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73–267 2012

S. HRG. 112–376 

BOLSTERING THE ECONOMY: HELPING AMERICAN 

FAMILIES BY REAUTHORIZING THE PAYROLL 

TAX CUT AND UI BENEFITS 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 7, 2012 

Printed for the use of the Joint Economic Committee 

( 

(II) 

JOINT ECONOMIC COMMITTEE 

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

SENATE 

ROBERT P. CASEY, JR., Pennsylvania, 

Chairman 

JEFF BINGAMAN, New Mexico 

AMY KLOBUCHAR, Minnesota 

JIM WEBB, Virginia 

MARK R. WARNER, Virginia 

BERNARD SANDERS, Vermont 

JIM DEMINT, South Carolina 

DANIEL COATS, Indiana 

MIKE LEE, Utah 

PAT TOOMEY, Pennsylvania 

HOUSE OF REPRESENTATIVES 

KEVIN BRADY, Texas, Vice Chairman 

MICHAEL C. BURGESS, M.D., Texas 

JOHN CAMPBELL, California 

SEAN P. DUFFY, Wisconsin 

JUSTIN AMASH, Michigan 

MICK MULVANEY, South Carolina 

MAURICE D. HINCHEY, New York 

CAROLYN B. MALONEY, New York 

LORETTA SANCHEZ, California 

ELIJAH E. CUMMINGS, Maryland 

WILLIAM E. HANSEN, Executive Director 

ROBERT P. O’QUINN, Republican Staff Director 

(III) 

C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Robert P. Casey, Jr., Chairman, a U.S. Senator from Pennsylvania ......... 1 

Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas .............. 12 

WITNESSES

Mark M. Zandi, Ph.D., Chief Economist, Moody’s Analytics, Philadelphia, 

PA .......................................................................................................................... 4 

Hon. Mark W. Everson, Commissioner of the Department of Workforce Development, State of Indiana, Indianapolis, IN ....................................................... 5 

Mr. James Sherk, Senior Policy Analyst, The Heritage Foundation, Washington, DC ............................................................................................................. 8 

Ms. Judith M. Conti, Federal Advocacy Coordinator, National Employment 

Law Project, Washington, DC ............................................................................. 10 

SUBMISSIONS FOR THE RECORD

Prepared statement of Dr. Mark M. Zandi ............................................................ 34 

Prepared statement of Hon. Mark W. Everson ..................................................... 47 

Prepared statement of Mr. James Sherk ............................................................... 54 

Prepared statement of Ms. Judith M. Conti .......................................................... 64 

Chart submitted by Vice Chairman Brady titled ‘‘Social Security’s Cash Flow 

Deficits’’ ................................................................................................................. 84 

Prepared statement of Vice Chairman Kevin Brady ............................................ 85 

(1) 

BOLSTERING THE ECONOMY: HELPING AMERICAN FAMILIES BY REAUTHORIZING THE 

PAYROLL TAX CUT AND UI BENEFITS 

TUESDAY, FEBRUARY 7, 2012 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The committee met, pursuant to call, at 2:34 p.m. in Room 216 

of the Hart Senate Office Building, the Honorable Robert P. Casey, 

Jr., Chairman, presiding. 

Senators present: Casey, Klobuchar, and Lee 

Representatives present: Brady, Duffy, Mulvaney, and 

Maloney. 

Staff present: Gail Cohen, Will Hansen, Colleen Healy, Jesse 

Hervitz, Patrick Miller, Robert O’Quinn, Steve Robinson, and Jeff 

Schlagenhauf. 

OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., 

CHAIRMAN, A U.S. SENATOR FROM PENNSYLVANIA 

Chairman Casey. The hearing will come to order. We will get 

started. I know some are delayed by votes, but we will get started. 

I want to thank the witnesses for being here at this busy time. 

I will do my opening, and then we will turn to our witnesses. Vice 

Chairman Brady, after he’s voted, will be able to do his opening 

when he gets here. But we know that the House is voting as we 

speak. 

But thanks very much. Today’s hearing on the Payroll Tax Cut 

and Unemployment Insurance is indeed timely. I believe it can be 

helpful for Members of Congress on both sides of the aisle who are 

wrestling with how to continue these two programs through the remainder of 2012; it is good that we have a hearing like this in the 

midst of those discussions and debates and deliberations. 

Like our Vice Chairman, Congressman Brady, I am a member of 

the Payroll Tax Cut Conference Committee, and we are making 

progress. It is slow, but we are making progress. 

While the Conference Committee is immersed in the details of 

how to pay for Unemployment Insurance and the Payroll Tax Cut 

through the remainder of this year, today’s hearing can shed additional light on the impact both programs have on the economy. 

By reaching an agreement to cut payroll taxes for the remainder 

of 2012 and continue Unemployment Insurance for workers who 

have been out of work for more than six months, we can help 

2 

Americans regain their economic footing, create jobs, and bolster 

the recovery. 

While the economy has made good progress, adding more than 

100,000 jobs in each of the last five months, we still have a long 

way to go to dig out from the Great Recession and the weak job 

growth that preceded it in the previous decade, the so-called 

‘‘2000s’’. 

The Democratic staff here at the Joint Economic Committee recently prepared a report that highlights how continuing the Payroll 

Tax Cut and Unemployment Insurance Benefits will boost consumer demand and strengthen the economy. 

Both policies put money into the hands of consumers, money in 

their pockets so to speak, that they can spend. Unemployment insurance goes to workers struggling to make ends meet while they 

search for new jobs. Through the Payroll Tax Cut, over half of the 

increase in take-home pay in 2011 went to families making less 

than $100,000, and 86 percent of the increase in take-home pay 

went to families making less than $200,000. 

The boost to paychecks has been critical to helping workers who 

have been coping with weak wage growth, which has failed to keep 

pace with the cost of living since early 2010. 

This same Joint Economic Committee report that I referred to 

provides an analysis of the impact—or I should say, the economic 

impact of failing to continue Unemployment Insurance and the 

Payroll Tax Cut for the remainder of the year. 

This particular Report estimates that failing to reauthorize Unemployment Insurance Benefits and the Payroll Tax Cut for the remainder of this year would reduce GDP growth by 1.7 percentage 

points in calendar year 2012. That is a very big hit when you consider real GDP is expected to grow by just 2.2 percent in 2012, according to the Blue Chip Consensus. We cannot afford to jeopardize 

the modest economic growth that is currently forecasted. 

Last week, the Joint Economic Committee released a second report detailing on a county-by-county basis the impact of extending 

the Payroll Tax Cut. The report specifies the additional take-home 

pay that a worker would receive in each county in the country, if 

Congress were to reauthorize the cut for the remaining 10 months 

of the year. 

We know that this data will be helpful in states and by county. 

The Employment Report that was released on Friday showed that 

the economy added more than 250,000 private-sector jobs in January. The unemployment rate dipped for the fifth consecutive month 

to 8.3 percent. This is both welcome and encouraging news. 

But—and this is a big ‘‘but’’—with the economic growth forecasted to be slow in the first half of the year, we cannot be complacent, or take our eye off the ball. As I said at the outset, this hearing is timely. We have just three weeks before the two-month reauthorization of both Payroll and Unemployment Insurance expires, 

three weeks to come together on a bipartisan manner to continue 

these very important programs to help families and to strengthen 

the economy. 

So I look forward to listening to each of our witnesses, and to a 

good discussion of these topics. 

3 

I will first provide just a brief introduction of our witnesses. Moving from my left to your right, Dr. Mark Zandi is the Chief Economist of Moody’s Analytics, where he directs the company’s research 

and consulting services to business, governments, and other institutions. Dr. Zandi’s research includes macro-economic, financial, 

and regional economics. In addition, he conducts regular briefings 

on the economy. He received his Ph.D. at the University of Pennsylvania. 

I’ll just stop there and pause for a moment. 

[Laughter.] 

He received his BS Degree from the Wharton School at the same 

University of Pennsylvania. So, Dr. Zandi, welcome, and welcome 

back. 

The Honorable Mark W. Everson—— 

Mr. Everson. ‘‘E-’’verson. 

Chairman Casey. Oh, I’m sorry, ‘‘Ee-verson’’. I’m sorry for mispronouncing that. 

Let me start again. The Honorable Mark W. Everson became 

Commissioner of the Indiana Department of Workforce Development, or DWD, on June 1st, 2010, and is a member of the cabinet 

of Governor Mitch Daniels. 

The DWD manages and implements training and employment 

programs for Hoosiers, unemployment insurance systems, facilitates regional economic growth issues for the State of Indiana. Mr. 

Everson has extensive Federal Government and private sector experience, including service as an IRS Commissioner and president 

and CEO of the American Red Cross. He has held operating and 

financial posts with major companies in the United States and 

abroad. 

Thank you, sir, for being here. 

Mr. James Sherk is Senior Policy Analyst in Labor Economics at 

the Heritage Foundation. Mr. Sherk has written on the dynamics 

of rising unemployment in the recession, the economic consequences of extending Unemployment Benefits, Cardcheck, and 

other labor policy issues. He joined the Heritage Foundation in 

2006 after completing Master of Arts at the University of Rochester, where he concentrated in econometrics and labor economics. 

Mr. Sherk, thank you for being here. 

Mrs. Judy Conti—Ms. Judy Conti, I should say, is the Federal 

Advocacy Coordinator for the National Employment Law Project, 

so-called NELP. We all have acronyms around here; we should use 

them where we can. Judy joined NELP in 2007 after spending 

seven years as co-founder and executive director of the D.C. Employment Justice Center, a legal service provider devoted to workplace justice in the D.C. Metropolitan Area. Before joining NELP, 

Judy’s work has been widely recognized with awards from the 

American Bar Association, the Washington Area Women’s Foundation, the Hispanic Bar Association of the District of Columbia, and 

the Echoing Green Foundation. Ms. Conti has a J.D. from the College of William & Mary. 

So those are the biographical sketches, and we will start with Dr. 

Zandi. 

4 

STATEMENT OF DR. MARK M. ZANDI, CHIEF ECONOMIST, 

MOODY’S ANALYTICS, PHILADELPHIA, PA 

Dr. Zandi. Thank you, Senator. 

I want to thank you and other members of the Committee for the 

opportunity to speak today. The views I express are my own and 

not those of the Moody’s Corporation. 

I am going to make five points in my remarks. 

Point number one is that the economy is much improved, and fiscal policy has contributed significantly to that improvement. The 

improvement is most evident in the job market. As you pointed out, 

we saw payrolls grow almost a quarter of a million in January; 2 

million payroll jobs have been created over the past year through 

January. 

The job gains are increasingly broad-based across industries and 

regions of the country. Hours worked has improved. Hours worked 

in manufacturing were as high as they have been since the 1990s. 

Unemployment has declined significantly—almost a percentage 

point—over the past year. That is due to the stronger job growth, 

not due to weaker labor force growth, which is encouraging. 

I do think fiscal policy has contributed significantly to this improvement. There are many things that you and other Congressmen and the Administration have done. I would just like to point 

out, though, that last year’s Payroll Tax holiday and Emergency UI 

Programs were very instrumental in keeping the economy together. 

I would argue that without the benefit of those programs last 

year the economy would likely have fallen back into Recession; that 

the surge in gasoline, food, apparel prices was a significant hit to 

the economy and the help from Emergency UI and from the Payroll 

Tax helped fill the void. That was very significant. 

The second point that I would like to make is that the economy, 

while much improved, is still very fragile, as you pointed out. 

Growth is still less than we would hope for, and there are significant threats to the recovery. 

The European sovereign debt crisis remains a very significant 

threat, and the European economy is in recession, and the financial 

system there is still in turmoil. 

The housing crisis here in the United States is also a very significant program. The foreclosure crisis continues on and we are 

still suffering house-price declines. As long as house prices are falling, it is hard to get entirely enthusiastic about the economy’s prospects. The home is still the most important asset that most people 

own. It is key to small businesses that use their home as collateral 

for getting a loan. Of course local governments rely on property tax 

revenue. 

Judging from surveys of consumers and businesses, the collective 

psyche is still very fragile. So if anything else goes wrong, I think 

the recovery could easily be derailed. We cannot conclude that we 

are off and running here. 

This leads me to the third point. I do think it is vital that you 

extend the current Payroll Tax Holiday and the Emergency UI Program through the end of the year. This is important to the recovery, keeping it together. 

It is a lot of money to American households. By my calculation, it’s almost $150 million in total, which is about 1 percent of GDP. 

5 

Based on my work, if the programs are not extended, GDP growth 

in 2012 will be seven-tenths of a percent lower this year than otherwise would be the case. We would lose roughly a half-million jobs 

compared to what we would have gotten otherwise if we extend 

them. Unemployment would be measurably higher. 

So in my view, it is very important. The Payroll Tax Holiday is 

particularly important because it is big. It’s about a little over $100 

billion of the $150 billion, and evidence from other similar kinds 

of tax cuts indicate that roughly two-thirds of any tax cut will be 

spent within six months. So this is very important to spending and 

keeping the economy going in the near-term. 

The UI is also very important. It is much smaller in cost, but the 

bang-for-the-buck is very large. Unemployed workers will use the 

benefits quickly to spend. 

There are disincentive effects. I do think there is evidence to suggest that some people will stay out of the workforce, out of work 

longer because of the UI benefits; but those negative disincentive 

effects are swamped by the benefits of the UI Program in terms of 

its benefit to aggregate demand. 

Fourth, I think reforming UI is very important, but I also think 

it is important not to restrict UI. My favorite reforms would be 

work/share, wage-subsidy programs. I think they hold out a lot of 

potential benefit. But restrictions on UI, such as some of the discussion regarding the need for a high school diploma, drug testing, 

I think is unnecessary and counterproductive in the current context. 

Finally, my fifth point, I think this should be paid for. I think 

we are now at a point where we can’t do this without paying for 

it in the long run. I will point out, though, that there is a lot of 

fiscal restraint coming in current law in 2013. So any pay-for 

should be accounted for over a longer period of time. I don’t think 

you want to pile on in terms of the pay-fors in 2013. The economy 

will already have a lot to digest. 

Thank you. 

[The prepared statement of Dr. Mark M. Zandi appears in the 

Submissions for the Record on page 34.] 

Chairman Casey. Thank you. Commissioner Everson. 

STATEMENT OF THE HONORABLE MARK W. EVERSON, COMMISSIONER OF THE DEPARTMENT OF WORKFORCE DEVELOPMENT, STATE OF INDIANA, INDIANAPOLIS, INDIANA 

Mr. Everson. Mr. Chairman, Senator, Congressman: 

The Federal-State Unemployment Insurance partnership is an 

important, proven system which has successfully served the Nation 

for more than seven decades. Over time, the system has adapted 

well to changes in the American economy and the evolution of the 

Nation’s workforce. 

Nevertheless, the system has been severely strained by the recent Recession. It can weather the storm, but states require flexibility on the part of the Federal Government to do so. States can 

also be laboratories for policy changes that can improve the program and help the Nation’s workforce meet the challenges of the 

21st Century. 

6 

Last week, 138,000 individuals collected some form of Unemployment Insurance Benefits in Indiana, comprising 74,000 who drew 

state benefits, and 64,000 whose benefits were paid 100 percent by 

the Federal Government. 

Similar to other states, Indiana has a significant number of people who unfortunately have been unemployed for over a year. I 

would note, however, that our state initial and continued claims 

have now returned to 2007 levels. So that is good news. As you are no doubt aware, 27 States have borrowed over $38 

billion to continue funding the state portion of Unemployment Insurance Benefits. You can see there is a map in the testimony on 

page 3. The States with the highest indebtedness per worker are 

Indiana, Nevada, North Carolina, California, and Pennsylvania, 

Mr. Chairman. 

At the start of the last decade, Indiana’s trust fund had a $1.6 

billion surplus. In 2001, the State Legislature enacted a series of 

benefit increases implemented in steps over much of the past decade and provided limited premium relief to employers. 

These legislative changes created a continuing structural imbalance. In Indiana, our trust fund coffers were empty by late 2008, 

just as the collapse began. At the end of 2010, the trust fund owed 

the Federal Government $1.96 billion. 

The Unemployment Insurance Program has three overall design 

elements: Revenues, the premiums paid by employers into the system; eligibility—that is, who is entitled to receive benefits; and 

benefit levels—that is, the method of calculating how much an unemployed individual receives each week, and for how long. 

In early 2011, Indiana’s Legislature enacted balanced, comprehensive reform addressing all three elements. Although the 

trust fund got into trouble mostly due to an increase in benefits, 

over two-thirds of the cost of this solution is being borne by employers. 

Premiums increased—and the total aggregate cost for employers 

between the premiums and the interest surcharge, and the FUTA 

reclaim went up by 60 percent from 2010 to 2011. 

The most notable change in eligibility standards in Indiana’s reform package addressed repeat users of the system who plan and 

conduct regular shutdowns of their operations. 

Prior to the 2011 reform package, Unemployment Insurance Benefit amounts in Indiana—as in many states—were calculated based 

only on the highest quarter of a worker’s earnings. This method of 

calculation often yielded different benefit amounts for individuals 

who had earned the same wages over the course of the year. 

To provide an example: Under current law, last month my department received a WARN notice of the closure of a K–Mart in 

Portage, Indiana. Over 200 people would lose their jobs. Assume 

that one of the workers has earned $500 a week. That is $26,000 

a year. Under current law, that individual will receive $280 a week 

in benefits. 

Take a construction worker earning the same $26,000 but only 

working 9 months. That individual receives $367, much more because of the high quarter calculation. To address this inequity, the 

legislature determined that the future benefit amounts should be 

calculated based on annual earnings. 

7 

Thus far, our reform package is working as intended. The trust fund balance, as I indicated, was $1.96 billion at the end of 2010 

and held steady in 2011. That is also a chart in your packet. You 

can see it goes flat. 

Now most of that, or the big piece of that is a reduction in the 

benefits, because as was indicated the economy is better, but the 

increase in the premiums also significantly contributed. 

My last section: The Federal non-reduction rule was initially established in 2009 to prevent states from offsetting through benefit 

reductions a $25 supplemental payment paid for with federal 

funds. The $25 supplement has been discontinued, but for the first 

time—in early 2010—the Federal Government required the non-reduction rule be tied to Federal Extended Unemployment Benefits. 

This is a departure from the past when Federal extensions of benefits were provided in periods of high unemployment but there was 

no such rule. 

When Indiana enacted its reform package, the new benefit calculation was purposefully delayed until July 1, 2012, in order to 

take effect after the expiration of the Federal extensions. While the 

non-reduction rule was eliminated from the House version of the 

most current Federal extensions, it was retained in the recent twomonth law. We urge you to eliminate it from any further extension 

of this program. 

There are currently three other states that may be implicated by 

the non-reduction rule, along with Indiana: Rhode Island, Arkansas, and Pennsylvania. 

Other states have addressed trust fund insolvency by avoiding 

the non-reduction rule but decreasing the number of weeks of Unemployment Insurance compensation available to individuals. Several have reduced the duration of benefits from 26 weeks to 20. 

If the non-reduction rule remains in place, more states will likely 

shorten the number of weeks of Unemployment Insurance Benefits, 

and in fact they may be reluctant in the future to increase benefits 

at all for fear that if there are more Federal extensions in bad 

times they can’t bring them down. 

The recently enacted non-reduction rule has significantly altered 

the long-standing Federal-State balance of the program. States 

should retain the flexibility to determine the most appropriate Unemployment Insurance Benefits program and the method of addressing the insolvency of their trust funds. 

I would note that the National Association of State Workforce 

Agencies called for the elimination of the non-reduction rule in its 

last annual conference in September. 

In Indiana, we value our partnership with the Federal Government in operating the Unemployment Insurance System. We believe we have put our program on a healthy and sustainable path. 

I commend Congress for looking at avenues of reform, such as work 

search and training requirements. However, as with the non-reduction rule, I ask you to provide states the flexibility to provide appropriate overall program design best suited for their circumstances. 

Thank you. 

[The prepared statement of Hon. Mark W. Everson appears in 

the Submissions for the Record on page 47.] 

8 

Chairman Casey. Thanks, Commissioner. Mr. Sherk. 

STATEMENT OF MR. JAMES SHERK, SENIOR POLICY ANALYST 

IN LABOR ECONOMICS, THE HERITAGE FOUNDATION, WASHINGTON, D.C. 

Mr. Sherk. Chairman Casey, Vice Chairman Brady, and members of the Joint Economic Committee: 

Thank you for inviting me to testify this afternoon. My name is 

James Sherk. I am a Senior Policy Analyst in Labor Economics at 

the Heritage Foundation. However, the views I express in this testimony are my own and should not be construed as an official Heritage position. 

This afternoon I want to explain to you that, while the Unemployment Insurance System should be changed in a recession, 

spending more on UI benefits does not bolster the economy. 

There are three factors for Congress to consider about extended 

Unemployment Insurance. 

The first factor is that increasing the duration of benefits in a 

recession does make sense, but these increases should be proportionate to the state of the economy. Unemployment Insurance insures workers against the risk of losing their job. Since it takes 

longer to find new work in a recession, it takes longer benefits to 

provide the same degree of insurance. 

The question is: How much longer? Additional benefits help 

workers in a difficult situation, but they also cause UI claimants 

to stay unemployed longer. This fact is one of the most conclusively 

established findings in all of labor economics. 

Unemployment Insurance encourages the unemployed to search 

for the jobs they want to find, rather than the jobs they are most 

likely to find. Alan Krueger, Chairman of the President’s Council 

of Economic Advisors, finds that unemployed workers tripled their 

time job-hunting when their benefits were about to run out. 

Researchers at the Federal Reserve Banks of San Francisco and 

Chicago found that extending Unemployment Benefits to 99 weeks 

has increased the unemployment rate by about half a percentage 

point. Extended benefits are not the main reason unemployment 

remains high, but they are economically significant. And even in 

today’s job market, 99 weeks of benefits is excessive. 

In a normal economy, Unemployment Insurance’s six months of 

coverage provides benefits for about 50 percent more than the average spell of unemployment. Now in the current down economy, the 

average length of unemployment has risen to 40 weeks. Extending 

benefits to 60 weeks would thus proportionately increase benefits 

in accordance with the state of the weak economy. 

But especially in light of recent improvements in the labor market, benefits should be brought down from the level of 99 weeks. 

The second factor Congress should consider is that Unemployment Insurance benefits do not stimulate the economy. Benefits 

should only be extended if the humanitarian arguments for doing 

so justify it. 

Over the past four years, the federal and state governments have 

increased Unemployment Insurance spending by $300 billion. Congress has repeatedly heard testimony that this increased spending 

9 

will bolster the economy. Instead, Americans have suffered through 

the slowest recovery of the post-War era. 

This should have not come as a surprise. Empirical studies find 

that government spending does not spur private-sector growth. Empirical research into UI spending in individual states also finds it 

has negligible economic effects. And international evidence reinforces this conclusion. 

If Unemployment Insurance spending stimulates the economy, 

then unemployment would not rise as fast in countries that have 

more generous systems. The automatic stimulus from the more 

generous benefits would cushion the shock of any recession. Instead, the opposite happens. 

Unemployment rises faster in countries with more extensive benefits. The disincentive effects of Unemployment Insurance overwhelm any stimulus they provide. And this may be why few policymakers in other developed countries argue that UI spending stimulates demand and employment. This is a uniquely American debate. 

Now this does not mean, and I am not arguing, that benefits 

should drop back to six months. What it means is that extending 

benefits are not an economic free lunch, and they come at a cost. 

If extended benefits are a priority, they should be paid for by reducing spending on less important programs that are less of a priority. 

The third factor is that Unemployment Insurance needs reforms 

that go far beyond changing the number of weeks of benefits. The 

UI system largely focuses on distributing benefits to covered individuals. It places little emphasis on returning the unemployed to 

work, the primary policy goal. 

Unemployment Insurance also needs more safeguards against 

abuse. In most states, claimants apply either online or by calling 

an automated hotline. They attest to their job search by clicking a 

box or pressing a button. Now this reduces administrative costs, 

but it also enables individuals to collect checks without trying to 

find work. 

The vast majority of UI recipients try hard to find work, but 

some do not. Experiments in Maryland found that stronger job 

search requirements reduced UI claims by 5 to 8 percent. Reducing 

Federal UI spending by a similar amount would save about $2 billion. 

The UI system should be reformed to address these problems. 

The Federal Extended Benefits Program should have job-search requirements, which are not currently in place. State law requires it, 

but the extended benefits do not require job-search. 

The states should also be given freedom to innovate, to try different reforms to get the unemployed back to work faster. Now 

some of the ideas would be those that Mr. Zandi has suggested that 

I am somewhat skeptical of—things like work sharing, or wage 

subsidies. 

There are other ideas that different states might try like intensive job search assistance, or requiring more training as a condition 

of receiving benefits, or even getting an associates degree online, 

which state could do at relatively low marginal cost. 

10 

We don’t know in advance which of these systems would work. 

The federal government should allow the states to innovate. Give 

the states waivers from the Federal requirements to let them try 

new approaches, but require them to demonstrate that any innovation they’re doing is actually succeeding. 

That was how welfare reform happened in the 1990s, because the 

waivers for individual states demonstrated successful policy solutions. By 1996 there was a bipartisan consensus, and overwhelming bipartisan majorities in both Houses that passed welfare 

reform, and President Clinton signed it. And it has been one of the 

greatest public policy successes of the past several decades. 

This is a model we should look to for improving Unemployment 

Insurance. Thank you for inviting me to testify. 

[The prepared statement of Mr. James Sherk appears in the Submissions for the Record on page 54.] 

Chairman Casey. Thanks very much. Ms. Conti. 

STATEMENT OF MS. JUDITH M. CONTI, FEDERAL ADVOCACY 

COORDINATOR, NATIONAL EMPLOYMENT LAW PROJECT, 

WASHINGTON, DC 

Ms. Conti. Thank you, Senator Casey, Congressman Brady. I appreciate the opportunity to come here today. 

The National Employment Law Project is a nonprofit organization that advocates on behalf of low-income and unemployed workers. We work to maintain strong federal and state programs of Unemployment Insurance that are providing an essential lifeline of 

support for individuals who, through no fault of their own, have 

lost a job. 

As we have discussed, the economy is improving—and that is a 

good thing—but unemployment still remains unacceptably high, 

and long-term unemployment, more than six months, remains dangerously high. And we cannot lose sight of that. 

Therefore, it is crucial for Congress to maintain the robust support that it has provided for the unemployed over the past three 

years, and to refrain from enacting unnecessary and harmful barriers to benefits that would impair the economic functions of the UI 

safety net now and in the future. 

Presently, 42.9 percent of those who are unemployed, nearly 6 

million, have been out of work for over 6 months. Average durations of unemployment in November reached a record high of almost 41 weeks; and they have only come down slightly, registering 

40.1 weeks in our latest work—jobs statement. 

UI Benefits are an essential lifeline for the unemployed Americans. The average UI Benefit is only $296 per week, and this represents about 50 percent of the income needed to cover the most 

basic necessities of food, housing, and transportation as measured 

by the Annual Consumer Expenditure Survey. 

While the average family spends about $1,380 per month on 

housing alone, the average monthly UI Benefit is $100 less than 

that. Put simply, today’s unemployed workers are not living the 

high life. Yet these benefits, modest as they are, have gone a long 

way to prevent economic hardship for millions of families since the 

Recession began. 

11 

In 2010 alone, according to recent Census figures, UI kept 3.2 

million Americans out of poverty, over 1 million of whom were children. Equally important, UI plays an important and positive role 

in the overall economy and broader labor market. 

Over the years, several exhaustive studies have documented the 

countercyclical impact of Unemployment Insurance, lifting up an 

economy that’s been beaten down by a Recession. The most recent 

such study, authored by Wayne Vroman of the Urban Institute, reviewed the role of UI Benefits in this particular economic downturn 

and Recession and found that the Nation’s economy grew by $2 for 

every $1 spent on Unemployment Insurance during the latest Recession. 

Time and time again, the nonpartisan Congressional Budget Office rates UI Benefits as among the most impactful economic stimuli possible. 

And contrary to claims that receipts of UI Benefits serves as a 

substantial significant disincentive to work—and these claims are 

often based on dates studies of the impact of UI during non-recessionary periods—recent research by Professor Jesse Rothstein of 

the University of California at Berkeley, roundly refutes that assertion. 

Rothstein’s work is a careful study of the effects of UI extension 

on the job searches in this Recession. Although he finds a .3 percentage point increase in the December 2010 unemployment rate, 

he also found that at least half of this increase is due to the fact 

that receipt of UI Benefits keeps workers in the labor force. It 

keeps them searching for jobs, rather than dropping out and becoming discouraged workers. 

And just two weeks ago, the Federal Reserve Bank of San Francisco put out a report concluding that weak labor demand is the big 

driver of increases in the length of time that workers are unemployed, not UI Benefits. 

Finally, a recent survey and report from the Heldrich Center for 

Workforce Development at Rutgers University of workers who had 

lost their job during the Recession showed that unemployed workers who received UI were more likely to have been proactive in 

seeking work than those who didn’t receive UI, with beneficiary recipients reporting more hours devoted to job search, more frequency contacting friends and examining job postings. 

As a final matter, I note that there are many proposals in H.R. 

3630, the bill in the House of Representatives that is the subject 

of the Conference Committee that Mr. Brady and Mr. Casey both 

serve on. Many of these proposals represent unnecessary and punitive barriers to benefits that should not be rushed into law in the 

context of a Conference Committee negotiation over a much larger 

bill. 

There is a full discussion of these proposals in my written testimony, including NELP’s arguments as to why we need to retain 

the non-reduction rule, and I am happy to answer questions about 

that during the question and answer period. 

If we do want to have a serious conversation about how to help 

reattach people to the workforce, there are actually many tried and 

true programs that we could better fund or enact, such as work 

sharing, or enhancing the high quality reemployment services that 

12 

are already offered by all state agencies with only modest Federal 

funding right now. 

If Congress is serious about aiding re-employment, these are the 

ideas to consider, not ill-advised proposals that do nothing but 

serve as barriers to benefits, or as ways for states to raid already 

stretched UI trust funds and use that money for unproven programs, rather than paying benefits that workers have earned. 

It is inconsistent with American values and bad for the American 

economy to penalize those who have suffered most as victims of the 

Great Recession by denying or reducing their UI benefits, or to demonize them through unnecessary and stigmatizing barriers to 

participation in the program. 

Instead, Congress should reauthorize the Federal UI programs 

immediately, and without reductions or barriers to benefits. 

Thank you very much for your time. 

[The prepared statement of Ms. Judith M. Conti appears in the 

Submissions for the Record on page 64.] 

Chairman Casey. Thanks, Ms. Conti. 

We are joined by Vice Chairman Brady, who had a series of 

votes, and then sprinted over to get here. So we are grateful he is 

here. Vice Chairman Brady will do his opening, and then we will 

get to questions. Thank you. 

OPENING STATEMENT OF HON. KEVIN BRADY, VICE 

CHAIRMAN, A U.S. REPRESENTATIVE FROM TEXAS 

Vice Chairman Brady. Great. Thank you, Mr. Chairman, for 

holding today’s hearing. I appreciate the witnesses being here 

today. 

I agree with you that this Committee must examine the whole 

picture—understanding both the benefits of extending the Payroll 

Tax Cut and long-term Unemployment Benefits and their unintended consequences. 

There is a strong bipartisan consensus in Congress to extend 

both of these expiring provisions through the end of this year. However, serious differences remain over how we should pay for these 

expensive extensions and whether we should reform the outdated 

Unemployment Insurance program. 

As popular as the Payroll Tax Holiday may be, economists disagree about its effectiveness as an economic stimulus. However, 

economists agree that Social Security faces serious and growing 

cash-flow deficits. I want to refer to this chart over here that shows 

the cash-flow deficits for Social Security over the next decade. 

[Chart submitted by Vice Chairman Brady titled ‘‘Social Security’s Cash Flow Deficits’’ appears in the Submissions for the 

Record on page 84.] 

In the black area of that graph, you can see what has happened 

as a result of diverting one-sixth of Payroll Tax revenue away from 

the Social Security revenue stream. It creates a significant sinkhole 

that exacerbates Social Security’s cash flow problems. Noncash accounting transfers from the General Fund cannot alleviate these 

cashflow problems. 

Last year, the U.S. Government had to borrow $142 billion from 

investors—including foreign countries like China—to pay Social Security benefits to our seniors. 

13 

Congress must fill this sinkhole to ensure that we will be able 

to pay promised Social Security benefits. That is why House Republicans are insisting that Congress must offset any loss of payroll tax revenue with actual cash savings in other areas of the government, not simply accounting gimmicks. House Republicans will 

protect this vital program from debilitating cash diversions with 

common sense savings that have had strong bipartisan support. 

As for unemployment, clearly economic policies of the Obama Administration did not produce the vigorous recovery, for which hardworking taxpayers had hoped. Tens of millions of Americans are 

struggling to make ends meet. Millions can’t find a full-time job, 

and millions more can’t find any job at all. Even worse, other millions have simply given up and stopped looking for work, leaving 

us with the lowest workforce participation rate in nearly three decades. 

Our priority must be to create a far stronger economy in which 

American businesses will have the confidence to make investments 

in new buildings, equipment, and software, expand production; and 

create millions of new well-paying jobs to get this economy back 

ontrack. 

As to Unemployment Insurance, we should reform this program 

and refocus it on the common-sense goal of getting people back to 

work sooner rather than just paying benefits. House Republicans 

have passed legislation that would: 

One, renew the long-term Federal Unemployment Benefits for 

the rest of this year while gradually reducing the maximum duration of benefits to 59 weeks. 

We require recipients to search actively for work from day one. 

We know the longer the people are unemployed the harder it is for 

them to new employment. Under existing law, beneficiaries may 

collect unemployment checks for a year and a half without really 

having to look for a job. In some states, they don’t even have to 

search for a job at all. That’s unacceptable. 

This bill, passed in the House with bipartisan support, allows the 

States to adopt innovative programs to match beneficiaries with 

local jobs. 

We also require those on unemployment without a high-school 

degree to work on earning a GED. Adults without high school diplomas have a very hard time finding and keeping a job. They are 

often the last hired and often the first fired. 

We also end the Federal prohibition against States testing applicants for illegal drug use. Drug-screening ensures that recipients 

will be able to take the jobs that they are offered. 

As we will hear today, and have heard today, long-term unemployment benefits have clearly helped families in need, but there 

is a cost as well. Two recent studies found that extending the duration of benefits actually increases the unemployment rate: 

A study by the Federal Reserve Bank of San Francisco found the 

unemployment rate at the end of 2009 would have been nearly half 

a percentage point lower—9.6 percent instead of 10 percent—if jobless benefits had not been extended beyond their usual 26 weeks 

to as much as 99 weeks. 

According to a Brookings Institute paper, the 2011 extension of 

long-term Unemployment Insurance raised the number of unemVerDate Nov 24 2008 09:19 May 03, 2012 Jkt 073267 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\73267.TXT DPROCT
14 

ployed in January of last year by between 0.2 and 0.6 percentage 

points. That translates into between 200,000 and 900,000 additional workers without jobs. 

Repeated extensions of long-term benefits are also threatening 

the solvency of the entire unemployment system, as Commissioner 

Everson has pointed out. States have borrowed over $38 billion 

from the Federal Government to cover their shortfalls. Under current law, repaying these Federal loans and rebuilding state trust 

fund balances would require an unprecedented payroll tax increase 

in nearly every State. These higher taxes would punish the very 

job creators that we hope will add new jobs to hire the unemployed. 

To conclude, we must move forward with a bipartisan agreement 

to extend the payroll tax holiday and long-term unemployment benefits. But at the same time, we must also adopt common-sense reforms to make the Unemployment Insurance Program work better 

and avoid adding to our unsustainable federal debt. 

I look forward to the testimony of the witnesses today and to the 

questions, as well, Mr. Chairman. 

[The prepared statement of Representative Brady appears in the 

Submissions for the Record on page 85.] 

Chairman Casey. Vice Chairman Brady, thank you very much. 

I will start. We will do five-minute rounds, and just so our colleagues know, the lineup we have so far is after me; Vice Chairman 

Brady, then Senator Klobuchar if she is back, Senator Lee, Representative Duffy, and Representative Mulvaney, and we will keep 

to that. And we can certainly add a second round. 

Dr. Zandi, I wanted to start with you. Particularly with regard 

to the so-called bang-for-the-buck argument and the analysis that 

undergirds the conclusions that you and others have reached about 

the benefit of spending a buck on Unemployment Insurance, say, 

or in another program, and the economic benefit that follows from 

that. 

Can you walk through some of that? I know in your testimony 

you did not have time to get through every part of it that you prepared, but I just wanted to get a sense of that, especially on the 

two major topics of the bang-for-the-buck on the Payroll Tax Cut, 

as well as that for Unemployment Insurance. 

Dr. Zandi. Sure. In my testimony there is a table where I lay 

out my current estimates of the multipliers, or so-called bang-forthe-buck for different programs, including the Payroll Tax Holiday 

and Emergency UI. 

For UI I’m speaking from memory, I think it is $1.55. That is an 

estimate of the impact on GDP one year after the benefit is provided. So looking out a year from now. 

For the Payroll Tax Holiday it’s smaller. I believe it is $1.27, 

something like that. 

I should point out that the logic is pretty straightforward; that 

you provide a benefit to a household, particularly in the case of UI, 

a very financially stressed household. They take that dollar. They 

have no other financial resources. They’ve probably blown through 

their savings, any help they could get from family and friends, and 

they spend that money to support themselves. And that money gets 

into the economy and creates other economic activity and jobs and 

so forth and so on down the road, and it is about $1.55. 

15 

These multipliers, bang-for-the-buck estimates, are varied. They 

depend on the various models that are being done. In the case of 

UI, the range of estimates—and this is from the CBO and the 

Urban Institute, Department of Labor, other studies that have 

been done over the years, range from $1.50 to over, in the case of 

the Urban Institute $2, and some are higher than that. It is one 

of the most effective forms of support to the economy, particularly 

in recessions. 

I should say also that these multipliers are not immutable. They 

vary according to the economic environment. So for example in a 

well-functioning economy where the unemployment rate is near full 

employment, let’s say 5.5, 6 percent, then providing this kind of 

benefit will not result in a very large multiplier, and in some cases 

for some kind of stimulus it could be negative because they do have 

to pay for it, and it has negative consequences through issuing debt 

and interest rates and so forth and so on. 

So in an economy that is operating flat out, you don’t want to do 

something like this. But in an economy that is really struggling 

with unemployment in the case of the Great Recession at 10 percent, then you don’t have those kinds of negative effects and you 

get much larger multipliers. 

Also in the analysis that I do, you will note that over time I’ve 

produced similar kinds of multipliers for you and Congress over the 

past several years, you’ll note that those multipliers change over 

time. In the case of UI, the multipliers have actually declined over 

time because I do think that there is some disincentive effects from 

long-term unemployed, and they cease to benefit of Unemployment 

Insurance. But net-net, considering the disincentive effects and the 

positive benefits that are created by supporting consumer spending 

and demand in helping these households, it’s a slam-dunk positive. 

It is still very, very important to do. 

Chairman Casey. I know that in the context of both these 

issues, and especially in the context of the work of the Conference 

Committee that Vice Chairman Brady and I are serving on. One 

of the things we have tried to emphasize and I think it’s better to 

be positive and emphasize the benefits, but also the consequences 

of not getting an agreement on the two. In particular it has been 

helpful for me in Pennsylvania. Our staff asked you months ago 

and you produced an analysis that was just payroll tax cut consequence in Pennsylvania for one year. 

And the job impact—because sometimes when people hear ‘‘GDP’’ 

impact it’s kind of hard for folks to measure—but I know the analysis you gave was just for Pennsylvania, just on payroll, and the 

consequence of not doing it was I think 19,700 jobs. In 2011 we 

grew north of 50,000 jobs. A lot of states would be envious of that, 

not enough but it was a significant job growth for one year, and 

you would cut off roughly 20,000 of that kind of growth if you 

didn’t get it done. 

So having that number is very helpful. The other analysis that 

I referred to earlier is kind of the county-by-county impact for an 

individual worker. In a lot of counties in our State it works out to 

be a little bit more than $400 per worker just for the 10 months. 

In other words, the 10 months we don’t have an agreement on yet. 

16 

That was true whether they’re in a big city like Philadelphia, or 

a smaller county like Potter County, for example. They were both 

in the $400 range. So we will talk more about it as we go. 

I am actually over time a little bit, and I will turn to our Vice 

Chair. 

Dr. Zandi. I am amazed at your memory. You’re sure it’s 

19,700? 

Chairman Casey. Repetition helps me. 

[Laughter.] 

Vice Chairman Brady. It’s like a steel trap with the Chairman, 

I’m telling you. 

Because I was late, I would like to defer to Senator Lee for the 

first question. 

Senator Lee. Thank you, Vice Chairman Brady, and Chairman 

Casey. 

I intend to make just two quick points before I launch into questions because I am of course more interested in hearing from you. 

But the first point I wanted to make is, our Social Security tax is 

a tax. It is just like any other tax imposed by the Federal Government. In the sense that, although some of the proceeds from that 

tax are spent on today’s retirees, none of that money that is saved, 

none of the excess is currently saved for the benefit of retirees. 

It is spent through the General Fund just like all other revenue. 

And so Social Security is not a savings program, as it is commonly 

billed, and as it was intended to be. The mere fact that Congress 

has strayed so far from the original intent of Social Security is yet 

further evidence of Congress’s lack of fiscal discipline over a rather 

prolonged period of time. And I think that is something that we 

need to consider as we evaluate our tax policy generally and as we 

evaluate our approach to Social Security. 

Second, as several of you have mentioned today, economic research on Unemployment Insurance indicates that many recipients 

of UI tend to wait for their benefits to expire before going back to 

work. Therefore, this does seem to suggest that to some extent extending benefits can tend to lengthen the amount of time that 

many people are unemployed, actually increasing unemployment 

and, to that extent, reducing economic growth and even overall 

prosperity. 

Consequently, I do worry that extending Unemployment Benefits 

might be harmful to the economy and might result in expanding 

dependence on an already bloated and already deeply indebted 

Federal Government. 

This is not just a hypothetical concern. It is one that I think 

about from time to time, and especially in light of evidence suggesting that as long as we remain in a position in which our Federal debt to gross domestic product ratio is in excess of 90 percent—we’re over 100 percent now—our economic growth is going to 

continue to take a hit. 

So for us to fund programs that we cannot afford could tend to 

exacerbate that trend. 

Mr. Sherk, I wanted to start with you and ask you if you are familiar with something that I am told has been introduced in the 

House, sometimes referred to as ‘‘The Spice Act,’’ the Social Security Preservation Through Individual Choice Act, which would inVerDate Nov 24 2008 09:19 May 03, 2012 Jkt 073267 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\73267.TXT DPROCT
17 

definitely extend in some circumstances the Payroll Tax Holiday, 

but do so on an opt-in basis, allowing every employee to make this 

determination on an annual basis, pushing back the retirement age 

by one month for every year that this partial holiday is extended. 

Are you familiar with that proposal? 

Mr. Sherk. I’m not, so it’s not something I can comment on. It 

sounds like a good idea, but it’s not something I have examined. 

Senator Lee. Okay. But in theory it is something that you could 

support insofar as it expands individual choice, assuming it can be 

made actuarially sound? 

Mr. Sherk. Based on what you have described, it certainly 

sounds like something I would support, but I would want to study 

it in detail before I would commit to that. 

Senator Lee. Okay. I heard you mention that unemployed workers tend to triple the amount of time that they spend job hunting 

when their Unemployment Insurance Benefits are about to expire. 

Wouldn’t that suggest then that extending them would reduce 

them by two-thirds, reduce the amount of time that they might otherwise be spending looking for jobs by two-thirds? 

Mr. Sherk. This is research done by Alan Krueger, which he 

published shortly before he joined the Administration. Krueger examined Time-Use diaries that the Bureau of Labor Statistics produces and found that workers who don’t have UI benefits have a 

fairly constant level of job search all throughout their time unemployed. But those who have UI benefits, have a lower level of job 

search in the months before their benefits run out, and then their 

job search triples in the last few months before their benefits start 

to run out. 

There is very clearly a disincentive effect. There are some people 

who are clearly abusing the system who could get a job and don’t. 

And a lot of people know stories of people who have done exactly 

that. 

But I think a better way to think about it is that workers have 

in mind the kind of job they are looking for. In many cases, in the 

previous industry they were in before, which is what they are 

skilled in, or in the same city; often they want something near 

their old salary range. And so quite understandably that is what 

they initially look for when they are unemployed. 

Now unfortunately about half the jobs lost in this recession were 

in manufacturing and construction. Those sectors are not going to 

recover to anything near what they were before. There’s going to 

be some increase, but a lot of workers are going to have to move 

into different industries. A lot of workers are going to have to move 

to different states. 

Having almost two years of benefits encourages workers to 

search for jobs that they are simply not going to find; no matter 

what the government does, the jobs that were created by the housing bubble are not going to come back. And it is ultimately not 

helpful for them if they spend a year searching for a job they cannot find, a year-and-a-half searching for that job, and then spend 

the rest of the time when their benefits expire looking for positions 

that they are more likely to find. 

It is counterproductive in the long run, even if it is well intentioned. 

18 

Senator Lee. It does not mean they are abusing their benefits; 

it is just a natural consequence of what happens. 

Mr. Sherk. Exactly. It is an understandable response, but it is 

not helpful to them. 

Senator Lee. Thank you. I see my time has expired. Thank you, 

Mr. Chairman. 

Chairman Casey. Thank you, Senator Lee. Representative 

Duffy. 

Representative Duffy. I travel my District. I am in the northwest corridor of Wisconsin. I run into a lot of people who are going 

through some very difficult times, and they rely upon these benefits to make sure they can bridge that gap between their time of 

unemployment to the time of their next employment. 

I think everyone on this panel, everyone in both chambers, 

agrees that when people fall on hard times we want to be able to 

help them out. And sometimes it may be several months, sometimes it may go up to 99 weeks. 

I think many of our concerns are not about those who truly need 

the help, who have families, who have young children, and who 

need the help of this Unemployment Benefit; but it is those who 

abuse the program, who abuse the system, and who don’t actually 

go out there and look for work. They eat up that benefit at a time 

when they could really find some other kind of employment. 

The way we weigh and balance; to weed out the bad actors and 

provide the benefit to those who truly need the benefit; is, I think, 

the real issue that we struggle with in the two chambers. 

I guess I would throw it to the panel as a whole. If we have an 

unemployed individual who is looking to get back in the market, 

I mean I think there are some reasonable steps that we can take 

to make sure they are aggressively trying to find work. 

One is to verify, not through lax standards where we do the callin, as I think Mr. Sherk indicated, but to actually verify that they 

are looking for work. And if they are looking for work but they cannot find it, that we encourage them to go get other job skills training so if they have to transition from one job skill to another they 

are going to have a skill set that can actually be used in this everchanging economy. 

And finally, we have talked about drug testing. I mean, I think 

this just makes sense. If you’re using drugs and you’re saying 

you’re looking for work, I would call bogus on that. You’re not going 

to get a job if you’re doing drugs. There’s too many people out there 

that are engaged, and good employees, and so that we would drug 

test those who are getting benefits I think makes sense. 

And I guess Mr. Zandi, based on your research and study, I 

mean would you have any objection to these simple concepts being 

in place for those to receive Unemployment Benefits to go through 

these steps of work search and job training, and drug testing? 

Dr. Zandi. Well I think it is important not to restrict UI Benefits to unemployed workers who have earned those benefits. I think 

that the principle that underpins the Unemployment Insurance 

System since it was founded in the Great Depression of the ’30s 

was that if you work, and you pay an insurance premium while 

you’re working, that if you lose your job you should receive a benefit, an insurance payout. And, that there should be no restrictions 

19 

on that. That is what I get nervous about when we start talking 

about these things. 

Drug testing, I’m not sure really matters. In the studies I’ve seen 

they show that that’s not significant in areas where we’ve had drug 

testing. It is costly. Someone is going to have to pay for it. 

Moreover—— 

Representative Duffy. But I’m sure you would have no objection to drug testing, though? 

Dr. Zandi. One other thing I would say is, I don’t know—we’re 

here in an—in my view, what matters most is making sure that we 

get through this very trying time with an economy that is back on 

track, and I don’t think we should muck it up now. 

I am all for reform of the UI System. I think there are lots of 

things we should do. But that is one thing I don’t think I would 

throw into the mix at this point in time. 

Representative Duffy. But to regain my time here, when we’re 

talking about a benefit that’s been promised because it’s insurance, 

that initial promise wasn’t for 99 weeks, was it? The agreement 

was something other than 99 weeks? So if we’re going to extend it 

beyond what you originally bargained for, is it then fair to say if 

we’re going to give you more than what you bargained for it might 

be fair to ask for job search, job training, and drug testing? 

Dr. Zandi. Yes, but I would say that, you know, in every recession since World War II, particularly severe recessions, we have 

provided benefits, emergency UI. That is part of the deal, in my 

view. 

Representative Duffy. But to 99 weeks, have we? 

Dr. Zandi. 99 weeks, given the severity of what we have gone 

through, the recession that we’ve been through, I would say that’s 

part of the deal. 

Representative Duffy. No, no, I’m saying going back to the 

Great Depression. 99 weeks? 

Dr. Zandi. I think this is the first time we have gone up to 99 

weeks. 

Representative Duffy. And I guess—— 

Dr. Zandi. But—— 

Representative Duffy [continuing]. And as I switch gears, we 

go to this theory of a multiplier effect where every dollar spent will 

give us a return of $1.55, I think that same argument was made 

for the nearly trillion dollar stimulus package. And I think, as most 

Americans look at that, they will go: I don’t think that that multiplier came into effect. We see the pain continue to grow, even 

though all those dollars rolled out the door. 

And to make the same argument that it is going to now work for 

Unemployment Benefits, I think the American people will probably 

reject that. But I see my time is up and I yield back. 

Dr. Zandi. Darn. 

[Laughter.] 

Representative Duffy. Maybe we will have a round two. 

Chairman Casey. Thanks very much. Senator Klobuchar. 

Senator Klobuchar. Well thank you. My time is not up. So 

thank you. I have heard most of your opening statements. I had to 

go for another meeting, and I am glad to be back. 

20 

Our State actually, when I was listening to Dr. Zandi about the 

fragile recovery, we have been ahead of the curve. We are down to 

5.7 percent unemployment in Minnesota. And we have a major 

metropolitan area, and the rural has been very strong, as well. And 

it is this combination of innovation, exports which is huge in our 

State, which I think should be a good message for where we can 

go with the rest of the country. 

But that being said, there are still a lot of people that can barely 

afford their mortgages and are having trouble hanging on. Maybe 

they have lost part of a job, and only have one, or they are working 

more jobs to make up for the money. And so that is why this Payroll Tax Cut is so meaningful to them. 

And I know, Dr. Zandi, you wrote last fall that, quote, ‘‘Expiration of the Tax Holiday, Emergency Unemployment Benefits, and 

other stimulus efforts could shave up to 1.7 percentage points from 

Gross Domestic Product in 2012. These are expensive programs, 

but not extending them could be even more costly to taxpayers if 

the economy slips back into recession.’’ 

So, despite the recent signs that our economy is picking up 

steam, we know you still want to see this extended. And do you 

think we could still risk slipping back into recession, or at least not 

moving as far forward as we want to if we let all of this lapse? 

Dr. Zandi. Yes, that is correct. You know, my sense is that if 

you do not extend these programs, the economy in all likelihood 

will make its way through without backtracking recession. But the 

odds are that we are far enough along in the recovery that that will 

occur. 

But I think the risks are high that I am wrong, and that if anything else does go wrong—and of course there’s a long list of things 

that can go wrong—we could easily be derailed again. 

Senator Klobuchar. You mentioned Europe as one of those. 

Dr. Zandi. Just as an example. The housing crisis as another example. And I would also point out that we are guarding against 

very dark scenarios. 

So if we go back into a recession, the cost to taxpayers will be 

enormous. That would dwarf what we are talking about here. And, 

it will undermine what I consider to be some very significant 

progress in righting the wrongs that got us into this mess. 

I feel like we have done a lot good—you have done a lot of good, 

and that this will shine through. But that will not happen if we 

backtrack into a recession. 

Senator Klobuchar. And I know that Senator Casey is on the 

Conference Committee in the group, and so is Congressman Brady, 

working on this. Do you have any thoughts on how this should be 

paid for, these three major programs, plus perhaps some tax extenders? 

Dr. Zandi. Well of course that’s why you get paid the big bucks. 

[Laughter.] 

Senator Klobuchar. Right. I just thought I’d ask you. 

Dr. Zandi. I’ll give you my sense of it. My view would be that 

the cost should be included in the spending cuts that would be part 

of the sequestration process going forward; that that is going to be 

done over a 10-year period. The impact of that can be smoothed 

over time. 

21 

In that way we do not get bogged down in some other ways of 

paying for this that could be counterproductive, as in the case of 

paying for this last two months. In my view, that was not very productive, and is in fact counterproductive. So I think I would go 

down that kind of a path. 

Senator Klobuchar. And to follow up on your last comment 

there, just the cost of brinkmanship that you’ve seen, the debt ceiling issue this summer, as well as what happened at the end of the 

year, when you look at it as an economist in terms of the consumer 

confidence, which is an incredibly important factor here, that is 

hard to measure, as well as the effect of really our reputation in 

other countries and across the world in terms of people wanting to 

make investment in our country, and business as well. 

Dr. Zandi. Yes. That is an excellent point. Now of course it is 

very difficult to quantify these things, but again my sense is that 

the political acrimony that was exhibited last year relating close to 

the government shutdown in the Spring, and then the debt ceiling 

spectacle, that that did undermine confidence significantly. It 

caused already shellshocked households and businesses to pull 

back. 

If you think back to that time in August-September, we did come 

very close to recession. The other thing I will say is that I have no 

inside information here. I’m part of Moody’s Analytics, not part of 

Moody’s Rating Agency, but just listening to what they say, and observing how they are thinking, if we go down that path again it’s 

not going to be just one rating agency that potentially downgrades, 

it could be others. 

So again, I have no inside information. I am just forecasting 

what I am hearing. But I think we should be cognizant of that, and 

that could have significant ramifications. 

Senator Klobuchar. I remember having lunch with Bob Ulrich, 

who is a former CEO of Target. He retired, and it was during the 

McCain/Obama race, and he was saying, he just said, ‘‘I want these 

negative ads to end.’’ And I figured it was because he was weighing 

in—I think he was supporting Senator McCain, but I said, what do 

you mean? And he just said: ‘‘It’s so bad for consumer confidence. 

No one wants to buy anything.’’ 

And I think that I have always thought about that in terms of 

the much bigger picture, not just negative ads but what is going 

on when we go to this brinkmanship, what we do to our country 

when we do that. And it is just my hope, I will say it to all the 

panel members, that that just can’t happen again with this work 

that is being done on the Payroll Taxes and other things. We just 

cannot afford to do it again. We have major decisions to make, but 

I would like to get through this and then go on to the much bigger 

issue of tax reform after that, which I think there’s been some reference to that that could be very helpful. 

So thank you very much. 

Dr. Zandi. That makes a lot of sense, yes. 

Chairman Casey. Thanks, Senator Klobuchar. Congressman 

Mulvaney. 

Representative Mulvaney. I will preface these comments by 

saying I agree with the lady from Minnesota regarding the undesirability of brinkmanship, and the Senate is more than welcome to 

22 

take up and pass our Cut, Cap, and Balance bill from last year. 

That would end a lot of this discussion. 

But anyway, I will return to Unemployment Insurance for a second, because I hear what Dr. Zandi says about what matters most 

is that we get through these trying times, and I tend to agree with 

that, but I also hope that we get through them in such a fashion 

that it does not bankrupt the States. 

In looking through Commissioner Everson’s testimony, I see that 

Indiana’s circumstance is only slightly worse than ours in South 

Carolina. We have gone from a six or eight hundred million surplus 

in the beginning of this decade to owing the Federal Government 

almost $800 million. At one point, a five or six trillion—excuse me, 

billion dollar swing. You’ve been here too long now. ‘‘Trillion’’ comes 

out of my mouth too easily. 

So I want to press you, Ms. Conti, specifically on what’s wrong 

with drug testing? What’s wrong with looking at that as a reasonable way to cut costs and, more importantly perhaps, to make sure 

that this benefit is going to those truly in need and not to those 

who are taking advantage of the system? 

Ms. Conti. Sir, I think what I would say by introduction is: It 

is a solution in search of a problem. There is no evidence, statistical or otherwise, to show that there is any sort of broad-based epidemic, or even significant drug use among the people who are receiving Unemployment Insurance today. 

Twenty States in their UI law already provide that if you lose 

your job because of some sort of drug abuse—either you are using 

drugs on the job, you are intoxicated on the job, you fail a drug 

test—you are ineligible for Unemployment Insurance. The vast—— 

Representative Mulvaney. Okay, how many states? 

Ms. Conti. There are 20 States that have it explicitly in law—— 

Representative Mulvaney. It’s not 50? 

Ms. Conti. Let me finish. 

Representative Mulvaney. Okay. 

Ms. Conti. The vast majority of other States have that exact 

same prohibition in case law that has developed around the law of 

misconduct. If you lose a job because of misconduct, you are generally disqualified from receiving Unemployment Insurance as 

well—misconduct or gross misconduct. 

Representative Mulvaney. But you are talking about something else, which is drug use on the job and the reason for the discharge, which—— 

Ms. Conti. Or, or failing—or failing a drug test, even if you were 

not using drugs on the job. 

Representative Mulvaney. I am talking about as a prerequisite to receive the entitlement. Not what got you fired—— 

Ms. Conti. Right. 

Representative Mulvaney [continuing]. But what is related to 

your receiving a benefit. 

Ms. Conti. But I’m saying there’s—within the UI System there 

is already adequate protection against it. I would also point to 

some recent—— 

Representative Mulvaney. Let me stop you there. Let me stop 

you, because you are answering a different question. I didn’t ask 

23 

you if there was adequate protection for folks who get fired because 

they’re using drugs. I’m talking about the entitlement. 

Ms. Conti. Right. 

Representative Mulvaney. What is wrong with asking people 

to take a drug test before they actually get their Unemployment Insurance check? 

Ms. Conti. Well first of all there is no evidence that it is a problem, in the first instance, that there are all of these drug users getting Unemployment. It is an unfair and mean-spirited, we believe, 

stigmatization of people who are unemployed through no fault of 

their own. It is the bad economy that is prohibiting them from getting jobs; it is not drug use. 

And we can look to some recent examples. I would point to Indiana in general that just started—or just recently last year conducted a pilot program. It was testing people who were getting job 

training, who are people by definition who are either unemployed 

or under-employed and want to better themselves, to the tune of 

$45,000. I believe they tested about 13,000 workers, and 13 tested 

positive. 

That was $3,500 per worker. Whereas, that money could have 

been spent, we believe, much more productively on high-impact reemployment services for the workers—— 

Representative Mulvaney. But if a state wants—— 

Ms. Conti [continuing]. That would get more people into jobs, 

which is what we say we all want to use the UI System to do. 

Mr. Everson. Could I comment on that, since Indiana has been 

drawn into this? 

Representative Mulvaney. Sure. 

Mr. Everson. When I got to my job two years ago, I toured the 

State and I was repeatedly told: Mark, you guys do a great job— 

We run the Unemployment Insurance System and the Worker 

Training System—But you keep sending us people who, when we 

tell them you’re going to have to take a drug test, they say ‘‘thank 

you very much, and good bye.’’ 

And what I did was, I went back to my office and I said: What 

can we do about this? In the WIA, the program that is the enabling 

statute for the biggest training program, it said specifically, since 

’98, that no DOL could not prohibit any state Workforce System 

from having a drug test. And I checked into this, and we did it. 

And our rate, our failure rate since July 1 when we put it in, is 

2.2 percent. 2.2 percent. That compares to about 3 percent in the 

private sector, which is the failure rate for pre-employment drug 

screening. Most people do not show up when they are going to take 

a drug test if they are using drugs. 

Representative Mulvaney. That is to say, isn’t there a deterrent effect? 

Mr. Everson. That’s the point. And that’s the point. 

Representative Mulvaney. Once a State starts to do this, Ms. 

Conti, don’t you think it will deter people from either doing drugs 

in the first place, or showing up to collect their benefits if they 

know they are going to be tested? 

Ms. Conti. It could equally encourage people to find out how to 

do the proper type of fasting and cleansing processes for three to 

24 

seven days before they have to take the drug test in order to beat 

the test. 

Again, we are assuming that there’s some sort of widespread 

problem among those receiving Unemployment, that they’re not 

getting jobs because they are using drugs. 

Representative Mulvaney. No, I’m not. I can see how you 

might think that. I am assuming that the State knows best how 

to implement its own Unemployment Insurance Program. My guess 

is you probably have not talked to many employers in Indiana— 

neither have I—and there may not be a difficulty in North Dakota. 

There may be a difficulty in Florida. And I am simply suggesting 

that the States are more effective at doing that, but I will continue 

this line of questioning next time around. 

Chairman Casey. Thank you very much. Vice Chairman Brady. 

Vice Chairman Brady. Thank you, Chairman. And again, 

thank you to the witnesses and the Members who are here today. 

Will you put up that poster on Social Security? It is important 

we extend these benefits, that we do it now; that we not have another two-month extension. That was a disaster, in my view, for 

businesses, workers, and our local physicians. 

One of the big issues that Chairman Casey and I are dealing 

with is how you pay for these costs. These are real costs, more than 

$100 billion at a time we cannot afford it. And the one point I want 

to make today is: The Payroll Tax Holiday alone blows a significant 

hole in the cash flow of Social Security. And if we do nothing else 

with that important program, it is critical that we fill that hole 

back up with real cost savings. 

Again, we are not talking about the Trust Fund for Social Security. We are not adding. We are not running surpluses. We are running deficits and borrowing extensively. It is important we fill the 

sinkhole now, this year. And certainly it is clear that extending the 

Payroll Tax Holiday further would have dramatic impacts on Social 

Security. 

I want to talk about the unemployment reforms. I am just not 

convinced we run unemployment very well at the Federal level. 

Our focus is on getting those checks out for extended periods of 

time and not getting people back to work. 

One of the requirements that we are suggesting in the House is 

focused on those with the least education, those without a high 

school degree. We know they struggle to find a job. 

One of the points Ms. Conti made, which others have made, is 

that, look, some people, older workers, requiring them to get a 

GED as a condition of receiving Unemployment does not make 

sense. Everyone agrees with that. But how old is too old? 

A recent Census Bureau report looking at the one-half million 

people without a high school diploma, without a job today, 1 in 5 

were under the age of 30, very young; 2 in 5 are under the age of 

40. So, with my math, high-level math, 3 out of 5 are under 40 

years old, have at least a quarter century of work time left in 

which a high school equivalent degree would put them in a better 

position. 

So, Ms. Conti, you are one of those who thinks we ought not be 

encouraging States to help these people work toward a GED. Why 

is that? You don’t think they will be in a better position? 

25 

Ms. Conti. No, I think you have actually misstated my position 

rather substantially. At the National Employment Law Project we 

are huge proponents of lifelong learning, of federally and state subsidized job training at all levels, whether it is GED or other sorts 

of occupational training; and we believe that workers of any age— 

nobody is ever too old to learn more skills and to get more knowledge. 

Vice Chairman Brady. So you would support that provision? 

Ms. Conti. We don’t support that provision, but you stated that 

we don’t support workers getting more education, getting their 

GEDs, and that is not correct. 

Vice Chairman Brady. So you support people getting more 

education, but you oppose helping unemployed work toward a 

GED—— 

Ms. Conti. We support helping the unemployed work toward a 

GED through appropriate means. We do not believe that the UI 

Benefit should be conditioned on getting or enrolling in a GED program; rather, we support something that I believe the Senate Conferees have put out. The notion of putting some additional funds 

into re-employment and training services, and giving workers appropriate re-employment assessments. And if through that part of 

the employment services, not as, you know, sort of the stick over 

the head, you won’t get UI if you don’t get it, but through appropriate re-employment assessments—— 

Vice Chairman Brady. I think we just have a disagreement on 

how—— 

Ms. Conti. We do. Could I finish my statement, sir? 

Vice Chairman Brady. No. You answered it beautifully and I 

appreciate it. 

Let me go to job search. I would think most people are searching 

aggressively from day one when they don’t have a job. Unfortunately, not all do. A recent report in The New York Times now, 

since 2009, show that the average unemployed in America spend 

about 30 minutes per day looking for work, and 1 in 6 unemployed 

people look for work on a typical day. 

What we know is those who aggressively job search usually find 

a job sooner than others. Can I ask you, Commissioner Everson, do 

you have a job search requirement in your State Unemployment 

Benefits? 

Mr. Everson. Yes, sir, we do. 

Vice Chairman Brady. And would you recommend that at the 

Federal level we do the same, as well, since obviously your Unemployment Taxes don’t pay for all your benefits; others chip in to do 

that. You would think that would be sort of a responsible reform 

to enact. 

Mr. Everson. I believe that job search, you want to certainly 

emphasize it. I agree with that a hundred percent. But I think that 

the traditional way the system has worked, with the States determining what is best in their circumstances, is an important principle. And the States do vary what they want to do. 

What I don’t want to see happen is, like the nonreduction rule, 

is that you look at these occasional extensions, and we are in this 

period of extension now—— 

Vice Chairman Brady. Yes. 

26 

Mr. Everson [continuing]. And you force back changes into the 

core program which runs pretty well and has served us well for 

seven decades. The problem being, again, you are seeing right now 

that States have already cut the benefit duration from 26 weeks to 

20 weeks—a number of them have done it—because of they can’t 

go through the nonreduction rule. 

So I just think it can have unintended consequences when you 

have the Federal mandates. But I do agree, you need enhanced 

work search. 

If I can make just one additional point, because it keeps coming 

up, the duration and lack of effort that’s talked about. There is a 

public policy tension here. There is no doubt—I am not going to 

comment on the stimulative effect of the benefits—but there is no 

doubt we have in Indiana tens of thousands of people who benefit 

from these extensions. That is absolutely clear. 

But there is another factor that has not been touched upon. 

Clearly individuals make a decision every day not to take a job if 

it’s paying $15 and they were making $20 in their old job. If they 

look at the economics of it, and they say, geese, my spouse is working so I’ve got health care. And I am avoiding child care costs. And, 

they say, I am going to wait until that better job comes along. 

It is just, as my colleague on the panel said, that is a good shortterm decision for the individual, but it is a bad long-term decision 

for him or her because employers are increasingly skeptical about 

people who have been out of work for a year, or 18 months, or 2 

years. That is just a consequence we have not touched on here that 

is real. 

Vice Chairman Brady. Thanks, Commissioner. And I apologize, 

I went way over my time, but thank you. 

Chairman Casey. Thanks, Commissioner. Thanks, Vice Chairman Brady. Congresswoman Maloney. 

Representative Maloney. I want to thank the Chairman for 

calling this hearing. And since we have one of the most respected 

economists here, I would like to ask Dr. Zandi your reaction to the 

recent jobs numbers: 253,000 new private-sector jobs created. I believe that is the 23rd month of job growth, and a very positive unemployment. After five consecutive months, the rate has been coming down, reaching 8.3 percent in January. 

We had an interesting hearing on Friday from the Bureau of 

Labor Statistics. They said that the recent decline in the unemployment rate was driven by unemployed workers finding jobs, which 

is a very positive sign. 

I wish you would just give us an overview of where the economy 

is. Is this a positive sign? Do you see this as a trend that will continue? What do we need to keep this positive jobs’ situation moving 

forward? 

Dr. Zandi. Well thank you for the very kind words. They are 

much appreciated. Too bad we’re not on TV so my wife could hear 

that. 

[Laughter.] 

Or better yet, my kids. That would even be better. 

I think we’ve made a lot of progress. The economy is improving, 

and that is evident in lots of different ways, but most encouraging 

27 

in the job market. As you pointed out, almost 250,000 payroll jobs 

in January; 2 million jobs over the past year through January. 

As you point out, the decline in unemployment is real. It is not 

a declining labor force; it is an increase in jobs. The job increase 

is broad-based across industries and regions. So I don’t want to go 

so far as saying that we’re off and running, you know, because we 

have had some head fakes before. This time last year, we were feeling good about things and we got nailed by higher energy prices, 

and surging food and apparel prices, and a lot of other things. 

But it feels like we are getting very close to that light switch 

going on; that businesses I am in economic consulting with business, and I talk to a lot of business people in lots of different walks 

of life. Just talking to them in traveling the country recently, you 

get the sense that they are at a point where they are about ready 

to engage and look for growth and revenue opportunity, and that 

means more investment and more hiring. 

So I think we have made a lot of progress, but we are really close 

to evolving into the economy evolving into a self-sustaining strong 

economic expansion. 

That is why I think it is so important to extend the Payroll Tax 

Holiday/Emergency UI to make absolutely, positively sure that that 

is in fact what is happening here. 

Representative Maloney. So you think that is important, to 

continue the Payroll Tax Cut for 260 million working Americans? 

Dr. Zandi. I think it is absolutely vital. I think we do not want 

to take the chance that we let that lapse, and that we get derailed. 

Because if we do, the cost to taxpayers will be measurably more 

significant than the money that we are talking about here. 

So I view this as an insurance policy to make sure that the economy is indeed off and running. 

Representative Maloney. Well also a part that President 

Obama is working hard on in a bipartisan way is to extend the Unemployment Benefits. As a gentleman pointed out, Commissioner 

Everson and others there, the jobs are not out there. For every job, 

how many people do you think line up for it? Six? Seven? How 

many people are there for every job? So through no fault of their 

own, they are out of work. 

So is that also an important component to keep this economy 

moving, the Unemployment Benefits? Because that will go back 

into the economy. 

Dr. Zandi. Yes. So I would advocate extending both the Payroll 

Tax Holiday and the Emergency UI Program at least through the 

end of the year. And the statistic that I think is—we have not 

brought up at the hearing yet, but I think is very important is the 

fact that for every job opening, there are now four unemployed 

workers. 

Just to give you context, in a normal, well-functioning labor market, that should be closer to two to one. So for every unemployed 

worker—for every job opening there should be two unemployed 

workers. 

At the worst of the Recession it was six to one. But four to one 

is still very high. And we have been talking about disincentive effects and other issues, but we just need to remind ourselves that 

28 

the predominant reason why people are looking so long for a job 

is because there aren’t jobs. It is hard to find a job. 

Representative Maloney. Coming in, Ms. Conti was mentioning the GED and getting those degrees. I would like to ask you, 

what jobs do you think are out there in the future? And do you 

think having a GED degree is important to get those jobs? 

Dr. Zandi. Yes. I think the jobs we are going to create in the 

United States of America will embody a highly skilled and educated workforce; that that is our Nation’s comparative advantage: 

producing goods and services that embody the skills and educational attainment of our population. 

So we need to work really hard at raising everyone’s educational 

attainment level, particularly people who don’t have good skills or 

lack at least a high school degree, because they are going to get 

creamed by the global world that we live in and the competition 

that we are in. 

So it is very important to spend resources to educate these folks, 

give them the training they need, and help them gain the skill set 

that they need to compete. 

Representative Maloney. Are you still the economist for 

Moody’s? 

Dr. Zandi. I am, for Moody’s Analytics, which is the independent 

subsidiary of the Moody’s Corporation. So I am not part of the rating agency, but I am the Chief Economist of Moody’s Analytics. 

Representative Maloney. I must say, I always listen to you because you work for the private sector. And if you’re wrong, you’re 

going to get fired. 

[Laughter.] 

So I know you are going to be very careful in what you say. Anyway, we appreciate—— 

Dr. Zandi. You are very kind. 

Representative Maloney [continuing]. All your hard work, and 

we appreciate everybody’s testimony. And we have been called to 

a vote, so I’ve got to go. Bye-bye. 

Dr. Zandi. Thank you. 

Chairman Casey. Congresswoman, thank you very much. 

I will move to a very brief—I won’t call it a second round, we will 

call it a lightening round. There is a lot we could do. We could even 

start a great debate right at that table there, but we probably do 

not have time for it today. You can stay if you would like, but we 

are grateful to all of our witnesses. 

Just one point I wanted to make, Mr. Conti, regarding your testimony. I do not have a lot of time, but maybe even not by way of 

a comment, but if there is something you want to add to this: 

On page 3 onto page 4 of your testimony, you talk about the impact on children, Unemployment Insurance’s impact on children. 

And I was struck by the sentence at the top of page 4, and I’m 

quoting, ‘‘ . . . , the federal investment in unemployment benefits 

has an immediate payoff for those kept out of poverty, but it also 

produces long-term dividends for children and families given the 

social costs associated with child poverty and severe economic 

hardship. Children who experience economic hardship are more 

likely to drop out of school, suffer poor health, and experience difficulty maintaining stable employment as adults.’’ Unquote. 

29 

Ms. Conti. Um-hmm. 

Chairman Casey. I want to ask you, and it may be by way of 

repetition, but you had a number that you attached to that in 

terms of the number of children prevented from poverty. What was 

that number? 

Ms. Conti. The recent Census showed us that in the year 2010 

over 1 million children were kept out of poverty because their parents were receiving UI Benefits. 

Chairman Casey. Just for that one year? 

Ms. Conti. Right. And the number was about the same the previous year. 

Chairman Casey. That is the latest year we have data for? 

Ms. Conti. Yes. 

Chairman Casey. Thanks very much. Congressman, do you 

have something before we go? 

Representative Mulvaney. Very briefly, because I spent more 

time than I intended to with Ms. Conti. I enjoyed the conversation, 

but I did want to come to Dr. Zandi, and it follows up on what the 

Congresswoman was just talking about on job growth and how— 

‘‘disappointed,’’ Dr. Zandi, is not the right word, but I guess I am 

skeptical about your commentary. 

Your testimony reads that the recent rapid drop in unemployment rate is real, resulting primarily from more jobs and not a declining labor force. And actually you go to the extent of footnoting 

that by pointing out that since August the unemployment rate has 

fallen to 8.3. During this period, the BLS has recorded an employment increase of 1.9 million jobs and a gain of more than 700,000 

people in the labor force. And you use this as evidence, I guess, to 

support the previous assertion that these are real job growths. 

Yet, sir, during the same period of time the labor force participation rate has fallen. Last month it went from 64 percent to 63.7. 

The number of discouraged workers is up last month. The number 

of other marginally attached, U–5 unemployment, is up last month. 

The number of U–6, part-time for economic reasons, is up. The unemployment by the widest measure is up. The total number of 

long-term is up. And I guess at a certain point I have to wonder, 

how do you back up that statement, that these are real jobs because the labor force is growing? 

It seems to me that the labor force did go up, sir, but not as fast 

as it should have, given the population growth. That even if your 

number of jobs goes up, if your participation rate in the job pool— 

in the workforce goes down, that clearly we are not keeping up 

with population growth, and the numbers are effectively cooked. 

The 8.3 percent number that we saw last number is not a real 

number. How do you respond to that? 

Dr. Zandi. Well a couple of things. 

When I cautioned your use of the data, the decline in the labor 

force participation rate in January is a statistical result. It is new 

population controls by Census. They go back and revise the data 

and they put all the revisions in January. 

Representative Mulvaney. But I think they said that was only 

one-tenth of one percent at the hearing we had on Friday last 

week. 

30 

Dr. Zandi. I think by my calculation the labor force participation 

rate, from August of last year through January of this year, has 

been essentially constant, no change. 

Representative Mulvaney. Okay. Well it leads to the same 

question, though. If your labor force participation rate is unchanged—— 

Dr. Zandi. Right. 

Representative Mulvaney [continuing]. But you are having 

more people in the workforce, how do you make the assertion that 

this is real job growth? If you’re not growing fast enough to give 

people who come out of college and out of high school and out of 

the vocational schools jobs? 

Dr. Zandi. Right. Well I’ll say two other things. 

First is the increase in the labor force since August is 700,000. 

That is the Household Survey. 

Representative Mulvaney. Right. 

Dr. Zandi. That is what you would expect to see in a reasonably 

normal, well-functioning economy, about 700K in that five-month 

period, because that on an annualized basis results in 1.5 million 

labor force growth, which would be normal labor force growth in a 

good economy. 

Representative Mulvaney. But not in an economy that is coming out of a recession. We should be growing faster than that on 

an average basis, right? 

Dr. Zandi. Well you make a good point. I think there will be 

some point down the road when the labor market gets to a point 

where it’s really healthy, unemployment has fallen some more and 

we start to—— 

Representative Mulvaney. 700,000 jobs over five months is 

one hundred and twenty-odd thousand jobs a month, and I think 

the break-even number we have been told by BLS is we need 125- 

to 150,000 jobs a month just to keep up with the population 

growth. 

Dr. Zandi. Well let’s not confuse things. We actually created 1.9 

million jobs, household jobs, in that period; 700K labor force. So 1.9 

million. That is a lot of jobs. That is boom times. We are not going 

to sustain it. I am not arguing that. But if we could, that would 

be fantastic. But I am not arguing that. 

But to your point, I do think there are a lot of people who have 

stepped out of the workforce. They are not counted as unemployed. 

They feel disenfranchised. They don’t feel like there is job opportunity, and wage growth has been so weak, to the Commissioner’s 

point, they don’t feel like it is worth coming back into the labor 

market. I’ve got child care, I’ve got gasoline prices, I’ve got commuting costs. But at some point when the job market does improve, 

unemployment becomes low enough and we get a little bit of wage 

growth, those folks are going to start coming in and the labor force 

growth will pick up a lot more. And it is going to be harder to make 

progress in reducing unemployment. 

Representative Mulvaney. And this is my last question, because I just want to make sure I am reading this correctly. Your 

testimony says that you think unemployment might be below 8 percent by the end of 2012. 

31 

We just heard from the CBO last week, they are actually revising 

up their unemployment rates over that same period of time. They 

originally thought it would be about 8.2 percent; now they are up 

to 8.9. 

And I am led to believe that when you participate in the Blue 

Chip Analysis last month you yourself had suggested it might be 

8.8 percent at the end of this year. 

Dr. Zandi. Yes. 

Representative Mulvaney. Up from 8.3 percent in a previous 

estimate that you made, and that is a fairly dramatic change in a 

month, if I got my data right. Last month you thought it would be 

8.8 at the end of this year, and now you think it might be below 

8. That is a significant change. What caused that? 

Dr. Zandi. You are absolutely right. And I think CBO, like all 

the economists, including CBO, when they do their forecasting will 

be marking down their forecasts for the unemployment rate. So my 

guess is, the consensus view now—— 

Representative Mulvaney. They’re making it up, sir. 

Dr. Zandi. No, but they will mark it down. They’re lagging. 

They’re going to mark it down. Given what’s happened to the economy and to the unemployment rate. We are now at 8.3 percent unemployment. Everybody is going to be marking down their expectations for the unemployment rate. When you get next month’s consensus, it is going to be at year-end probably 8.2, 8.3. 

Representative Mulvaney. What has happened in the last 30 

days to change that, then? 

Dr. Zandi. The very dramatic improvement in the job market, 

and revisions to past data. So we have now a better sense of what 

has actually happened. 

I think there is a growing understanding of what is going on 

with the labor force. I think the views with respect to the growth 

of the labor force are changing so that people now think the labor 

force is now going to actually be slower than originally thought 

over the next year or two. 

Representative Mulvaney. Thank you, Mr. Chairman. Thank 

you for your leniency. I apologize for going over in the lightening 

round. 

Chairman Casey. Congressman, thanks so much. 

Dr. Zandi, thank you. Mr. Everson, thank you for being with us 

today. Mr. Sherk. Ms. Conti. 

Before we go, let me just say, I think from this hearing and the 

testimony that has been offered, one bipartisan note, we need to 

extend the Payroll Tax Cut and Unemployment Insurance Benefits 

through the end of 2012. 

I believe this is essential for an economic recovery that is still 

fragile. I am confident, and I think others are as well, but I will 

speak for myself, that the Conference Committee will be able to 

fashion a bipartisan agreement to get this done that will help both 

the economy and our families. 

Just so the witnesses and the Members know, the record will remain open for five business days for any Member who wishes to 

submit a statement or additional questions. 

And with that, our hearing is adjourned. 

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[Whereupon, at 4:06 p.m., Tuesday, January 7, 2012, the hearing 

was adjourned.] 

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85 

PREPARED STATEMENT OF REPRESENTATIVE KEVIN BRADY, VICE CHAIRMAN, JOINT

ECONOMIC COMMITTEE

Mr. Chairman, thank you for holding today’s hearing. I agree with you that this 

committee must examine the whole picture—understanding both the benefits of extending the payroll tax cut and long-term unemployment benefits and their unintended consequences. 

There is a strong bipartisan consensus in Congress to extend both of these expiring provisions through the end of this year. However, serious differences remain 

over how we should pay for these expensive extensions and whether we should reform the Unemployment Insurance program. 

As popular as the payroll tax holiday may be, economists disagree about its effectiveness as an economic stimulus. However, economists agree that Social Security 

faces serious and growing cash-flow deficits. Diverting one-sixth of payroll tax revenue away from the Social Security revenue stream creates a significant sinkhole 

that exacerbates Social Security’s cash-flow problems. Non-cash accounting transfers 

from the General Fund cannot alleviate these cash-flow problems. Last year, the 

U.S. government had to borrow $142 billion from investors—including foreign countries like China—to pay Social Security benefits to our seniors. 

Congress must fill this sinkhole to ensure that we will be able to pay promised 

Social Security benefits. That’s why House Republicans are insisting that Congress 

must offset any loss of payroll tax revenue with actual cash savings in other areas 

of the government, not accounting gimmicks. House Republicans will protect this 

vital program from debilitating cash diversions with common sense savings that 

have had strong bipartisan support. 

As for unemployment, clearly the economic policies of the Obama Administration 

did not produce the vigorous recovery, for which hardworking taxpayers hoped. Tens 

of millions of Americans are struggling to make ends meet. Millions can’t find a fulltime job, and millions more can’t find any job at all. Even worse, other millions have 

simply given up and stopped looking for work, leaving us with the lowest workforce 

participation rate in nearly three decades. 

Our economy grew at a rate of 2.8 percent in the fourth quarter of 2011. Given 

this sluggish pace, many Americans don’t believe that the Great Recession is really 

over, or else they fear it may return. Last week, the non-partisan Congressional 

Budget Office forecast that economic growth would slow to 2.0 percent this year and 

1.1 percent in 2013, while the unemployment rate would once again begin to rise 

all the way to 9.1 percent in the fourth quarter of 2013. And that’s obviously the 

wrong direction. 

Our priority must be to create a far stronger economy in which American businesses will have the confidence to make investments in new buildings, equipment, 

and software; expand production; and create millions of new well-paying jobs. 

As to Unemployment Insurance, we should reform this program and refocus it on 

the common-sense goal of getting people back to work sooner rather than just paying benefits. House Republicans have passed legislation that would: 

1. Renew long-term federal unemployment benefits for the rest of this year 

while gradually reducing the maximum duration of benefits to 59 weeks. 

2. Require recipients to search actively for work from day one. The longer 

that people are unemployed, the harder it is for them to find new employment. Under existing law, beneficiaries may collect unemployment checks 

for a year and a half without really having to look for a job. In some states, 

they don’t even have to search for a job at all. That’s unacceptable. 

3. Allow the States to adopt innovative programs to match beneficiaries 

with jobs. 

4. Require those on unemployment without a high-school degree to work on 

earning a GED. Adults without high school diplomas have a hard time finding and keeping a job. They are often the last hired and the first fired. 

5. End the federal prohibition against States testing applicants for illegal 

drug use. Drug-screening ensures that recipients will be able to take the 

jobs that they are offered. 

As we will hear today, long-term unemployment benefits have clearly helped families in need, but there is a cost as well. Two recent studies found that extending 

the duration of benefits actually increases the unemployment rate: 

• A study by the Federal Reserve Bank of San Francisco found the unemployment 

rate at the end of 2009 would have been nearly half a percentage point lower— 

9.6%, instead of 10%—if jobless benefits hadn’t been extended beyond their 

usual 26 weeks to as much as 99 weeks. 

• According to a Brookings Institute paper, the 2011 extension of long-term unemployment insurance raised the number of unemployed in January 2011, by 

86 

between 0.2 and 0.6 percentage points. That translates into between 300,000 

and 900,000 additional workers unemployed. 

Repeated extensions of long-term benefits are also threatening the solvency of the 

entire unemployment system. The States have borrowed over $38 billion from the 

federal government to cover their program shortfalls. Under current law, repaying 

federal loans and rebuilding state trust fund balances would require an unprecedented payroll tax increase in nearly every State. These higher taxes would punish 

the very job creators that we hope will add new jobs to hire the unemployed. 

To conclude, we must move forward with a bipartisan agreement to extend the 

payroll tax holiday and long-term unemployment benefits. At the same time, we 

must also adopt common-sense reforms to make the Unemployment Insurance program work better and avoid adding to our unsustainable federal debt. 

I look forward to the testimony of our witnesses as we consider how best to 

achieve these goals. 

Æ