and that is what we ought to be talking about. 

But again, I am not going to pre-judge. 

Senator ISAKSON. OK. Let me ask you one fundamental question, 

historically in your knowledge. Do you know of any time in history 

that the NLRB has made a decision to retroactively invalidate a 

capital investment of $1 billion or any comparable sum? 

Mr. REICH. Senator, I don’t believe the NLRB has made a decision in this case and I am not enough of an NLRB historian to 

know what the NLRB has done in previous cases. But I can tell 

you, honestly as a history buff with regard to labor, I am shocked 

and deeply upset by the relentless attacks on organized labor and 

on unionization, on the rights of people in this country to unionize 

that have been accelerated over the past 2 years. 

Senator ISAKSON. There is a balance, in my judgment, between 

reasonable regulation, reasonable compliance, reasonable government oversight, but when it goes too far then the unintended consequences do what we have tried to prevent in this country and 

that is jobs going somewhere else in the world because America becomes an untenable place to do business, because of an overly regulatory reach. 
44 

I apologize that I am going to stand up and walk out. It is no 

offense to Miss Fox or any of you, but I have to get to the White 

House. But I just had to have that say and I appreciate it, Mr. 

Chairman. 

The CHAIRMAN. Actually, Senator Kirk, do I understand you are 

also going to the White House? 

Senator KIRK. I guess I got that invitation as well. 

The CHAIRMAN. Well, I will recognize—— 

Senator KIRK. Thank you. 

The CHAIRMAN [continuing]. If people wouldn’t mind I will recognize Senator Kirk then. 

STATEMENT OF SENATOR KIRK

Senator KIRK. Thank you, Mr. Chairman. 

I say, coming from Chicago, we are familiar with axioms of The 

Mob. And one of them is, if it takes you longer than a minute to 

figure out who the mark is at the table, it is you. And so we have 

three left wing witnesses and Judge Luttig, so I guess you are the 

mark here for this witness hearing today. 

I am worried that this hearing sort of represents this idea, very 

prominent in Washington and almost nowhere else, that we are 

going to sue our way into prosperity. And through making America 

not just the No. 1 litigious society on Earth, but the No. 1 times 

10 litigious society on Earth, that we can take the largest exporter 

in the United States and torture them with higher and higher legal 

costs and make sure that the Chinese airliner, which we expect 

will come on in 5 years will actually be lower cost and better, crippling, what is the premiere U.S. export in what is otherwise a pretty terrible export picture for the United States. 

I am also worried because I am in a heavily unionized State— 

one of the most corrupt States in America, epitomized by the 

Blagojevich trial going on right now in Federal court in Chicago. 

I would worry that if we lock in this sue any company if they even 

think about leaving a heavily unionized State, then any new investment will not want to come to Illinois because you lock them 

into this Bermuda Triangle of we are going to whack you with the 

NLRB if you ever think of leaving. 

If I go to South Carolina I will have the ability to participate in 

a continental economy and use all of the efficiency advantages the 

founding fathers gave. But if I make the mistake of going into one 

of these heavily controlled, corrupt States, then I am going to be, 

because of your action, locked into this State forever with no flexibility. 

But Judge, could you comment on that? 

Mr. LUTTIG. Senator, that is exactly right. 

Senator KIRK. One part of being the mark is your microphone 

doesn’t work either. 

Mr. LUTTIG. Hello? 

Mr. REICH. There you go. 

Mr. LUTTIG. Senator, as part of my testimony it is the case that 

the action brought by the NLRB will have negative and detrimental effects not only on Right-to-Work States, but on non-Rightto-Work States as well. It is for that reason that I don’t see this 

as a partisan issue, I don’t see it as a union versus nonunion issue, 
45 

I don’t even see it as a business issue. This is a complaint which 

should not have been brought and I believe that every member of 

this committee will conclude that it should not have been brought, 

because it will harm all States in the country and the country’s 

economic recovery. You are correct. 

Senator KIRK. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Kirk. 

The order of witnesses that I have in order of arrival, Senator 

Blumenthal, Senator Roberts, Senator Merkley, Senator Isakson, 

who has already gone, Senator Whitehouse, Senator Alexander, 

Senator Franken and Senator Kirk who we just recognized. So, 

that is the order. 

Now I will yield to Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman. I would yield 

to Senator Alexander, if he has to go to the White House. 

Senator ALEXANDER. Thank you for the courtesy. I am going to 

stay, given the importance of the hearing. I greatly appreciate your 

offer. 

Senator BLUMENTHAL. Thank you. 

STATEMENT OF SENATOR BLUMENTHAL

Let me first of all, thank all of the witnesses for being here today 

and say I am troubled by the attack on the NLRB process. And I 

emphasize the word process because as Secretary Reich said so 

well, we are at a very incipient, a very beginning stage in that 

process. The complaint has been brought. There have been references to findings and decisions and from your own very distinguished career Mr. Luttig, there has been no finding or judgment. 

There has been a complaint. 

You may feel—and you are an advocate and you are entitled to 

express that point of view vigorously and effectively, as you have 

done—that the complaint should never have been brought. That is 

an argument that, no doubt, you will present in the course of the 

process. And even if there is a finding that there was, in effect, a 

violation of law, the remedy may not be to return that second line 

to Everett. It may well stay in South Carolina. 

I guess my question to you is, are you troubled by the kind of 

vehement and even vicious political attack on what should be a judicial process? 

Mr. LUTTIG. Senator, I actually don’t see a vicious attack on the 

NLRB. As you know and your colleagues know, whether an issue, 

a legal issue presents a public policy issue, large or small frankly, 

depends upon the facts of the particular case, the challenges that 

are made by the National Labor Relations Board and the remedy 

sought. Under the governing law of this case on the facts here and 

the claims that had been made by the acting general counsel and 

on the relief sought, he has brought forward, to America, a public 

policy issue of some import. 

Cases bubble up through the Federal courts and the legal system 

all the time. Infrequently do they get to the level of a consequential 

legal decision and that is because the courts are reluctant to address the larger issues unless they are required to. In this case he 

has brought forward that issue. So we intend to proceed through 
46 

the process. And you are absolutely right, and as a former Federal 

judge I have a great respect for the process. But it is not—— 

Senator BLUMENTHAL. And the process could well, may well 

eventually involve a Federal court. Will it not? 

Mr. LUTTIG. It certainly could. We hope not. 

Senator BLUMENTHAL. And so aren’t we doing, as Secretary Reich 

said so well, prejudging the outcome here and indeed threatening. 

In case you have missed it, some of the public statements have involved the future of the acting general counsel, as you have just 

heard from a member of this body, implications about impacts on 

jobs in the future that go to people’s reputations and livelihoods. 

It seems to me that there is an element of prejudging here. 

Mr. LUTTIG. It is not prejudging at all, Senator, and that is 

what—where I was trying to go to. The complaint, as filed, has presented the larger public policy issues as to the scope of the act. I 

believe it is wholly appropriate for there to be a nationwide discussion of it. I especially believe that it is appropriate for this committee to take cognizance over the matter now. Because actually in 

this case all of the facts and all of the law that would be relevant 

for this committee’s oversight authority are in the record and in 

the complaint. 

Senator BLUMENTHAL. I respectfully disagree, and my time has 

expired, but, in fact as your testimony makes clear, some of the disputes are factual disputes which have to be resolved by a fact-finding administrative law judge, not the least of them being statements by company officials, you say they were taken out of context, 

that the full quote wasn’t provided, that there were references to 

strikes and work stoppages without the additional parts of the 

quote that supposedly would have modified it. But that is classically the kind of factual dispute that goes before a judge. Is it not? 

Mr. LUTTIG. That issue goes before the judge, Senator, actually 

in the Federal court system, in my judgment this complaint would 

be dismissed on the complaint because on the facts alleged there 

can be no violation of law. 

Senator BLUMENTHAL. Again, my time is expired and I apologize, 

Mr. Chairman. If there is a second round of questioning I would 

avail myself of that opportunity. Thank you. 

The CHAIRMAN. Yes, there will probably be another round. 

Senator Roberts is not back. 

Senator Merkley. 

STATEMENT OF SENATOR MERKLEY

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

you all for your testimony. 

Mr. Reich, the chart that you provided, and I think you have 

used it in at least one of your books, maybe in ‘‘Aftershock,’’ that 

shows the separation between the productivity of American workers and their rising wages, is very dramatic. And about the time 

I graduated from high school, in 1974, those two lines diverged dramatically. And actually they have continued diverging on a very 

clear path, almost regardless of which administration we had. 

And yet to me, that chart symbolizes the hollowing out of the financial foundations of American families. The fact that working 

families, over a 30-year period, have not been able to share in the 
47 

prosperity of America—the GDP didn’t go up, it isn’t that we didn’t 

have prosperity as a nation, but families didn’t share fully in it, in 

fact, they are flattened out. 

In my working class neighborhood of three-bedroom ranch 

houses, you see it in terms of people’s ability to have continued 

home ownership, which often depends on the ability to buy their 

parent’s house. You see the next generation moving back into their 

parent’s house, because they can’t buy the same home that their 

parents were able to buy in the post World War II period. 

To me, this is really a question about a vision of what type of 

America we want. Do we want the type of America that we built 

over the 30 years that you labeled the Great Prosperity, in which 

families participate, build their financial foundations, and educational standards improve? Or do we want an America in which 

the manufacturing jobs disappear, we have enormous disparities in 

income, and people are simply continuously struggling to get a foothold? It is obvious that I prefer the first vision. 

In some ways I have summed this up by saying, we need to 

spend less on foreign wars and foreign bases and more on infrastructure and education. In other words, we need to build the 

human capital and the physical capital of our Nation, and we are 

falling way behind. 

I would just invite you to share any comments you would like. 

Mr. REICH. Senator, people often ask me, what country should 

the United States emulate in terms of building and rebuilding the 

middle class and the working class of this country. And I said, 

there is no other country, just go back to the three decades after 

the Second World War in the United States. We knew how to do 

it, because we did make the very investments that you are talking 

about. 

Over the last 30 years we have been disinvesting. I mean look 

at what is happening now in States all over the country in terms 

of teachers being fired, more and more kids being crammed into 

classes. In public universities, such as where I now teach—at the 

University of California—which I believe is the best public university in the world, that is my prejudice, fees skyrocketing. Middle 

class and lower middle class, working class families can’t even afford to send their kids. All over America our infrastructure is 

crumbling. That is not what happened in the three decades after 

the Second World War, but we have let deferred maintenance get 

completely out of control at a time when we could borrow the 

money cheaper—right now, on world markets—than we could ever 

borrow before. And at the same time we are seeing and we have 

seen a dramatic shrinkage of unionization, giving workers the bargaining power to get better wages. 

And who is going to pay for all of this? As I said before, the irony 

here is that as more and more and a larger and larger share of the 

national income and wealth goes to the very top, their actual contribution, in terms of their tax rates, not just income tax rates but 

also capital gains, estate tax, all across the board, keeps on declining. 

Senator MERKLEY. I was very struck recently by hearing the statistic that China is investing 10 percent of their GDP in infrastructure, Europe, 5 percent and America 2 percent. This, to me, cap-
48 

tures the fact that we are not maintaining our infrastructure or expanding it and that is problematic. Right now is a moment when 

if we invested more in infrastructure it would do a lot to put our 

construction companies back to work and help put this economy 

back on track. 

Mr. REICH. Senator, this is the tragedy. We are buying into a 

mythology that we are a poor country, that we can’t afford to do 

all this. We are richer than we have ever been. We are the richest 

Nation in the history of the world. We can put our people back to 

work, we can rebuild our infrastructure, we could rebuild our educational system, there is nothing we can’t do. But we have to make 

sure that the wealthy pay their fair share; we have to make sure 

that we make the right kind of investments; we have to make sure 

that there is sufficient bargaining power in our workforce. This is 

not rocket science, but the problem is things are getting and have 

gotten out of control. 

Senator MERKLEY. Thank you. 

The CHAIRMAN. Thank you, Senator Merkley. 

Senator Alexander. 

STATEMENT OF SENATOR ALEXANDER

Senator ALEXANDER. Thank you, Mr. Chairman. I thank the witnesses for coming. 

This is a hearing about the endangered middle class. I would like 

to speak about the middle class I know the most about, which is 

in Tennessee and begin with a short story. And then Judge Luttig, 

I have a series of questions for you. 

Thirty years ago I went to my first White House dinner. President Carter was the President and he said, Governors, go to Japan, 

persuade them to make here in the United States what they sell 

here. So off I went to Tokyo with a map of the United States and 

I showed that Tennessee is in the center of the population of the 

United States and so that was important to manufacturers, that reduces transportation costs. And then it showed that every State 

north of us did not have a Right-to-Work law and our State did. 

Both those factors made an important decision in Nissan’s location 

in Tennessee 30 years ago. After that came General Motors. After 

that has come Volkswagen. After that has come a number of other 

auto suppliers, auto assembly plants and tens of thousands of suppliers. 

The middle class in Tennessee, when I started being governor 

was the third poorest in the country. We soon, because of the 

growth of auto jobs had the fastest growing incomes of any State 

and today one-third of our manufacturing jobs are auto jobs. And 

Nissan told me the other day that it will be soon selling in the 

United States—85 percent of what it sells in the United States it 

will make in the United States, which is precisely what President 

Carter wanted 30 years ago. 

It seems to me, our job—the way to improve the status of the 

middle class is to create an environment in which companies can 

create jobs so middle class families can hold those jobs, just as has 

happened in our State. 
49 

Now Judge Luttig, the questions I am going to ask you I would 

appreciate a short answer because I have limited time. Boeing is 

the—how many employees does Boeing have? 

Mr. LUTTIG. Approximately 170,000 worldwide, Senator. 

Senator ALEXANDER. How many are in the United States? 

Mr. LUTTIG. I would say 90 percent of those. 

Senator ALEXANDER. So 150,000 or so in the United States? And 

it is the country’s largest exporter? 

Mr. LUTTIG. It is, Senator. 

Senator ALEXANDER. And this is the first new jet assembly plant 

in 40 years. Is that correct? 

Mr. LUTTIG. Correct. 

Senator ALEXANDER. And where does Boeing sell its airplanes? 

Mr. LUTTIG. Around the world, Senator. 

Senator ALEXANDER. So countries all over the world? 

Mr. LUTTIG. Absolutely. 

Senator ALEXANDER. And I heard you say, and I read an article 

in the Wall Street Journal, by your president, that made the point 

that U.S. tax and regulatory policies make it more attractive for 

many companies to build manufacturing capacity overseas. If you 

didn’t build—if you weren’t allowed to build a new plant in South 

Carolina or some other Right-to-Work State, I assume you have the 

option of building those airplanes overseas, if you are selling them 

overseas. Is that correct? 

Mr. LUTTIG. We do, but the acting general counsel, in a speech 

recently said that he would have brought the complaint even if we 

had located outside the United States, Senator. 

Senator ALEXANDER. I assume that if a company outside the 

United States comes to you and says what President Carter said 

to me 30 years ago, persuade Boeing to make here what it sells 

here, you would be under lots of pressure over the next 10, 15, 20 

years to make airplanes in countries where you sell airplanes. Is 

that correct? 

Mr. LUTTIG. We will, and we are already, Senator. 

Senator ALEXANDER. You will and you are already. The United 

States is really in a competition for manufacturing jobs such as 

Boeing’s manufacturing jobs? 

Mr. LUTTIG. A fierce competition. 

Senator ALEXANDER. Yes. And how long will it take for this case 

to make its way through the legal process? 

Mr. LUTTIG. It can be expected to take up to 3 years, if not 

longer, if we go to the U.S. Supreme Court. 

Senator ALEXANDER. It might be 3 years. If this were to be the 

law, according to the acting general counsel, then any company in 

the United States, which has a plant in a union State might have 

to think twice before locating a new plant in a Right-to-Work State. 

Is that correct? 

Mr. LUTTIG. It would have to, Senator. 

Senator ALEXANDER. It would have to think that. And so it could 

then look at its other choice which would be to go overseas? 

Mr. LUTTIG. That’s correct. 

Senator ALEXANDER. Do you agree with Senator Kirk’s suggestion that if you live in a State like Illinois, that a company might 

have to think twice about locating in a State that does not have 
50 

a Right-to-Work law, because if it did, after that any future expansion would be limited? 

Mr. LUTTIG. I do. And I believe that is one of the most pernicious 

effects of this particular complaint, Senator. 

Senator ALEXANDER. So we have a situation where this acting 

general counsel, not confirmed by the Senate, can hold up the Nation’s major exporter for 3 years, up to 3 years, while this case is 

decided, thereby causing middle class families in Tennessee, as we 

look forward to the next wave of auto suppliers which will come to 

our State because of a good workforce, this includes General Motors which has a UAW partnership, but this will slow down the 

growth of Tennessee’s middle class by keeping jobs from coming in 

here and making it more likely they would go overseas? 

Mr. LUTTIG. It will, Senator. And I would add that the acting 

general counsel has not ruled out a 10J Motion, which for all of us 

in the room just means an injunction which would mean literally 

the closure of the Charleston, SC plant. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

Let’s see, Senator Whitehouse? And then Senator Franken. Oh 

no, I’m sorry, then Senator Roberts and then Senator Franken. 

STATEMENT OF SENATOR WHITEHOUSE

Senator WHITEHOUSE. Thank you, Chairman. 

It seems to me, Secretary Reich, you mentioned the failure of the 

United States to maintain the traditional, progressive tax structure. The information that I have is that the top 1 percent of taxpayers pay about a little over 28 percent of the Federal taxes that 

are paid, that the top 5 percent of taxpayers pay about nearly 45 

percent of the taxes that are paid and the top 10 percent pay a little over 55 percent of the taxes that are paid. 

Now, standing alone that sounds pretty progressive. But if you 

measure it against wealth, the top 1 percent of the owners of 

wealth in this country hold nearly 34 percent of the wealth, compared to the top 1 percent of taxpayers paying only 28 percent. So 

nearly 34 versus 28. The top 5 percent of owners of wealth in this 

country control 60.4 percent of our country’s wealth. And the top 

5 percent taxpayers, again, 45 percent so 60 to 45. And the top 10 

percent of our country’s wealth owners control over 71 percent of 

the country’s wealth, meaning that only 29 percent of the country’s 

wealth is controlled by the lower 90 percent, which means that the 

top 10 percent control more than the lower 90 percent of the Nation’s wealth. And yet, they pay about just a little over half of the 

taxes. 

So, in terms of progressivity—Federal taxes, income and payroll—to what extent in determining progressivity should we be 

looking at wealth and income levels in evaluating whether or not 

the taxes that are paid by the highest taxpayers are progressive? 

Mr. REICH. Senator, of course we should be looking at wealth as 

well as income. In fact, when looking at—— 

Senator WHITEHOUSE. What do those numbers cause you to conclude about the progressivity of our tax structure, that I just gave 

you? 
51 

Mr. REICH. The tax structure should also include, if I may amend 

what you just said, capital gains, because people who are very 

wealthy in this country are paying, many of them 15, 16, 17 percent a year of their income in taxes, but that is because it is dividend income or capital gains income. And we have a kind of a hidden scandal in this country, hidden in the sense that most people 

don’t know about it, that we have carried interest. 

Senator WHITEHOUSE. That is how hedge funds are paid. 

Mr. REICH. For example, hedge fund managers are treating and 

are allowed, because of a loophole in the taxes, to treat their income, that is essentially capital gains, as—I’m sorry, their capital 

gains income that is essentially ordinary income, it just looks and 

smells and in every other way as ordinary income, as capital gains 

and have a 15 percent, therefore income tax, in fact. 

Senator WHITEHOUSE. And how about CEO stock options? 

Mr. REICH. And stock options feed into that. Because if I’m a 

CEO—— 

Senator WHITEHOUSE. They are also treated as capital gains. 

Mr. REICH [continuing]. Who gets to choose when to start my 

stock options and then I cash in my stock options, that is all taxed 

at 15 percent. 

The point you are making, and I agree with it entirely, is that 

if you look at all of the taxes, who pays, where the wealth is, our 

system is not only regressive but it is getting more and more regressive. 

Senator WHITEHOUSE. The information that we have from the Internal Revenue Service is that the top 400 tax income earners in 

the country from the last time the IRS did this calculation, they 

earned, on average, a little over a third of a billion dollars each and 

as a group they paid, in fact, Federal taxes of about 16.7 percent. 

I asked the Bureau of Labor Statistics what that equates to in 

our Providence labor market in Rhode Island and it is about 

$29,000 and it is what a hospital orderly makes if they are single 

and not declaring deductions. So it seems that you have a hospital 

orderly making $29,000 paying the same tax rate as the people 

making a third of a billion. 

And then you have the middle class in between and they are paying considerably more than the ultra rich and obviously more than 

the lower income people. And is that part of the middle class 

squeeze you are talking about? 

Mr. REICH. It is an enormous part of the middle class squeeze. 

It is the third leg of the stool that I was talking about before, in 

terms of No. 1, unions, we need stronger unions. No. 2, public investment in education, infrastructure. No. 3, to pay for that public 

investment and make sure that we have good schools and good 

highways and good systems of public transportation and water and 

sewage and so forth. We have to ask the rich to pay their fair 

share, otherwise the middle class doesn’t have a chance. 

The CHAIRMAN. Thank you, Senator Whitehouse. 

Senator Roberts. 

STATEMENT OF SENATOR ROBERTS

Senator ROBERTS. I appreciate and I associate my remarks with 

the Senator from Tennessee. 
52 

My concern is with Boeing and the decision by the NLRB and 

Mr. Solomon who brought the suit. I know there has been some 

concern about publicizing this and making it an issue as opposed 

to a process, but I know there has been an article in the New York 

Times, it has been referred to by Jim McNerney, who is the CEO 

of Boeing, 

I simply want to thank you Judge, and thank your CEO for all 

the efforts that you have done in the 10-year fight, and I mean 

fight, to make sure that Boeing has the contract for our tanker 

fleet so that we can be assured of global reach in regards to our 

national security. You and I both know all of the travails that we 

went through to get that. I wanted to pay tribute for that. 

I think, as I went down all the questions that I had, that Senator 

Alexander in very fine fashion asked those questions or made that 

point, the one that I want to make sure that everybody understands is that no existing work is being transferred to South Carolina. And not one single union member in Washington has been adversely affected by this decision. Is that correct? 

Mr. LUTTIG. That is not only correct, Senator, but we have actually added jobs in the Puget Sound area since the decision was 

made to locate the new facility—— 

Senator ROBERTS. There you go again answering my next question. In fact, you have stated that you have added more than 2,000 

union jobs and you are still hiring. Is that correct? 

Mr. LUTTIG. We are and we intend to continue. 

Senator ROBERTS. Then you go on to say that the—or the CEO 

goes on in his article to point out the 787 production line in Everett 

has a planned capacity of seven airplanes per month, whereas the 

line in Charleston will be three additional airplanes to reach your 

per month capacity and that the basic reason that you made this 

decision was a surging global demand, in fact the demand for the 

new 787 Dreamliner, not acting out of spite or animus. Is that not 

correct? 

Mr. LUTTIG. No, that is absolutely correct, Senator. 

Senator ROBERTS. That is a seven to three advantage in regards 

to Washington and you are hiring 2,000 more and you are still hiring and you are going to continue to hire. I don’t know how that 

could be described as being an action of spite or animus. 

And then in addition, to followup on Senator Alexander’s point, 

you have 155,000 U.S. employees? Is that correct? 

Mr. LUTTIG. Approximately. Yes, sir. 

Senator ROBERTS. Right. And that about 40 percent are union 

and that ratio has been unchanged since 2003? 

Mr. LUTTIG. That is correct, Senator. 

Senator ROBERTS. And you are involved in 34 States? 

Mr. LUTTIG. Correct. 

Senator ROBERTS. Half are unionized, half are Right-to-Work? 

Mr. LUTTIG. Approximately, sir. 

Senator ROBERTS. All right. Then the obvious question or conclusion reached by Senator Alexander, which I agree with, the unintended consequence, forward thinking CEO’s would also be reluctant to place new plants in unionized States lest they be forever 

restricted from placing future plants elsewhere across the country. 
53 

Now that is speculation or whatever, it is hard to answer, but 

given your background, wouldn’t you think that would be the case? 

Mr. LUTTIG. That is true and that is why this issue should be of 

concern, both to Right-to-Work States as well as non-Right-to-Work 

States, Senator. 

Senator ROBERTS. OK. Thank you so much. And my time is expired, Mr. Chairman. 

The CHAIRMAN. Well they have all the money. They have all the 

money down there, of course. 

[Laughter.] 

All right. Thank you, Senator Roberts. 

Senator Franken. 

STATEMENT OF SENATOR FRANKEN

Senator FRANKEN. Thank you, Mr. Chairman. To the Senator of 

Kansas, I think that sort of thing should be brought up in business 

meetings. 

I am a member of four unions. And I take some umbrage—Senator Durbin is not here, but he loves when I use that phrase, taking umbrage, about some of the things that were said after I got 

here. I was in the Judiciary Committee, so I didn’t get to hear the 

testimony. 

I heard words like the mark, and mob and torture and corrupt 

and heavily controlled and whack and that Illinois was heavily controlled by union and that is why it was corrupt and that is why 

those connections were made. 

Minnesota has 15.6 unionization, Illinois has 15.5 percent unionization. There is nothing corrupt about Minnesota. And I really resent that implication, I really do. The union members in my State 

that I work with are among the finest people I know. And the 

unions that I worked in, including AFTRA, the American Federation of TV and Radio Artists, the Writers Guild of America, they 

provided healthcare for me and my family when I was working. 

And they added to the trade balance of this country more than almost any other industry in this country. I don’t like that. And I 

don’t like these attacks on unions. I really don’t. 

Now, when you see the membership in unions going down and 

you see the middle class getting less purchasing power, Ms. 

Boushey, that hurts our economy, because the middle class then is 

really the prime purchaser, consumers in this country. This country runs on consumers, there is a direct tie there. Right? 

Ms. BOUSHEY. Certainly. A hundred percent. Consumption is 

about 70 percent of our gross domestic product, that is the goods 

and services that we all buy. If people don’t earn wages that increase over time, then the purchasing power of the American public 

does not increase. And as we talked about earlier, American families have been able to increase their purchasing power by working 

longer, harder, more, and over the 2000s, as their incomes fell, 

even though they were working longer, harder and having more 

people—— 

Senator FRANKEN. Debt. 

Ms. BOUSHEY [continuing]. They took on debt. It is not a recipe 

for a stable economy. 
54 

Senator FRANKEN. Let’s talk about taxes for a just a second while 

I have the professor and Labor Secretary here. Adam Smith wrote 

of a need for progressive taxes. Right? 

Mr. REICH. Senator, Adam Smith said the taxes on the rich 

should be not just the same percentage as taxes on the middle and 

the poor, but a higher percentage. 

Senator FRANKEN. Yes. 

Mr. REICH. Because he talked about equal sacrifice. That was the 

point. Adam Smith, equal sacrifice. 

Senator FRANKEN. The concept of disposable income is what he 

was really talking about, too. Adam Smith—people don’t realize 

that Adam Smith called for progressive taxes. 

Now, let me ask you something else. We keep hearing this talk 

about balancing the budget, that not one tax ever should be raised. 

And I also hear that Ronald Reagan was a deity. I mean, we respect Ronald Reagan. Ronald Reagan raised taxes, didn’t he? How 

many times, Mr. Secretary? Do you know? 

Mr. REICH. Is this a quiz? 

[Laughter.] 

Senator FRANKEN. You are on the record, let’s just put it that 

way. 

Mr. REICH. I better be careful. I think it was twice, but I better 

check. 

Senator FRANKEN. Yes. And then also on social security taxes as 

well, but income taxes twice. And that is because we were being 

plunged into debt. That is what was causing the deficit and that 

is why Ronald Reagan raised taxes twice and today he would be 

sent out of town on a rail. 

Mr. REICH. Senator, if I may? 

Senator FRANKEN. Yes. I am sorry. 

Mr. REICH. These issues are all connected. 

Senator FRANKEN. Right. 

Mr. REICH. Taxes, unions, public investment in education, infrastructure, they are three inter-related pieces of the problem that 

the middle class has faced. And over and over and over again I 

hear, unfortunately, the assertion that we have to, in order to get 

jobs back, sacrifice wages. If that is the choice we have to make, 

and the middle class and working class of this country has to 

make, in order to get more jobs you have to have lower wages, then 

we are all really in trouble, greater trouble than we have been over 

the last 30 years. 

The CHAIRMAN. Thank you, Senator Franken. 

Senator FRANKEN. Mr. Chairman. 

The CHAIRMAN. My apologies to Senator Enzi, he had yielded his 

time earlier and I should have returned to him, but now I will recognize Senator Enzi. 

Senator ENZI. Thank you, Mr. Chairman and I do know that Mr. 

Reich has to leave. 

I do have some questions but I would submit them in writing if 

you would be so kind as to answer them, I would appreciate that. 

I do have questions, though. 

Mr. REICH. Certainly. 

The CHAIRMAN. I just know Secretary Reich, I know you said 

that you had to leave and would you answer this is the last one. 
55 

Mr. REICH. I would be perfectly happy to answer Senator Enzi’s 

question. 

The CHAIRMAN. I just wanted you to be here for the first round, 

but Senator Enzi said he didn’t want to have the questions. 

Mr. REICH. Yes, please. 

Senator ENZI. I will submit some because they are—I am an accountant, they are of a technical nature, but I know that you have 

technical answers. I would be happy to do it that way. 

And we have ignored Ms. Fox. I have a few questions that I 

would like to ask her. 

Ms. Fox, when you served as a member of the National Labor 

Relations Board from 1996 to 1999, did the board issue press releases on routine complaints? 

Ms. FOX. I am afraid I am—— 

Senator ENZI. Probably not. Did it release fact check documents 

on cases that portrayed contested allegations as fact? 

Ms. FOX. No. 

Senator ENZI. Do you recall either of the general counsels serving 

with you, giving interviews to the New York Times or other national newspapers about a complaint they had just filed the day before? 

Ms. FOX. I know that there were many times that actions of the 

board were the subject of news coverage and actions of the general 

counsel. I think, particularly in connection with the baseball 

strike—I know there was a lot of attention around actions, prosecutorial action. 

Senator ENZI. Some in the last couple of days have called the 

Boeing complaint a routine administrative procedure. But the New 

York Times called it ‘‘highly unusual’’ and the ‘‘strongest signal yet 

of the new pro-labor orientation of the National Labor Relations 

Board under President Obama.’’ That paper also wrote that under 

President Obama’s appointees the agency, ‘‘including Mr. Solomon 

and his staff, has sought to reinterpret and more vigorously enforce 

the rules governing employers and employees, from what workers 

can say about their bosses on Twitter to the use of Internet and 

phone voting in union elections.’’ 

Who is right? 

Ms. FOX. I think that it is certainly true that the acting general 

counsel and the board are interested in vigorously enforcing the 

act. Yes, I think that is true and that their actions do reflect that. 

I don’t think that they go beyond the bounds of what their statutory responsibilities are. I think that it is a good thing for agencies 

that have regulatory and enforcement responsibilities to exercise 

those. 

Senator ENZI. Senator Blumenthal portrayed this as a court process, a judicial process. I don’t think it is normal in a judicial process for the prosecutor to go to the newspaper and issue a press release. And not only issue a press release to the New York Times 

but provided a fact sheet and a copy of the complaint on its Web 

site. They made it a public issue. If it is a routine complaint this 

all seems completely out of order. 

And then of course, there is the acting general counsel. The acting general counsel filed the complaint on April 20th and on April 

22d, he did the interview that appeared in the New York Times. He 
56 

stated that Boeing had a consistent message, that they were doing 

this to punish their employees for having struck and having the 

power to strike in the future. 

Mr. Luttig, is that accurate? 

Mr. LUTTIG. That is what the acting general counsel said to the 

New York Times, Senator. Yes. 

Senator ENZI. But is that accurate of Boeing, that they are trying 

to punish employees for having struck and having the power to 

strike in the future? 

Mr. LUTTIG. Of course it is not and that is not what the complaint says either, Senator. 

Senator ENZI. OK. Have any of the employees been punished because of the expansion of the Dreamliner production line? 

Mr. LUTTIG. No. As our CEO said yesterday on the pages of the 

Wall Street Journal, the union and our union employees are part 

of the fabric of the Boeing company. They have been since day one 

and they will be for a long time to come. 

Senator ENZI. What do you think the purpose of that interview 

was? Why do you think it was given to the New York Times as opposed to a Washington State or South Carolina newspaper where 

the interested parties were involved? 

Mr. LUTTIG. I don’t know and I wouldn’t attempt to surmise. It 

is something that this committee should ask the acting general 

counsel, Senator. 

Senator ENZI. OK. I will just comment a little bit more on it because I don’t think it is inappropriate to discuss and criticize the 

recent National Labor Relations Board complaint that was filed 

against Boeing, nor is it out of bounds for Boeing to vocalize their 

frustration with the process as it is being mischaracterized by a 

Federal agency in the press. And I think it is the height of hypocrisy to criticize Boeing for speaking out, yet offer no criticism of the 

acting general counsel who issued press releases, conducted interviews and released a fact check document to argue his case in the 

press. 

I think Boeing has been a great American success story in creating middle class jobs. They have expanded in a time of recession, 

both in Washington State and now in South Carolina. We do need 

to understand both how they did that and what obstacles the Federal Government is putting in the way. And we need to do that 

with a number of businesses. The President said that he wanted 

every regulation that was being done or had been done by any 

agency, to be reviewed and to strike down the rules that were barriers to job creating. To my knowledge I haven’t heard of one rule 

being eliminated. 

It seems like the promises and the words and the press releases 

conflict with what we are really trying to do, particularly with the 

middle class. 

Mr. LUTTIG. Senator, when I was a public official on the Federal 

bench in prior incarnations in the executive branch, I always believed that the public and this body should be free to criticize anything and everything I did as loudly as they wished. When the 

President of the United States was criticized for criticizing the Supreme Court of the United States, had he asked me I would have 

stood up and defended his right to do so, because it has nothing 
57 

whatsoever to do with an interference in the process. And, in fact, 

in this country we don’t want our government entities who are 

wielding the awesome power of government to operate in the shadows. 

Senator ENZI. Thank you. My time has expired. 

Ms. FOX. Senator, if I just might have the opportunity to make 

one comment about this. I want to make clear that my purpose 

here is not to criticize Boeing, not to prejudge this issue. I don’t 

know, I am not making a judgment. And I also want to echo what 

was said about Boeing. I think Boeing has been a very good employer. It has provided many, many—a part of building the middle 

class here. 

I just wanted to make clear that what I am talking about here 

and what I think I am defending is the processes of the board and 

the legal theory on which it—and to try to make the point that 

the—I find the legal theory on which the case is based not extraordinary. It is certainly extraordinary that it is applied to a company 

as large as this, that it has the potential impact, but I don’t think 

that the law allows for a decision about whether you are going to 

enforce that takes into account the size of the company. 

If, under the theory, there has been a violation, I don’t think the 

general counsel has a choice but to pursue that. And obviously 

there are factual disputes here and those, I have no—I am not intending to make any view of. 

The CHAIRMAN. OK. Thanks. We will begin a second round. 

Mr. Luttig, first of all, I want to respond to the comment made 

by Senator Kirk, I am sorry he is not here. I wanted to wait till 

my turn. He talked about you as being the mark, something about 

a gambling game or something at the table, I don’t understand all 

that. I want to make it very clear that Mr. Luttig was not invited 

to testify by this chairman or anyone on our side, he was invited 

by the Republican side. I resent the fact that Mr. Kirk somehow 

implied that we had you here as a mark, that is not so. You were 

invited here because the minority side gets to approve a witness 

and they approved you as a witness. 

Second, the amount of misinformation—I spoke about this, I 

didn’t mean to get into this, but it has been gotten into. I didn’t 

mean to have this as a thing on Boeing. The amount of misinformation that has come out on this is just astounding. Astounding. 

Astounding. 

First let me respond to what my friend, Senator Enzi, said about 

the press releases and stuff. The National Labor Relations Board, 

within the last year established a new Public Affairs Office. I didn’t 

know about it, but they established a Public Affairs Office, to put 

out information on their Web site and in releases on major decisions, whether they are pro-union or pro-business. In my inquiries 

on this, it was, as I understand it, they set it up for transparency 

purposes to put out information about what they were doing. 

That is what happened here. That person who put that out is a 

career person, not a political appointee, a career person. And the 

fact is that quite frankly in my years both here and before when 

I was lawyering, prosecutors put out information all the time about 

cases that they are bringing before courts. Prosecutors always do 

that. But Senator Blumenthal knows that too. They always put out 
58 

information about the cases that they’re bringing and that is what 

this Public Affairs office did at that time, as I am understanding. 

Mr. Luttig, the very first sentence of your testimony says that 

the complaint is at issue before the committee. Mr. Luttig, the complaint you speak of is not at issue before this committee. That complaint is at issue before the National Labor Relations Board where 

it properly belongs. This hearing is about the state of the middle 

class, not about a case that is pending before an administrative law 

judge. And again, I think that is some of the misinformation that 

has gotten out. This has become a political thing. And quite frankly, it ought to go and proceed as it should. 

The acting general counsel, who by the way is a 30-year career 

person, not a political appointee, had this complaint. In 75 years 

of the Wagner Act both businesses or unions or nonunions, anybody 

can bring complaints to the National Labor Relations Board, sometimes they are dismissed out of hand, if there is substance to it, 

they then investigate it, they take affidavits, they go out and investigate to see whether or not there is enough there to proceed to the 

administrative law judge. 

As I understand it, the general counsel did that, they investigated the complaints, they took affidavits, they did all kinds of 

things. They tried to settle the case, as they do in the last 75 years, 

to get both sides to try to settle this. That was unsuccessful. The 

general counsel then decided that, I guess, that there was enough 

evidence there to proceed to administrative law judge. 

That is where Boeing makes its case. Now it is not the fact that 

Boeing has been quiet about this, as you have pointed out, your 

CEO had an op. ed. piece in the Wall Street Journal yesterday 

making Boeing’s case. 

What is not right, no that is not the right term, what is not— 

what borders almost on unethical activity is for people in the political branch of the Congress to begin to interfere in a judicial process and to color that judicial process and to try to make it a political matter. 

Now we can make statements on whether or not we think it is 

right or wrong, but it has gotten into the area of misinformation. 

There was a press conference the other day, there was a quote I 

saw from the governor of South Carolina who was accusing President Obama of instigating this and being behind it. President 

Obama had nothing to do with this, he probably didn’t even know 

it was even going on. That is what I kind of resent is how it has 

become political. 

And quite frankly, again, this type of trying to put political pressure to bear against the NLRB, even threats to pending nominees. 

Threats that somehow if they proceed with this certain nominees 

will not come before this committee, I think that borders. That is 

borderline. That is borderline. 

So, again, I didn’t want this to be a hearing on this Boeing issue. 

I did want it to be a hearing on middle class. 

Now Mr. Luttig, you were a former Federal judge. Right? 

Mr. LUTTIG. Yes. 

The CHAIRMAN. Former Federal judge. 

Now I want to get to the essence of middle class here and what 

we are talking about in terms of disparities. In real terms, wages 
59 

for workers grew 3.78 percent in the last 20 years, CEO pay increase 468 percent. 

As executive vice president and general counsel, your compensa- tion by Boeing, in 2008 was $2,798,962. That was your pay in 2008, 

$2,798,962. In 2009, 1 year later, it was $3,743,647. That is a 34 

percent jump in your pay as an executive in 1 year, during a recession year. Why shouldn’t employees at Boeing get a 34 percent increase, Mr. Luttig? What is going on here? Why shouldn’t employees also have a share of that? I just asked you the question, why 

should executives get these huge increases and employees being 

told that they can get a 3 percent increase or even less? 

I checked also on the pay. The pay, I guess, in Washington is around $26 an hour. That comes to about $52,000 a year. South 

Carolina I am told the average pay is about $18 an hour, that is 

$36,000 a year. Hardly anyone getting wealthy. Mr. Luttig, your pay went up by 34 percent. You make $3.7 million a year. I don’t begrudge that, I am just asking about fairness 

for workers at the Boeing plant. Why shouldn’t they get increases 

like that, Mr. Luttig? 

Mr. LUTTIG. Mr. Chairman, my compensation is a matter of public record. 

The CHAIRMAN. It sure is. 

Mr. LUTTIG. I have to say at this very instant I have the sense 

that maybe it is not enough. But that aside, Senator I am the general counsel of the company, I don’t have a dog in this particular 

hunt. I appreciate the spirit. What I would say is that the case that 

I am here to address is actually about the middle class and no one 

should have any doubt about that. 

It is about jobs for Americans and for the middle class, thousands upon thousands of jobs for the middle class. As every witness 

has testified, as every one of this committee has testified, jobs and 

job growth is what we need to come out of this recession. And it 

should be irrelevant to you, Senator, frankly, what I think about 

that issue. And I don’t want to be presumptuous even to answer 

it, but of course I share the committee’s concern about the middle 

class and about the wages of the middle class. And I can also tell 

you that the Boeing company does. And that is why we are trying 

to create jobs. And that is why, as one of your colleagues noted, our 

workers are some of the highest paid aerospace workers in the 

world. And we are proud of that. And if we could pay them more, 

we would, and when we can, we will. 

The CHAIRMAN. Thank you, Mr. Luttig. 

Senator ENZI. Thank you, Mr. Chairman. 

I was going to explain Senator Kirk’s comment about being the 

mark by pointing out the imbalance, that you have three witnesses 

and I have one. But in light of your last question I think maybe 

he was right on. 

This is an interesting process that we do. I wish we would go to 

roundtables where we would bring in some people who have done 

some things for the middle class that had improved things to see 

what kind of ideas they have, so that we could actually maybe borrow from those and expand them nationwide. We bring in people 

from institutes and colleges and things like that. But what if we 

brought in some of the companies that have actually improved the 
60 

middle class and found out how they did it, why they did it, and 

what they would suggest for other people? I think that would be 

a much better process than the one where we have three witnesses 

to one and then beat up on each other’s witnesses. 

Getting back to the Boeing case, I do think that it is one of the 

prime examples of what is happening with the middle class. We are 

shutting down business, we are creating this era of uncertainty 

where businesses don’t know what they can do, where they can do 

it, how they can do it. And when they are in that kind of mode they 

are not going to hire people. 

When the country is in the situation that it is currently in, and 

there are so many uncertainties, it is very hard for them to go 

ahead and do wage increases. Part of that is due to them still evaluating and waiting for the millions of pages of regulations to come 

out on the new healthcare law so they can know what they have 

to do and what the costs are going to be. When you include the cost 

of benefits along with the cost of wages, you wind up with a little 

different picture of what is happening out in the market. And those 

benefits, for the most part, are not taxed. Usually the employees 

prefer to get money that is not taxed as opposed to money that is 

taxed. 

But this National Labor Relations Board is fascinating to me, because the Acting General Counsel gets to make all kinds of comments and of course the company can counter the comments, but 

after all of that it is going to go to an administrative law judge that 

works for the board. And after he makes the decision, which I suspect will be in opposition to Boeing, then it goes to the National 

Labor Relations Board. I suspect that the company will lose there, 

too. Then it finally goes to Federal court. And we will get a ruling 

there and then maybe one party or the other will appeal it to the 

U.S. Supreme Court. 

It is a long process and in the meantime I don’t know what happens to the jobs. I assume the company can go ahead and operate 

this new facility, since they have a billion dollars invested in it already and a thousand people working there. But you can see where 

there is a lot of insecurity of the employees as well. 

The press releases that have been done on this are a part of a 

larger effort by the Administration which is to shame employers by 

dragging their name through the press and influence and intimidate other employers. And I am not just making that up, I am not 

even using the word shame as my own word. This is from the Office of the Solicitor for the Department of Labor, their operating 

plan. It mentions that they will use shame as a strategy. 

I think there are more positive ways for us to be working on the 

issues than that and I would hope that in the future we can do 

some of those so that we can come to some really constructive ideas 

for how we are going to improve the situation of the middle class 

in America. 

I have almost used up my time and I will forgo the rest of it. 

The CHAIRMAN. Senator Enzi. 

Let’s see now. Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman. I want to 

thank all of our witnesses, particularly Judge Luttig, for being here 

today. We would recommend an increase in your pay but I am not 
61 

sure whether that would be helpful or hurtful to you. So let me just 

say thank you. 

I want to associate myself with the very powerful remarks of my 

colleague, Senator Roberts, about the excellence of the Boeing products and their extraordinary value to our Nation and to consumers 

around the world and the eloquent remarks of Senator Alexander 

about the importance of these jobs and the 170,000 of them around 

the world and 150,000 in this country. Not only jobs, but good jobs, 

which is so important in this country today for all the reasons that 

we have heard on both sides of the panel. 

I am reassured, by some of your comments, because I—and I disagree somewhat and I hope that perhaps you would disagree with 

Senator Enzi that defeat before the National Labor Relations Board 

is inevitable here, because I am sure that you will make your case 

very effectively and I am sure that you do not posit or assume a 

defeat before either the administrative law judge or the NLRB. Do 

you? 

Mr. LUTTIG. I don’t want to over-lawyer this, but you have asked 

me the question. And as the general counsel for the company, I 

presumptively believe that we will lose before the ALJ and also before the NLRB, for an institutional reason which is wholly legitimate, which is the general counsel of the NLRB is charged in the 

same way that the ALJ is and the board. And so when he makes 

a consequential decision like this, if he is acting properly then he 

is sharing a view of the law by the National Labor Relations Board, 

Senator. 

Presumptively I do expect to lose. 

Senator BLUMENTHAL. Well, let me ask you this, you can seek to 

dismiss this complaint before the administrative law judge. Correct? 

Mr. LUTTIG. I am not a labor law expert, but I believe you are 

correct. 

Senator BLUMENTHAL. Absolutely. You can seek not a Rule 12 

Motion per se, but there is a procedural opportunity for you to seek 

that remedy as you discussed earlier in response to one of my questions, that if it were a Federal court you believe it would be dismissed. 

Mr. LUTTIG. I believe there is a corresponding avenue of relief 

equivalent to the 12B Motion. Yes, Senator. 

Senator BLUMENTHAL. And in the meantime your company can 

proceed with its assembly line in South Carolina. Can it not? 

Mr. LUTTIG. This is where it gets difficult, as you know as a 

former attorney general. I now have the Federal Government that 

is seeking to close Charleston. I would just ask you to put yourself 

in my position, as general counsel. When the question comes to me, 

should we continue to invest capital? Should we continue to hire 

employees? Should we continue to hire suppliers? Should we continue to drive forward toward the 7,000 employees on the site in 

South Carolina? You can appreciate that is an exceedingly difficult 

question for me to answer, Senator. But that is the position that 

the complaint itself has put me in. I know that you don’t want to 

suggest in any way that I just dismiss that, I just want you to appreciate the significance of what the NLRB has done here, merely 

through the filing of the complaint. 
62 

Senator BLUMENTHAL. And I do. As a former prosecutor, Federal 

prosecutor as well as a State attorney general, I am exceedingly 

mindful about the importance of filing a complaint or an indictment, which often is the most consequential part of the judicial 

process. And believe me, I appreciate the importance of a complaint 

or an indictment, not only its practical effect but its reputational 

impact. 

But ultimately you would advise your company, I assume, and I 

am not asking for attorney/client privileged information, that the 

result in a Federal court would be in your favor. Would that not 

be your conclusion? I assume, from the fact that you believe that 

the complaint is contrary to existing law, that you believe that ultimately your rights will be vindicated by a Federal court. 

Mr. LUTTIG. I do, Senator. 

Senator BLUMENTHAL. In the meantime, again, removing ourselves from your particular advice, the company can proceed with 

its assembly line, with its activities in South Carolina and indeed 

the remedy, even if there is a finding against you on the facts, the 

remedy may be completely different. But ultimately your rights can 

be, and in your view, will be vindicated by a Federal court. 

Mr. LUTTIG. That our rights will be vindicated in one way or another before a Federal court, is correct. It does not follow a fortiori 

though, Senator, that the complaint does not have harmful economic affects on my company presently and until its ultimate resolution in the Federal courts, quite the opposite. 

Senator BLUMENTHAL. I might just say, I appreciate both your 

candor and your care. Obviously the NLRB may take a different 

view and may find that it is well-founded, but in the meantime you 

are not asking us to intervene statutorily, are you? 

Mr. LUTTIG. I am not here today to ask for a statutory remedy 

for this. No, sir. 

Senator BLUMENTHAL. Are you asking that we take any specific 

action to intervene in this case? 

Mr. LUTTIG. No. To the extent that I am doing anything affirmative here other than responding to the invitation by the committee, 

I am urging, and unapologetically, that this is a matter that is appropriate for consideration by this oversight committee at this 

time. And I don’t believe that its oversight responsibility in any 

way conflicts with the ongoing process before the NLRB. As you all 

know, better than I do, every day of the week the Congress of the 

United States takes up matters that are being investigated and 

that are working their way through the administrative process of 

the executive branch. 

Senator BLUMENTHAL. Thank you for your testimony. Thank you, 

Mr. Chairman for giving me a couple minutes extra time. And I 

want to apologize to the other witnesses that I haven’t asked you 

any questions, but I really appreciate you being here today. 

The CHAIRMAN. Senator Alexander. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

Mr. Chairman, there has been some discussion about union, nonunion. We are talking about the middle class, I am talking about 

jobs, auto jobs in Tennessee, that is what has helped our middle 

class grow over the last 30 years in family incomes. But, Right-toWork of course means you could choose to join a union or not join 
63 

a union. If there were any news in Tennessee that made more news 

during the decade of the 1980s than the arrival of the Nissan 

plant, which is a nonunion plant, it was the arrival of the Saturn 

plant with its partnership with General Motors. We were delighted 

to have them, and they existed side-by-side, within a few miles of 

each other. 

Employees at Nissan had a chance, three times, to create a union 

for themselves, they elected not to. And their wages, I assume—I 

don’t know exactly what the difference in wages was between the 

United Auto workers at the Saturn plant and the nonunion workers at the Nissan plant, but they weren’t enough to persuade them 

that they would be better off with a union. 

If we are talking about raising family incomes, which is what I 

have been working on for 30 years, we have to start with the jobs. 

Now, let’s talk about the jobs just a moment. Judge Luttig, you 

made a pretty extraordinary statement, you said you expect to lose 

before the administrative judge in June and to lose before the National Labor Relations Board which you assume has a shared view 

without the general counsel. How long would it take to get your appeal heard and decided before a U.S. Circuit Court, if that should 

happen? 

Mr. LUTTIG. Before a United States Court of Appeals? 

Senator ALEXANDER. Court Appeals, yes. 

Mr. LUTTIG [continuing]. Senator, it could be 2 years and thereafter to the U.S. Supreme Court it could be as much as 2 additional 

years depending on when and if the U.S. Supreme Court granted 

certiorari on the case. 

Senator ALEXANDER. Let’s just take the more conservative view. 

For 2 years the Federal labor law in this country, as defined by the 

acting general counsel of the National Labor Relations Board is 

that if you are a manufacturer in a State without a Right-to-Work 

law, you better think twice before you move to a State with a 

Right-to-Work law. Is that right? 

Mr. LUTTIG. Absolutely. The in terrorem effect of this complaint 

is in itself very harmful. 

Senator ALEXANDER. In the case of my State, Tennessee, we have 

literally hundreds of companies moving—making decisions about 

whether to move to Tennessee or a surrounding State in order to 

supply the Volkswagen plant. They may have to think twice about 

that. I wonder if—does the Boeing company have suppliers in 

Washington State? 

Mr. LUTTIG. Absolutely, Senator. 

Senator ALEXANDER. And are there suppliers in Washington 

State who might be considering opening an office in South Carolina 

or some State in the southeast so that it could supply your new assembly plant? 

Mr. LUTTIG. There are, Senator. 

Senator ALEXANDER. And might not this decision by the National 

Labor Relations Board acting general counsel, who has never even 

been confirmed by the U.S. Senate, might not it cause in the board 

rooms of those suppliers to say, we can’t make a decision or we 

can’t move our plant to a Right-to-Work State without at least considering the expense and the trouble of this kind of litigation? 
64 

Mr. LUTTIG. It might well. And you would expect it to have that 

effect in a business decision making context. 

Senator ALEXANDER. Do you think it is unethical for the U.S. 

Senate Committee on Health, Education, Labor, and Pensions to 

consider such a consequential decision in a hearing? 

Mr. LUTTIG. Not only do I not believe it is unethical, Senator, in 

my opinion, it is appropriate. 

Senator ALEXANDER. Do you think it is unethical for a Senator 

to make a speech on the Senate floor about the consequences of 

this unilateral decision which seems to change all Federal labor 

laws and could stop a flow of jobs to the—among the poorest States 

in our country at a hearing when we are trying to talk about raising family incomes, we are basically saying—all you suppliers who 

are thinking about moving to the southeast, where we have the 

lowest incomes in America—stop, don’t do that, because this Washington single official has decided you can’t relocate an expansion of 

your—you can’t expand your business in a Right-to-Work State, 

perhaps at all? 

Mr. LUTTIG. Of course it is not unethical, in my personal opinion, 

for the reasons I have set forth, Senator. I believe people, regardless of party affiliation, have an obligation to speak out against 

this. 

Senator ALEXANDER. As a former governor of a State who is 

proud to have both the United Autoworkers who work at the General Motors plant and the workers who elect not to be in a union 

at the Nissan plant and at other plants in the State, I am going 

to go to the floor in a few minutes and introduce a bill which we 

call the Job Protection Act, which will have 35 co-sponsors who are 

Senators. And the purpose of the bill will be to preserve the current Federal laws, protection of State Right-to-Work laws and provide the necessary clarity to prevent the National Labor Relations 

Board from attempting a similar strategy as that announced by the 

National Labor Relations Board general counsel against Boeing to 

prohibit that from affecting other companies’ decisions. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

Senator Franken. 

Senator FRANKEN. Yes, I just want to clarify a couple things. In 

a State like Minnesota, which is not a Right-to-Work State, no one 

has to join a union. So, I just want to make this clear to the Senator from Tennessee. You don’t have to— 

Senator ALEXANDER. Well, if they want a job they do. 

Senator FRANKEN. That is not true at all. 

Senator ALEXANDER. You can’t work at the United Autoworkers 

plant at the Saturn unless you are a member of the union. 

Senator FRANKEN. In Minnesota there are only 15.5 percent of 

people working in Minnesota who are in unions, so no one is requiring you, in the State of Minnesota to join a union. And that is 

just not true, that is just a misunderstanding. And in a Right-toWork State you can be in a union, the union can represent you, you 

just don’t have to pay union dues. That is the distinction. 

That is what we are talking about. But I want to talk about the 

middle class. 

Senator ALEXANDER. I am afraid to speak. 
65 

Senator FRANKEN. Let me go to Ms. Boushey, because that is 

what I thought this was about. 

Would it be fair to say the middle class is under more pressure 

today than it has been in 60 years? 

Ms. BOUSHEY. Yes. Entirely. 

Senator FRANKEN. And the disparity of income is higher now in 

the United States than it has been since the Great Depression. 

Right? 

Ms. BOUSHEY. Yes. And it has been rising. 

Senator FRANKEN. OK. And that in and of itself has an affect on 

our prosperity does it not? 

Ms. BOUSHEY. Yes. With a hollowed out middle class we have 

less families that are able to provide the kind of stable demand 

that creates good consumers for businesses at its most basic level. 

And then we also, with a hollowed out middle class you don’t have 

a population that can make the kinds of investments in their own 

human capital in education, because they can’t afford it. You don’t 

have the stability to support entrepreneurship. You have a good 

young kid from a low-income family or, from a hollowed-out middleclass family that has a good idea but they don’t have the economic 

stability to become tomorrow’s entrepreneurs. It creates a lot of instability to not have a large and thriving middle class. 

Senator FRANKEN. And there are so many pressures on middle 

class families now. For example, to get a college education, to send 

your kid to college. My goodness, I talk to college kids all the time 

and I had a group from the MNSCU system, which is the Minnesota State Colleges and Universities, and these were leaders in 

it. And I asked them all, there were about 20 in my office, I said 

to them, how many here work 10 hours—at least 10 hours a week. 

Everyone. How many here work 20 hours a week? Most of them. 

All going to school. How many here work 30 hours a week? Quite 

a few of them. How many here work full-time while going to 

school? A number of them. 

Ms. BOUSHEY. Certainly. We have seen enormous rises in college 

costs over the past few decades. And at the same time we have also 

seen a change in how kids finance that, away from grants, in terms 

of financial aid, toward loans. 

It used to be the case, 20, 30 years ago that a kid could work 

full-time all summer at a minimum wage job and earn enough to 

send themselves to their local public university that next school 

year. In fact, that is what my mother did. And now, today, ever 

since the college costs have been increasing—the last time I looked 

at this, which was in about 2005, a kid would have had to have 

worked more than full-time, full year at the minimum wage in 

order to have afforded a year of public school tuition at their local 

university. 

Senator FRANKEN. This is why we have kids—— 

Ms. BOUSHEY. Exactly. 

Senator FRANKEN [continuing]. Taking 6, 8 years to graduate college. 

Ms. BOUSHEY. Exactly. 

Senator FRANKEN. Let’s look at the world now versus the world 

after World War II, because I think this is kind of important. After 
66 

World War II we had a different situation—Japan and Europe were 

devastated. We had the world markets to ourselves in a way, right? 

Ms. BOUSHEY. Right. 

Senator FRANKEN. That is why GM and Ford and those companies could give you a job for life and they could give you good benefits, because they had the world markets to themselves. We are in 

a different world now. Right? And some of the solutions that were 

available to us then aren’t available to us now in the same way. 

And we are going to have to be smarter about it, I think, because 

we are in a global economy. 

That means that we have to be smart about the way we do trade, 

and we are competing with countries overseas and workers overseas. Boeing may want to go overseas and that is a realistic look 

at this. But, it seems to me that we also need to look at what we 

are doing, our public policy in terms of the middle class, and in 

order to build prosperity, make sure that the middle class is in a 

position to help drive our economy. And we aren’t doing that. 

I know my time has run out, Mr. Chairman, and I think we are 

at the end of the hearing. There is so much to talk about here. I 

am a little sorry that we spent quite so much time on the Boeing 

case. I know it is important and it is a little microcosm of something, but I think we really should be talking about these kinds of 

things like investments, investments in infrastructure, investments 

in education and about tax policy, about revenue. 

We were talking about deficits, because I will just repeat it one 

more time, Ronald Reagan increased the marginal tax rate twice 

when he was President. Ronald Reagan. And if we are going to be 

able to invest in the things that create prosperity we are going to 

have to put everything on the table here. 

Many of the Republicans are at the White House right now talking to the President about this very thing. And we have to really, 

really take this seriously and not be so ideological, in either way, 

because our future prosperity and the prosperity of our kids and 

our kids’ kids, is at stake right now. 

Thank you, all of you, for testifying. And Judge Luttig, thank 

you. How much do you think you should be paid? How much? 

[Laughter.] 

Mr. LUTTIG. I will be glad to give you our CEO’s address after 

the hearing. 

[Laughter.] 

Senator FRANKEN. Oh, OK. Thank you. Thank you, I will put in 

for you. OK? 

Thanks, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Franken. 

Again, let me try to—I don’t want to get on this case, but more 

and more misinformation comes out. The essence, as I understand 

it, of the complaint by the International Association of Machinists, 

filed with the NLRB was that the company was making a decision 

to move an assembly line or start an assembly line in South Carolina in retaliation for the union exercising a protected right, that 

protected right being the right to strike. Now I don’t know whether 

that is so or not, but that is the essence, as I understand it, of the 

complaint which the general counsel’s office investigated and evi-
67 

dently found enough substance there to further the process to the 

administrative law judge. 

Now again, the law is quite clear, a company and the union contracts—the company can move a plant wherever it wants. It can 

open a plant in Timbuktu, it can do anything it wants. What it 

can’t do is move a plant, move an assembly line in an illegal action. 

Think about it this way, let’s say a company has a plant in 

southern California. They hire a lot of Hispanics. Let’s say the 

CEO of that company all of a sudden he doesn’t like those Mexican 

Americans, he doesn’t like those Hispanics, he says, we are going 

to open a branch of our plant in Fargo, ND because there are less 

Hispanics there. 

No. 1, he can open a plant in Fargo, ND, if he wants to. What 

he can’t do is open a plant there because he doesn’t want to hire 

Hispanics or African-Americans or women or Jews or Catholics or 

anything like that. That is in essence the case we have, as I understand it, from the complaint by the IAM, International Association 

of Machinists, that they exercised a protected right under the National Labor Relations Act, which is the right to strike, that the 

company has retaliated against that in moving their line or opening a new line in South Carolina. 

As I said, I am not about to prejudge the case, but it wasn’t because it was a Right-to-Work State or any other thing. That has 

nothing to do with this case. I happen to represent a Right-to-Work 

State, this doesn’t have anything to do with Right-to-Work or nonRight-to-Work or union shop or anything else. It has to do with 

whether or not the company decided to do this as retaliation for a 

protected activity. 

I might just add as a subset to that, that strikes are not always 

just because of the union. Sometimes strikes happen because of 

management too, not just the union. 

Now again, Mr. Luttig, you said that it was the proper purview 

of this committee to either investigate this or to have a hearing on 

it. Well, I don’t think so. Now to come out here, people are free to 

ask questions and make statements. I have made my own, you 

have made yours, other Senators have too. It is not the purpose of 

this hearing. I would point out that in a case Pillsbury Company 

vs. The Federal Trade Commission, the Fifth Circuit Court of Appeals overturned a decision by the FTC because a Senate hearing 

was held on the merits of the case and that violated the due process rights of one of the parties because of nonimpartiality. 

Mr. Luttig, did you or anyone at Boeing ask any Member of Congress to exert pressure on the NLRB to either not issue the complaint or withdraw the complaint after it was filed? 

Mr. LUTTIG. No, Mr. Chairman. 

The CHAIRMAN. Did any of your paid lobbyists in Washington 

contact any Member of Congress either personally or through telephonic means or other means to ask Members of Congress to exert 

pressure on the NLRB to withdraw the complaint? 

Mr. LUTTIG. I am the general counsel, I do not have responsibility for our Washington legislative team, Mr. Chairman. I would 

have no information as to that. 
68 

The CHAIRMAN. But your response is that no one at Boeing, neither you nor anyone at Boeing contacted a Member of Congress to 

exert pressure on the NLRB to withdraw this case or to modify it? 

Mr. LUTTIG. I think it is clear, Mr. Chairman, that I don’t believe 

that it would have been inappropriate had they done so. 

The CHAIRMAN. Miss Boushey, I wanted to pick up—I have 9 seconds left—and ask you a quick question. Tell me about your background and how did your family—how were they able to help you 

do the things that you have done and become an attorney and go 

to law school and get an education. How were they able to do that? 

Ms. BOUSHEY. Thank you for the question. 

I actually grew up a mile from the Everett Boeing plant, which 

is the subject of some of this conversation here today. My father 

was a shop steward and machinist for over 25 years at that plant 

and worked on the 747. So, in many ways I would not be here 

today if it wasn’t for that good middle class job and importantly, 

that union that represented my father at that plant, growing up. 

I am certainly very grateful to that company because they do create good jobs for people in Washington State. And I think that one 

of the things that has sort of been a little frustrating over the 

course of this hearing is there has been a discussion, that somehow 

it is some workers against other workers, that somehow nonunion 

workers are better than union workers or something just because 

they are willing to perhaps work for lower wages. But those workers in Washington State at that plant certainly do a good job and 

I think it is important to honor that as well. 

One of the things that I know, as an economist, and one of the 

reasons that I became an economist was to understand the enormous power that companies like Boeing have over communities. 

Whether or not Boeing succeeds or fails has a huge impact in Everett, WA and in communities around the country and what happens 

to those families. One of the things that we know from empirical 

work is that workers who have the right to organization and that 

are in unions are typically paid better, they get better benefits and 

that that really was a key component of what created the middle 

class in this country and certainly was a key component of what 

created the middle class in that part of Washington State where I 

grew up. 

And in listening to this conversation and thinking about the 

movement of this assembly line to South Carolina, certainly it is 

important for workers all over the country to have access to good 

jobs, but we should not be doing this in a way that is a race to the 

bottom in a way that undercuts unions or solid middle class jobs 

in one part of the country, pitting them against another. 

The CHAIRMAN. Thank you. 

Senator Enzi. 

Senator ENZI. Thank you, Mr. Chairman. 

One of your questions might better have been asked of me. No 

one from Boeing talked to me, I contacted Boeing to ask if they 

could present a witness at this hearing because this is a concern 

nationwide. A lot of companies are worried about whether they can 

expand, where they can go, who they can hire. 
69 

You made a very forceful statement about perhaps Boeing taking 

an illegal action and taking away a right of workers. Judge Luttig, 

do the Washington State employees still have the right to strike? 

Mr. LUTTIG. Absolutely, Senator. 

Senator ENZI. Do the employees in South Carolina have the right 

to form a union? 

Mr. LUTTIG. They do. 

Senator ENZI. If they form a union do they have the right to 

strike? 

Mr. LUTTIG. They do. It is this, Senator, the genius, if you will, 

of the National Labor Relations Act is that it recognizes both the 

right to join a union and the right not to join a union. But it also 

recognizes the rights, if you will, of employers and the rights of employees. Again, the genius of it is that it attempts to balance all 

of those so that all of those respective rights are protected. And 

that is exactly the context in which we operate every day of the 

week. 

But, Senator, this is not about unions or nonunions. This is not 

to hurt our union. As I said, the union is part of the fabric of the 

Boeing Company. Forty percent of our workforce has chosen to join 

unions. We need those unions and we in turn can create jobs for 

those unions and for their families. That is all that my case before 

you is about. 

Senator ENZI. I thank you, particularly for that answer, which is 

a good one to conclude on, I believe. I appreciate your willingness 

to come here and testify knowing that sometimes these hearings 

are a little brutal. 

I appreciate everybody’s answers today. It was very helpful. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Miss Fox, I wanted to ask you about my presentation on the essence of the case on retaliation. As I understand it, that was the 

essence of the case filed, on retaliation for a protected activity. Of 

course people can join unions and of course they can strike. But 

you talk about chilling effects, chilling effects, if in fact, a company 

decides to move a line or do something and it is in fact found, as 

a matter of fact, that it was in retaliation for a strike, is that not 

covered by the National Labor Relations Act? 

Ms. FOX. Yes, and that is—when I have said previously that this 

is not a novel legal theory, that if it were to be found that that was 

the case, there have been other cases where—and they have been 

cited, I believe, by the general counsel in exactly those circumstances where it is proved or established that that was the reason for a decision to transfer work, that it has been found previously to be a violation of the act and the remedy ordered has 

been to restore the work. 

The CHAIRMAN. It is one of the core parts of the National Labor 

Relations Act? 

Ms. FOX. Yes, it is. And just to underscore also, the theory of this 

complaint has nothing to do with where the work was moved. The 

theory would be the same if the work had been moved to another 

unionized State, if it had been moved to the next county. I think 

that Mr. Luttig mentioned the fact that the general counsel has 

publicly stated that it would be the same if they moved to another 
70 

country. It is confusing to me or puzzling to me how this could be 

turned into something that is about Right-to-Work States versus 

unionized States. 

The CHAIRMAN. I share that. I don’t know how that is—again, 

what I am concerned about in this is that I cited the Fifth Circuit 

Court case, if in fact this does wind its way to the Circuit Court 

of Appeals, I guess precedence, Mr. Luttig, could take over and 

they could look at this and say, 

‘‘Gee if we have a Senate hearing or if this gets into the political thing and people are making all kinds of political 

charges and stuff, they could find that they would overturn 

any decisions or dismiss it because of violation of due process 

rights.’’ 

And that is my concern about turning it into a political matter. 

And like I said, we spent a lot of time on it here this morning, 

but people have a right to do that if they want. I wanted it more 

to be focused on what is happening to the middle class in America. 

Again, I don’t know if this is correct or not, I am told it is, that 

the average hourly wage in Puget Sound is $52,000 or $26 an hour, 

2,000-hour year, about $52,000. In South Carolina it is about $18 

an hour, that is $36,000 a year. So same person, doing the same 

job in Everett, WA making a little bit more, quite a bit more as 

a matter of fact, than a person working in South Carolina. This has 

all the appearances to me as a race to the bottom and that again, 

is what is happening to the middle class here. 

Second, I would also say that I read the CEO’s, Mr. McNerney’s 

op. ed. that was in the Wall Street Journal and also Mr. Luttig’s 

statement here. In your statement you said that at about the same 

time that the IAM provided Boeing with its final position South 

Carolina confirmed Boeing’s eligibility for several hundred million 

dollars in incentives. I assume that is tax incentives, I don’t know, 

but I assume it is. That means it is taxpayer supported. 

I also asked and found out that Boeing, a great company—by the 

way, I make no bones about it, I have been a big supporter of Boeing products I think all the time I have been here in the Congress, 

both in the House and in the Senate, as opposed to Airbus, but I 

don’t want to get into that. 

But, when Mr. McNerney, the CEO, makes veiled threats about 

moving things overseas I find that the Boeing Company is the recipient of $19.5 billion in taxpayer’s money, contracts with the Federal Government, $19.5 billion, it would seem to me that Mr. 

McNerney, rather than making veiled threats about moving a plant 

oversea ought to say, 

‘‘Look, we are grateful to the taxpayers of this country for 

the $19.5 billion in Federal contracts that we have and the last 

thing that we are ever going to do is take our plant overseas, 

we are going to stay here in America.’’ 

Now that would send a signal to companies that we are going to 

stay here, we are not going to move overseas because we recognize 

the benefits to American workers. 

Mr. LUTTIG. Mr. Chairman? 

The CHAIRMAN. Yes. 
71 

Mr. LUTTIG. Mr. McNerney did not make a veiled threat at all 

on the pages of the Wall Street Journal. He was making the observation, which is absolutely correct, that there is a flight of American business overseas and that is a matter of grave public concern. 

Second, the government is one of our largest customers and we are 

very proud to be the supplier of aircraft and other technology for 

the U.S. Government and we appreciate it very, very much. 

The CHAIRMAN. Let me read what he said, this is Mr. McNerney, 

‘‘More worrisome though are the potential implications of 

such brazen regulatory activism on the U.S. manufacturing 

base and long-term job creation. The NLRB’s over reach could 

accelerate the overseas flight of good, middle-class American 

jobs.’’ 

Then at the last paragraph he says, 

‘‘U.S. tax and regulatory policies already make it more attractive for many companies to build new manufacturing capacity overseas.’’ 

Now if that is not kind of veiled implications that Boeing could 

also, I would like to see a sentence in there say that, Boeing is an 

American company, we get $19.5 billion from the U.S. taxpayers in 

contracts and we are staying in America. 

Mr. LUTTIG. You have that statement from me today on behalf 

of the Boeing Company, Mr. Chairman. 

The CHAIRMAN. I appreciate that very much. 

Mr. LUTTIG. You are welcome. 

The CHAIRMAN. That is good. We want companies like that to 

stay in America and we want them to build here and not to talk 

about moving things overseas. I appreciate that very much. 

Senator Enzi. 

Senator ENZI. Mr. Chairman, I think he might have been making 

comments on a broader view than whether Boeing would move or 

not. Boeing, I think, is the last of the American airplane companies. We are talking about Chinese companies and French companies now and so I appreciate Boeing being an American company. 

But, you mentioned the taxes that South Carolina is providing 

on this. I am familiar with States trying to attract businesses to 

their State and Wyoming doesn’t have, and I hope everybody listens to this, we don’t have any personal income tax, we hardly 

have any corporate income tax. That makes it harder for us to attract businesses to Wyoming, because we can’t give those concessions that the States that have those can give. And they don’t give 

those concessions unless they anticipate getting the revenue back, 

sometimes in the short-term but always in the long-term. They 

can’t sell their citizens on attracting a business by giving concessions unless they can show how that is going to make a difference 

for their State. This company is going to employ, well I think they 

have 1,000 people working on the building and stuff right now and 

almost 4,000 people that will be there full-time. That is a lot of 

taxes that they are going to collect. I don’t think the State of South 

Carolina really considers that to be a taxpayer expense or the people would not have gone along with it. 

We ought to be concerned about the number of companies looking 

at this case that may or may not move to different States in the 
72 

United States or that may move overseas. We have certainly had 

enough manufacturing jobs go overseas that we ought to be really 

careful to see that we are not encouraging that. 

The CHAIRMAN. I just hope that companies will look at this and 

say, 

‘‘If workers exercise their protected rights and their legal 

rights, that our company should not retaliate against them because that is a covered right by the National Labor Relations 

Act, whether they belong to a union or not. We should retaliate 

against them because that is a covered right by the National 

Labor Relations Act, whether they belong to a union or not it 

doesn’t make any difference.’’ 

That is what I hope comes out of this. 

Senator ENZI. I hope that no company ever threatens retaliation. 

When the coal mines came to Wyoming they were United 

Mineworkers mines, but the employees, it is the employees, not the 

companies, decided that that was not a good idea. I think they are 

still unionized, but they are all local unions, there are no national 

unions there. 

I guess we ought to issue a word of warning to the union bosses 

as well, that they can over reach and cause the detriment to themselves. And that may be part of the reason why we have gone from, 

as Mr. Reich has stated, 31 percent of the people being in unions 

down to, I think in the private sector it is less than 7 percent. We 

can keep debating this if you want to, but I am ready to go. 

[Laughter.] 

The CHAIRMAN. We can keep debating it and any time you want 

to talk about coal mining just let me know. My father was a coal 

miner for over 20 years, before there were unions. You want to talk 

about what life was like for coal miners before there was the 

United Mineworkers Union, talk to me. I will tell you what my dad 

went through and I will tell you what a lot of his coworkers went 

through before there was a union that protected their rights and 

their safety and their health. Talk to me about it some time. I will 

tell you what my dad went through in the 1920s and the 1930s, 

as a coal miner in the State of Iowa. 

With that, thank you all very much. I just would say that this 

committee is going to continue to have hearings on the middle 

class. I think we got a little sidetracked but into a narrow shoot 

today, I didn’t mean for that to happen, but it did. That is all right. 

But we will have other hearings on the middle class, on jobs, on 

the job structure in America, on job training, education, on pay, on 

what is happening to the pay of middle class Americans and how 

my chart showed, why is it that during the tiers of the Great Prosperity that there was an equivalency. The tide raised all boats 

equivalently, 2 point something percent. But in the last 30 years 

the boat has been tipped over and those at the top have gotten 

huge increases, percent increases, a lot of money, but those at the 

bottom have lost. Why real wages today are about where they were 

almost 30 years ago, real wages. 

These are things that this committee should be looking into and 

I intend to continue to have hearings on that broader issue of what 

is happening to the middle class and families and pay in this country. 
73 

Senator ENZI. I would hope we would have some hearings on 

what to do about it rather than— 

The CHAIRMAN. I hope through the hearings that we will generate some thoughts on what to do about it. We heard from Mr. 

Reich, I think he had some suggestions on it and I hope that we 

do come up with some suggestions and I think we might. 

With that, I thank you all for being here. And the record will remain open for 10 days for statements and questions. 

And again, the committee will stand adjourned. Thank you all 

very much. 

[Additional material follows.] 
74 

ADDITIONAL MATERIAL 

RESPONSE TO QUESTIONS OF SENATOR HARKIN BY J. MICHAEL LUTTIG

Question 1. Currently, there is a surge line in Washington State that assembles 

Dreamliner planes. In a newsletter, Boeing stated that ‘‘[t]he 787 surge line is part 

of a detailed plan to transition incrementally from a production rate of two airplanes per month to 10 airplanes per month in 2013. Having this capability will enable the 787 program to mitigate risks as it introduces the 787–9 and starts up final 

assembly in North Charleston, SC. When the second line in South Carolina is up 

and operating, the surge capability in Everett will be phased out.’’ 

Is there airplane production—on the surge line or any other line—that is currently located in Washington that will be transferred if Boeing follows through on 

its decision to locate the second assembly line in South Carolina? 

Answer 1. There is not, currently, a surge line in Washington State that assembles Dreamliner planes. I am also advised that there is no airplane production currently located in Washington that will be transferred when Boeing follows through 

on its decision to locate the second assembly line in South Carolina. 

Question 2. You stated in your testimony before the committee that you did not 

ask any Member of Congress to exert pressure on the NLRB regarding the complaint against Boeing. 

Did you or any other employee or representative of Boeing tell Lafe Solomon or 

any employee of the NLRB that you intended to ask Members of Congress to intervene or attempt to influence NLRB regarding the complaint? Please describe those 

conversations in detail. 

Did any employee or representative of Boeing discuss with a Member of Congress 

the possibility of threatening the NLRB’s budget or threatening the status of a 

pending nominee before Congress to discourage the NLRB from prosecuting Boeing? 

Please describe those conversations in detail. 

Answer 2. See response in next question. 

Question 3. Congressional Republicans have asked the National Labor Relations 

Board to turn over any documents in its possession about the decision to issue a 

complaint against Boeing. 

Did you or any employee or representative of Boeing draft, consult, or in any way 

participate in the drafting of any of these requests? 

Answers 2 and 3. Once Acting General Counsel Lafe Solomon withdrew the settlement offer that he had made to Boeing after the IAM expressed its disapproval of 

that settlement offer, and after Mr. Solomon and his staff informed Boeing that he 

intended to take the unprecedented and legally unsupported action of moving forward with a complaint that he was informed would have the effect of shutting down 

Boeing’s new Dreamliner production line in South Carolina, Boeing reached out to 

many interested stakeholders, including Members of Congress—as I told Mr. Solomon we would. The Acting General Counsel’s action here is contrary to decades of 

established law, and it is entirely appropriate for the Nation’s elected representatives to scrutinize and exercise their oversight authority over a Federal agency when 

it acts outside the bounds of its statutory authority. The complaint filed by the Acting General Counsel, and the remedy it expressly seeks. have significant policy and 

practical consequences. In fact, the mere filing of this complaint has understandably 

caused a national uproar because of what is already its chilling effect on the willingness of businesses to build new factories and expand businesses in both Right-toWork and non-Right-to-Work States alike, and its curtailment of the needed job creation that follows on such business expansion. 

As I mentioned in my testimony, Congress is certainly well within its authority 

to examine an agency action with such profound policy consequences, as it has done 

since the filing of the NLRB’s complaint. That said, how Congress chooses to engage 

the NLRB issue ultimately is a matter only for its Members to decide. 

While I appeared before the committee at the request of its Members, I believe 

firmly that it is my Company’s right—and indeed, its obligation to its employees and 

shareholders—to speak out on this matter, and also to raise its concerns to our Nation’s elected representatives. We will continue to do so, given the profound potential implications of the Acting General Counsel’s action here on my Company, its 

employees, and our shareholders. 

Question 4a. In response to questions about the amount of money Boeing receives 

as a Federal contractor, you testified at the hearing that Boeing is an American 

company and will keep its jobs in the United States. While final assembly of Boeing 
75 

commercial planes takes place in the United States, many of the component parts 

of the Dreamliner are manufactured in other countries. 

What percent of component parts used in manufacturing the 787 Dreamliner will 

be created outside the United States? 

Answer 4a. I have been advised that the domestic content of the 787 Dreamliner 

is roughly 70 percent. 

Question 4b. What percent of the component parts in Boeing commercial aircraft 

were created outside the United States in 1991 versus 2011? 

Answer 4b. I have been advised that in 1991 the average foreign content on all 

Boeing commercial aircraft was 12.3 percent, and in 2010 (the latest available data) 

the average foreign content on all Boeing commercial aircraft was 14.6 percent. 

Question 4c. What percent of the total labor costs for building and assembling the 

Dreamliner are spent in the United States? 

Answer 4c. I have been advised that a majority of the total labor costs for building 

and assembling the Dreamliner is spent in the United States. 

Question 4d. How many U.S. jobs would be created if Boeing only sourced their 

component parts from the United States? 

Answer 4d. Any response on the Company’s part would be speculative. 

Question 4e. What is Boeing’s average total compensation per employee in Washington State and South Carolina? 

Answer 4e. Because both the cost-of-living and the mix of work performed by Boeing employees in Washington State and South Carolina differ in so many ways. it 

is not possible to meaningfully compare their compensation. 

That said, Boeing seeks to provide a competitive total pay and benefits packages 

to employees throughout the country, including employees in Washington State and 

South Carolina. Pay and benefits not only include wages and incentive plans, but 

also include, among other benefits, pension, savings, and healthcare benefits. While 

our compensation information is proprietary, our employees enjoy pay and benefits 

which are extremely competitive and in the upper tier of our peer companies. 

Boeing’s competitive compensation practices are widely recognized throughout the 

industry. Year after year, Boeing receives thousands of applications for positions 

from citizens of all 50 States. 

In addition to base salary, we have a broad-based employee incentive plan, the 

EIP, that paid our BSC employees an additional 14 days of pay for contributing to 

our financial success as a company in 2010 (additional 5.4 percent of annual pay). 

Very few companies have this type of broad-based incentive opportunity. In addition, our health care plans provide outstanding coverage and are in the top quartile 

nationally. Our savings plan, which includes a company match on employee contributions and an additional company contribution, is also in the top quartile of top 

companies nationally. When you look at the various pieces together (base + incentive + health care + retirement), the total value provided to both our Washington 

State and our South Carolina employees is extremely competitive and in the upper 

tier of our peer companies. 

We are proud of our investment in our employees, and in what they are achieving 

to drive Boeing’s success. 

RESPONSE TO QUESTIONS OF SENATOR ENZI BY SECRETARY REICH

Question 1. As an economist, what is your view of the national debt, currently at 

more than $14.3 trillion today, a 35 percent increase since January 2009? Should 

we be concerned about this. 

Answer 1. Over the long term, the debt problem must be addressed. In the shortterm, however, I worry that spending cuts or tax increases could slow the recovery. 

Consumers are reluctant to spend, given the decline in the value of their major 

asset (their homes) and the difficulty of borrowing—and given their fear of job and 

wage loss. Businesses are reluctant to invest in additional capacity or add more jobs 

without enough customers to justify such expenses. The resulting shortfall in aggregate demand is making this recovery painfully slow, and maintaining high levels of 

joblessness. State and local governments are adding to the problem by cutting their 

expenses and/or raising taxes. This is the worst time for the Federal Government 

to cut spending. On the other hand, it’s still a good time for government to borrow, 

since the yield on Treasury bills continues to be 3 percent or below. 
76 

1 Alan Blinder and Mark Zandi. ‘‘How the Great Recession Was Brought to An End.’’ (Washington, DC: Economy.com, 2010), available at http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf. 2 Heather Boushey. ‘‘Accomplishments of the Recovery Act.’’ (Washington, DC: Center for 

American Progress, 2011), available at http://www.americanprogress.org/issues/2011/02/ 

bousheylarra.html. 3 U.S. Congressional Budget Office. ‘‘Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2010 Through December 

2010.’’ (Washington, DC 2011), available at http://www.cbo.gov/ftpdocs/120xx/doc12074/02- 

23-ARRA.pdf. 

Question 2. You stated frustration with the decline in unionization in your opening statement. During the Clinton administration, in which you served, did overall 

unionization rates increase or decrease? 

Answer 2. Unionization increases during the Clinton administration declined— 

continuing a trend that began in the late 1970s. The major reason for declining 

unionization is the necessity for businesses to cut costs in the face of increasing 

competition, both foreign and domestic. But other countries—notably Germany, 

whose economy continues to outpace our own—have maintained much higher rates 

of unionization in the private sector, giving their workers greater bargaining power 

to secure higher wages. Those higher wages, in turn, have contributed to buoyant 

demand. 

Question 3. During your tenure as Secretary of Labor, what steps did the Administration take to encourage unionization? 

Answer 3. We enforced the labor laws, made sure workers knew their rights 

under the law, and encouraged management-labor cooperation toward higher productivity. 

Question 4. Do you support repeal of section 14(b) of the National Labor Relations 

Act? Why or why not? 

Answer 4. I would like to see it repealed. So-called ‘‘Right-to-Work’’ laws have not 

improved labor conditions. Wages in Right-to-Work States are 3.2 percent lower 

than those in non-Right-to-Work States, after controlling for demographic and socioeconomic variables as well as State macroeconomic indicators, according to the Economic Policy Institute (briefing paper February 17, 2011). Using the average wage 

in non-RTW States as the base ($22.11), the average full-time, full-year worker in 

a RTW State earns about $1,500 less annually than a similar worker in a non-RTW 

State. At the same time, the rate of employer-sponsored pensions is 4.8 percent 

lower in RTW States, according to the same study. Nor do Right-to-Work laws boost 

economic growth. After Oklahoma adopted a Right-to-Work law (Oklahoma is the 

only State to have adopted a Right-to-Work law in the past 25 years), there was 

no improvement in employment; the manufacturing sector shrank dramatically, and 

the number of new companies coming into the State fell by one-third in the decade 

following adoption. Indeed, there is reason to believe that ‘‘Right-to-Work’’ laws may 

undermine growth by reducing or restricting consumer demand. 

RESPONSE TO QUESTIONS OF SENATOR ENZI BY HEATHER BOUSHEY

Question 1. Why didn’t the stimulus bill create the lower unemployment rates 

promised by the Administration? 

Answer 1. The stimulus bill did indeed create lower unemployment. Unemployment levels would have been much higher without the Recovery Act. Economists 

Alan Blinder and Mark Zandi have estimated that without the American Recovery 

and Reinvestment Act and other fiscal policies, unemployment would have reached 

over 11 percent, rather than the 10.1 percent it reached in October 2009, and job 

losses would have totaled 12.4 million, rather than 8.8 million.1

The Administration’s unemployment estimates were generated in December 2008 

and by the end of January, before the Recovery Act was signed into law, it was clear 

that the estimate of how deep the Great Recession would be was already too optimistic. Economists were not predicting we would be losing jobs to the tune of 20,000 

per day in January 2009 and this is why the Administration’s estimates were too 

rosy, not because the Recovery Act did not perform as hoped. Basically, their baseline was not as grim as it should have been.2 According to the Congressional Budget 

office, ARRA increased the number of full-time equivalent (FTE) jobs by 1.6 million 

to 4.6 million compared with what would have happened otherwise, including more 

than 571,000 full-time equivalent (FTE) jobs in the first quarter of 2011.3

The Recovery Act included tax cuts equal to about $282 billion, alongside increased funding for infrastructure and energy independence, help for States strug-
77 

4 Boushey, ‘‘Accomplishments of the Recovery Act’’. 

5 U.S. Congressional Budget Office, ‘‘Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2010 Through December 

2010.’’ 6 Bureau of Labor Statistics. ‘‘Preliminary Multifactor Productivity Trends, 2010.’’ (Washington, DC: Bureau of Labor Statistics, 2011), available at http://www.bls.gov/news.release/ 

prod3.nr0.htm. 7Lawrence Mishel, Jared Bernstein, and Heidi Shierholz, The State of Working America 2008– 

9. (Ithaca, NY: Cornell University Press. 2009). 

8 Ibid. 

gling with falling revenues, and aid to those hardest hit by unemployment.4 Together, as the new law was implemented, it saved and created millions of privatesector jobs, averted an even worse economic crisis for working families, and helped 

avert an even bigger Federal budget deficit by growing the economy.5

Question 2. Looking at Bureau of Labor Statistics data from 1995 to 2007, how 

much did U.S. businesses increase their capital services input vs. labor hours? 

Answer 2. U.S. private nonfarm businesses increased their capital services by 6.0 

percent and their labor hours by 2.2 percent from 1995 to 2000, and further increased their capital services by 3.2 percent and their labor hours by 0.1 percent 

between 2000 and 2007.6

Question 3. What role has the impact of technology on productivity growth and 

the increasing use of capital compared to the contribution of labor played in compensation trends? 

Answer 3. Over the past few years, we have seen an increasing divergence between productivity and wages as productivity is increasing steadily while wages remain stagnant. This indicates that workers are not realizing the gains of productivity and that corporations are instead spending increasing amounts on things 

other than increases in their workers’ wages.7

Question 4. Since 1985, have the average annual work hours for lower wage workers fallen more or less than those for higher-paid workers? 

Answer 4. Since 1985, the average hours of work for the quintile of workers earning the least have grown from 2,343 to 2,465, or by 5.2 percent. In the same time, 

the average annual hours of work for workers in the top quintile of earners have 

grown from 3,612 to 3,765, or by 4.2 percent.8

RESPONSE TO QUESTIONS OF SENATOR BLUMENTHAL BY SECRETARY REICH, HEATHER

BOUSHEY AND SARAH FOX

Question 1. Secretary Reich, Ms. Boushey and Ms. Fox: As you each mentioned in your testimony, the growth of middle class was, in large part, due to the 

growth of the unions. I am deeply concerned by the Federal Government either looking the other way with regard to labor laws, or enabling businesses to deprive many 

employees of their right to join a union or receive labor protections. Certainly, 

misclassification of workers is one practice that deprives workers of the wages and 

benefits that they deserve. As Attorney General, I investigated businesses in Connecticut that misclassified their workers as independent contractors rather than employees. I am pleased to join Senators Sherrod Brown and Harkin in their effort to 

pass the Payroll Fraud Prevention Act that would limit the misclassification of 

workers. This practice, however, is far too prevalent. 

Can you discuss how misclassification of workers has shifted more power to the 

employer? How has this impacted employees’ ability to advocate for fair treatment, 

adequate pay and reasonable benefits? 

Answer 1. Misclassification of workers is a significant and, in my view, growing 

problem that has shifted power to employers and undermined employee protections. 

Too many employers have taken advantage of unintended loopholes in labor laws, 

or of structural changes in the economy, to classify people as independent contractors or supervisors exempt from labor law protections, when in fact they are employees who the laws were designed to protect. These misclassifications make it far more 

difficult for employees to form unions and otherwise join with other employees to 

ensure that labor laws are being enforced. And they reduce employees’ ability to advocate for fair treatment, adequate pay, and reasonable benefits. 

Question 2. Secretary Reich: We have seen far too often that workers need 

unions to fairly negotiate with businesses. I believe that this should be a right of 

all workers. I am deeply concerned by the National Labor Relations Board’s decisions in October 2006, referred to as the Kentucky Rivers decisions. In 1935, the 
78 

1 James M. Bickley. ‘‘Tax Gap: Misclassification of Employees as Independent Contractors.’’ 

(Washington, DC: Congressional Research Service, 2011), available at http://www.workforce 

atm.org/sections/pdf/2011/TaxGapMisclassificationofEmployeesasIndependentContractors.pdf? 

CFID=1779052&CFTOKEN=42387785. 2 Ibid. 

National Labor Relations Act defined a supervisor as a person who has the authority to ‘‘hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward or 

discipline other employees, or responsibility to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing 

the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.’’ Expanding that definition unfairly denies 

many employees the right to organize. 

Can you discuss how these decisions and possibly other laws, regulations or rules 

have lessened the power of unions? What impact has this had on the middle class? 

Answer 2. Expanding the definition of ‘‘supervisor’’ beyond the plain meaning and 

intent of the National Labor Relations Act, as did the NLRB’s the Kentucky Rivers 

decisions of 2006, robs employees of the right to organize that is the bedrock of that 

Act. This—alongside inadequate penalties on employers who violate employees’ 

rights by intimidating or firing them for attempting to organize unions, and employer threats to retaliate against striking workers by permanently replacing 

them—have severely undermined the power of unions. In my view, all three should 

be rectified: Congress should negate the NLRB’s Kentucky Rivers decisions and return to the meaning of ‘‘supervisor’’ contained in the Act; Congress should increase 

penalties on employers who intimidate or fire workers who attempt to organize 

unions; and Congress should bar employers from threatening to retaliate against 

striking workers by permanently replacing them. 

RESPONSE TO QUESTION OF SENATOR BLUMENTHAL BY HEATHER BOUSHEY

Question 1. Can you discuss how misclassification of workers has shifted more 

power to the employer? How has this impacted employees’ ability to advocate for 

fair treatment, adequate pay and reasonable benefits? 

Answer 1. Misclassification of workers (treating them as independent contractors 

when they are in fact employees) disadvantages the employee in several ways. First 

and perhaps most importantly, misclassification allows employers to deny key worker protections and benefits to their employees such as unemployment insurance 

(UI), worker’s compensation, social security benefits, temporary disability, and minimum wage and overtime protections.1 This shifts power to the employer because 

it strips the employee of access to income security and wage-related protections, 

forcing them in many cases to accept a position without benefits at a sub minimum 

wage rate, and subjecting them to abusive overtime practices. 

Because of the increasing prevalence of worker misclassification as an illegal cost 

reduction tactic, employees in organizations that employ this tactic find themselves 

extremely disadvantaged in attempting to negotiate for increased pay, reasonable 

benefits, and fair treatment.2 When classified as an independent contractor, an employee who attempts to negotiate for any of these runs the risk of termination in 

a depressed job market. Because independent contractors receive none of the traditional employment protections, many workers are forced to choose silence or risk 

losing their job. 

[Whereupon, at 12:11 p.m., the hearing was adjourned.] 

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