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LABOR-MARKET POLICIES FOR FULL EMPLOYMENT HEARINGS BEFOR E T H E SUBCOMMITTEE ON ECONOMIC GROWTH OF T H E JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES N I N E T Y -F O U R T H C O N G R E S S FIRST SESSION MAY 12 AND 13, AND JUNE 3, 1975 Printed for the use of the Joint Economic Committee U.S. GOVERNM ENT PRINTING OFFICE 59-082 W ASH IN G TO N : 1975 JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) HUBERT H. HUMPHREY, Minnesota, Chairman WRIGHT PATMAN, Texas, Vice Chairman SENATE JOHN SPARKMAN, Alabama WILLIAM PROXMIRE, Wisconsin ABRAHAM RIBICOFF, Connecticut LLOYD M. BENTSEN, Jr., Texas EDWARD M. KENNEDY, Massachusetts JACOB K. JAVITS, New York CHARLES H. PERCY, Illinois ROBERT TAFT, JR., Ohio PAUL J. FANNIN, Arizona J o h n R . St a r k , HOUSE OF REPRESENTATIVES RICHARD BOLLING, Missouri HENRY S. REUSS, Wisconsin WILLIAM S. MOORHEAD, Pennsylvania LEE H. HAMILTON, Indiana GILLIS W. LONG, Louisiana CLARENCE J. BROWN, Ohio GARRY BROWN, Michigan MARGARET M. HECKLER, Massachusetts JOHN H. ROUSSELOT, California Executive Director S e n io r S t a f f E c o n o m i s t s J e r r y J. J a s i n o w s k i L o u g h l i n F. M c H u g h R ic h a r d F. Jo h n R. K a r l ik Co u r t e n a y M . S later K aufm an, General Counsel E c o n o m is t s W i l l i a m A . Cox Sa r a h Ja c k so n G eor ge R. T y l e r W i l l i a m R. B u e c h n e r R obert D . H a m r in R a l p h L . S c h l o s s t e in L u c y A . F alcone L . D o u g la s L ee L arry Y u s p e h M in o r it y G eor ge D. K rumbhaar, Jr., (Counsel) Subcommittee on M . C a t h e r i n e M il l e r E conomic Growth LLOYD M. BENTSEN, Jr., Texas, Chairman SENATE WILLIAM PROXMIRE, Wisconsin ABRAHAM RIBICOFF, Connecticut HUBERT H. HUMPHREY, Minnesota EDWARD M. KENNEDY, Massachusetts JACOB K. JAVITS, New York CHARLES H. PERCY, Illinois HOUSE OF REPRESENTATIVES WILLIAM S. MOORHEAD, Pennsylvania CLARENCE J. BROWN, Ohio MARGARET M. HECKLER, Massachusetts (II) CONTENTS WITNESSES AND STATEMENTS Monday, M ay 12, 1975 Bentsen, Hon. Lloyd M., Jr., chairman of the Subcommittee on Economic Growth: Opening statement-------------------------------------------- ----------------------Meany, George, president, AFL-CIO---------------------------------------------------------- Page 1 4 Tuesday, M ay 13, 1975 Bentsen, Hon. Lloyd M., Jr., chairman of the Subcommittee on Economic Growth : Opening statement____________________________________________ Dunlop, Hon. John T., Secretary of Labor--------------------------------------------------- 23 24 Tuesday, June 3, 1975 Bentsen, Hon. Lloyd M., Jr., chairman of the Subcommittee on Economic Growth: Opening statement____________________________________________ Ginzberg, Hon. Eli, Chairman, National Commission for Manpower Policy ___________________________________________________________________ Levitan, Sar A., professor, Center for Manpower Policy Studies, George Washington University._________________________________________________ Smith, Ralph E., senior research associate, the Urban Institute---------------Holt, Charles C., director, Inflation and Unemployment Research, the Urban Institute__________________________________________________________ 51 53 58 72 80 SUBMISSIONS FOR THE RECORD Monday, M ay 12, 1975 Meany, George: Table showing the relationship of Federal debt held by the public to gross national product_______________________________________________ Response to Senator Kennedy’s request to comment on the prime areas of tax reform________________________________________________________ Tuesday, M ay 13, 1975 Dunlop, Hon. John T. : Prepared statement___________________________________________________ Response to additional written questions posed by Chairman Bentsen ____________________________________________________________ Tuesday, June 3, 1975 Holt, Charles C. : Prepared statement____________________________________________________ Levitan, Sar A. : Prepared statement___________________________________________________ Policy statement entitled “The Best Way To Reduce Unemployment Is To Create More Jobs,” by the National Manpower Policy Task Force_______________________________________________________________ Smith, Ralph E. : Article entitled “Unemployment and Job Discouragement,’’ by the Urban Institute_____________________________________________________ (in ) 10 19 29 46 86 62 64 74 LABOR-MARKET POLICIES FOR FULL EMPLOYMENT M O N D A Y , M A Y 12, 1975 C ongress of t h e U n it e d S t a t e s , S u b c o m m it t e e o n E c o n o m ic G r o w t h of t h e J o in t E c o n o m ic C o m m it t e e , Washingtoriy D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 318, the Russell Senate Office Building, H on. L loyd M . Bentsen, Jr. (chair man o f the subcommittee), presiding. Present: Senators Bentsen, Kennedy, and Percy. A lso present: Loughlin F . M cH u gh, Courtenay M . Slater, and Jerry J. Jasinowski, professional staff members; Michael J. Runde, admin istrative assistant; and George D . Krum bhaar, Jr., minority counsel. O p e n in g S t a t e m e n t of C h a ir m a n B entsen Chairman B e n t s e n . These hearings will come to order. M r. Meany, we are very pleased to have you here this morning. The purpose o f these hearings is to consider the question o f jobs, putting people back to work, getting this economy moving again. F or genera tions we have had people coming to our shores because they were seek ing opportunity, because they wanted to live better than their parents and grandparents did. T hat is what brought m y ancestors to this coun try, and I would not be surprised, M r. M eany, i f yours came here for the same purpose. B ut today we are looking at almost 9-percent unemployment. W e are looking at projections by the administration o f unemployment through 1976 o f 8 percent. Furthermore, the administration projects from 6 million to 8 million Americans out o f work for the next 4 to 6 years. This subcommittee wants to look ahead and come up with plans that w ill be effective now and also in the future. A s I look down the road, I get concerned that we m ight be too complacent. I read on the front page o f the A p r il 21 issue o f the New Y ork Tim es that most econo mists today say we are going to have to accept 5 to 6 percent unemploy ment in this country in order to stop the rapid inflation. I just do not believe that. I think they underestimate the strength o f this economy and its recuperative powers. T hey underestimate what a well-designed set o f economic policies could do to get us to fu ll em ployment without inflation. I f the present economic policies are con tinued, we are going to have too much inflation and too much unem ployment through the rest o f this decade. W e have to have a change in policy. M r. Meany, you have been critical o f Congress for not being stimula tive enough in its approach to the budget. I agree with that, and I (1) 2 voted to increase the fiscal stimulation o f our economy. I do not think that this is time for a tim id approach. T hat would be self-defeating. W e can get rid o f the budget deficits, but we get rid o f the deficits only by putting people on payrolls where they pay taxes and where they are not drawing unemployment compensation. I say to the businessmen o f this country that the way you make pro fits is not off unemployment pay, but from putting people on payrolls where they have disposable income to spend. T he President, in fact, last month said that i f this economy were back where it was a year ago, fo r the next fiscal year we would have a balanced budget. Inflation has declined some what. B u t inflation has stayed too high because we have not effectively used our productive capacity. W e are running at 60 to 65 percent o f capacity. I understand from m y own business experience what that means. I t is less efficient for a plant to operate on one shift than on two shifts. I t is less efficient fo r an airplane to run with h alf its seats empty than with fu ll seats. The faster we move back toward fu ll employment, the faster we move back to effi cient use o f the economy o f this country. The President must under stand that. T he head o f the Federal Reserve has to understand that. M r. Meany, what we need is less faint-heartedness, more confidence in what this system can do, and a program o f growth rather than stagnation. T hat is why I am very delighted to have a man o f your stature and influence give us advice on what our policies should be, both long-term and short-term. I would like to call on Senator Kennedy fo r any comments he m ight have. Senator K e n n e d y . Thank you very much, M r. Chairman. I want to commend you, Senator Bentsen, fo r calling these hearings on the m at ters that are o f such importance and consequence to m illions o f Americans, not only those who are currently unemployed, but also those who have potential loss o f their current jobs because o f the m is management. o f our economy. I also want to thank President M eany for coming here this morning. I look forward to listening to President M eany speak on the issue o f jobs. Perhaps better than anyone else, he can look back at the difficult times the economy has faced and draw lessons for the present. H e can remember, I am sure, the period o f the 1930's, when there were millions walking the streets, looking for work. W e had creative leadership. W e had a dynamic policy. The great engine o f the American economy beq-an to provide opportunities fo r our wrorkers. In 1946, we faced the problem again. M illions o f men and women came home from the Arm ed Forces. The challenge again was to develop the kinds o f economic, monetary, and fiscal policy to get them back to work, and we did it. M ore recently, in the early 1960’s, we had 7-percent unemployment coming out o f the recession o f 1958. A g a in , we were able to provide economic leadership for the country, and we saw a reduction unemploy ment to 3 % percent by the end o f i965. A t the same time, we had infla tion under control. The consumer price index went up 3.5 percent, not in 3 months, but in 3 years. W e had economic growth and price stability, and we put people back to work. S o we know that it- can be done. W e know that it must be done. W e know that if we had the number o f people working today that we had 3 2 years ago, we would have a surplus in the budget, because we would have vastly increased tax receipts and we would be saving billions o f dollars in unemployment compensation. So the real question is lead ership, and the development o f programs to meet the economic plight we face. The problems o f jobs and unemployment are the key issue in m y own State o f Massachusetts and New England. W e have seen that the ad ministration’s priority is in the problems o f inflation, but the work ers o f m y State are most concerned by the problems o f recession. W e know that you have a wealth o f experience and understanding about these particular issues, and as a member o f this subcommittee, I look forward to your comments this morning. So I welcome you here. Chairman B e n t s e n . Senator Percy. Senator P e r c y . Thank you, M r. Chairman. W e certainly welcome N at Goldfinger and President Meany. I f we address you as M r. President, maybe the spirit w ill be catching for the three o f us this morning. I cannot help but feel that I trust that whatever issues are raised in this forthcoming campaign, we are going to concentrate heavily on building a better and stronger America. I think the best way for us to restore our image around the world is to run an exceedingly good country and take care o f our own people. I cannot imagine anything that would do more to encourage confidence, than to have fu ll employment. I cannot help but think o f the despondency, disillusionment, and despair o f m y own father in the depression, who was unemployed along with 17 million other Americans. I remember the hopelessness and the feeling o f a man or a woman who has worked all their lives and then has no place to go. F o r that reason, I think we need a pro gram that w ill provide public service jobs so that we will have work rather than welfare. I f the Government is going to pay it one way or another, how much better to pay it when we can provide services and at the same time provide dignity to the individual. Certainly, we must continue and extend our unemployment benefits for people who have worked and paid in. Those benefits should not run out. People should not have the feeling that they are on welfare when they have paid into a fund that should sustain them through this temporary period. This is the time to expand our public service, but not to expand our public works. W e need to put people to work in very useful projects. Certainly, the concerns that families have today are very deep as they go off a payroll and realize they are losing their health benefits for their fam ily. T hat is the concern and fear that families have. W e sim ply cannot permit or allow it. T o permit home building to dip down below 1 million homes when we need 2 y2 billion per year and not build those homes and find a creative, innovative way to do it, at a time like this, would be absolutely tragic. W e seek counsel, and the purpose o f these hearings is to put the pressure where the pressure has to be put now, on O M B , on the W h ite House, and on the Congress to enact those programs that w ill stimulate the economy and lead to confidence in 4 the business community, restore confidence to the American consumer, and as one President said, “ L et us get m oving again. This is the time to do it.” Thank you, President M eany, fo r being with us this morning. Chairman B e n t s e n . Thank you, Senator Percy. Senator Kennedy. Senator K e n n e d y . President M eany, I just wanted to mention one other point— it is not the subject o f this meeting this morning, but I do want to commend you on your statement on the Vietnam refugee issue, welcoming them to this country. I thought that was enormously courageous o f you. Y o u deserve a great deal o f credit for that leader ship. I t was a strong statement. A s one who has spent much time on the issue o f the refugees, I thought you performed an outstanding public service and helped to defuse a rather explosive issue. I just wanted to commend you. Chairman B e n t s e n . I certainly concur in that. President M eany, please proceed. STATEMENT OE GEORGE MEANY, PRESIDENT, AFL-CIO M r. M e a n y . Thank you, M r. Chairman. The subject o f this hearing is fu ll employment, and I am delighted that this committee is looking for programs to achieve and maintain fu ll employment, not just talk about it. In our opinion, it is high time that the Congress did this, and abandoned the ivory tower approach. F or now, we need action, not words. The issue sim ply, M r. Chairman, is jobs. I t is the health o f the American economy, the strength o f American society. The issue is crucial today, and it is crucial fo r the future o f this country. T his economy, this society, is in deep trouble. The Government’s recent report o f 8.2 million unemployed, 8.9 percent o f the labor force, constitutes human tragedy. A n d that official report is a vast under statement o f the reality o f unemployment and underemployment in 1975. Over 1.1 million workers, who are w illing and able to work, are so discouraged by the employment outlook that they have given up seeking jobs. A n d , o f course, they are not counted as being unemployed. A more accurate unemployment rate, therefore, would be 10 per cent, or 9.3 m illion jobless. In addition, 3.9 million workers were on part-time schedules because full-tim e work is not available. This adds up to 13.2 million unemployed and underemployed workers in A p ril o f this year. Such conditions must not be permitted to continue in a free society. T hat is particularly true o f Am erican society, where a job is much more than just the m ajor source o f fam ily income. I t is also a key measure o f a person’s place in society, whether he or she is a fu lifledged member or on the outside, looking in. The administration forecasts at least 5 more years o f high unem ployment* and the budget committees o f the Congress are nearly as pessimistic. The administration’s budget report o f February 3 fore casts an 8.1-percent unemployment rate fo r 1975, which would move down only slightly to 7.9 percent in 1976. T he report also projected unemployment rates o f 7.5 percent in 1977 and 6.7 percent in 1978. 5 That would mean the highest unemployment rates since 1941, when the economy was coming out o f the Great Depression. Unemployment thus far in 1975 has become worse than that early forecast for this year predicted. However, even i f we hold to the administration’s February 3 projections, they would mean 7.5 m illion unemployed in 1975 and 1976, declining only to about 7.1 million in 1977 and 6.6 million in 1978. On the basis o f present trends, the administration’s insistence on a $60 billion budget deficit in the coming fiscal year will mean an unem ployment rate in the neighborhood o f 8 percent by the end o f 1976— 7.9 million jobless. The Senate and House have approved reports o f their new budget committees, with ceilings on job-creating measures that are not much different from the administration’s. The ceiling voted by the Senate would mean 7.1 million jobless by the end o f next year, and the House vote would mean 6.7 million jobless at that time. Four successive years o f such levels o f unemployment are what the ad ministration has predicted. That is the meaning o f the lid it is trying to impose on further measures to create jobs. A n d both Houses o f the Congress have fallen in line by their votes in support o f their budget committee recommendations. This is dangerous, foolish thinking. I t is to say there is nothing that can be done. W e resent and reject this defeatism. W e know America cannot tolerate— and more important, will not tolerate— such high rates o f unemployment that would tear at the fabric o f this free soci ety. In fact, we are convinced that this country and its free institutions are endangered by this situation, which is pushing millions o f people ont o f the economy’s mainstream. W e need programs to put America back to work, now. W e need far more than the tax cut. W e need substantial job-creating measures, to quickly turn the economy around from the worst decline since the 1930’s. However, the administration does not seem to understand this. Neither do many Members o f both Houses o f the Congress. That, to me, is appalling. T hirty years ago, as W o r ld W a r I I was ending, the Congress began hearings on the issue o f fu ll employment. A bipartisan m ajority adopted the Em ploym ent A c t o f 1946, and on February 20,1 9 4 6 , Presi dent Truman signed that statute. I t committed the U .S . Government to a continuing policy o f creating and maintaining “ conditions under which there will be afforded useful employment opportunities, includ ing self-employment, for those able, willing and seeking work, and to promote maximum employment, production and purchasing power.” In 1946, those were brave words. L et us look at what has happened since. There was a general consensus that fu ll employment in the American economy was an unemployment rate no higher than 3 per cent. D uring the past 30 years, the goal o f fu ll employment has been neglected more often than m et; by the Congress, as well as the execu tive branch. In addition, there has been a slow but rather steady ero sion o f the goal itself, especially in the past few years. Government officials and their academic supporters have been busy redefining the goal. I t went from a 3-percent unemployment rate to 4 percent, then to 41/2 percent and now to 5 percent or 5 percent. I t is an old game, if you can get away with it— i f you do not make the grade, change the 6 rules. T o me, that is fakery, regardless o f whether the trickster is a college professor or a government official. Unfortunately, M r. Chairman, we are a long, long way from fu ll employment. W e are a long, long way from a goal o f 5 percent or 5 y2 percent. Moreover, even administration spokesmen admit that the 8.9percent jobless rate o f A p r il is not the peak; that they expect it to go over 9 percent. A n d i f they say that out loud, M r. Chairman, you can bet it is going to be worse. So, this country is further away from the maximum employment goal o f the Em ploym ent A c t o f 1946 than ever. Even worse, both the administration and the m ajority in the Congress are much further away from the Government’s commitment to fu ll employment than ever before. Unemployment rates represent people. They represent families. A t present, every percentage increase in the unemployment rate is more than 920,000 additional jobless workers. Every one-tenth o f 1 percent rise is over 92,000 more unemployed. Y et, the administration seems determined to achieve its intolerably high unemployment projections. There is no other way to interpret the administration’s all-out cam paign to maintain a tight lid on job-creating programs. The adm in istration has clearly opted for high unemployment— in the sacred name o f hoi ding down the budget deficit. M ajorities o f both Houses o f the Congress have also decided on a tight ceiling, not too much different from the administration’s, that w ill curb needed Government measures to create jobs and stimulate economic expansion. I f such a ceiling is maintained, the number o f unemployed will be between 6.7 and 7.1 million at the end o f 1976 and the budget deficit will still remain large. M any Members o f the Con gress, unfortunately, seem to have become hypnotized or scared by the administration’s concentrated drive on the budget issue. T he focus on budget costs omits the benefits— increased jobs and increased earnings, reduced unemployment benefits and welfare costs, increased sales for business, increased savings and investment, in creased tax receipts— all the benchmarks o f an economy rapidly m ov ing to fu ll employment and prosperity. The basic deficit is not in the Federal Government’s budget, but in jobs and earnings. H ig h unem ployment in the coming years will mean continuing large budget deficits, continued hardship' for workers and their families, continued recession. The accumulated budget deficit o f the past 6 years from fiscal year 1970 through 1975— $101.6 billion, according to the budget report o f Februarv 3— is almost twice as great as the accumulated net deficit o f the previous 23 years, from 1947 through 1969. The prim ary reason is the two back-to-back N ixon-Burns recessions o f 1969-70 and 1973 to the present. The cost o f these recessions has been huge losses o f po tential Federal revenue and increased up employment and welfare ben efits. The budget deficit for fiscal vear 1976 will be due to the worst and most serious economic mess since the Great Depression. Back on February 3, the budget report candidly adm itted: Aside from the effects of the proposed tax reduction, the deficits anticipated for 1975 and 1976 are largely the inevitable result of those aspects of the budsret and the tax system that respond automatically to cbangres in the economy, such a?? bndffet. receipts and unemployment benefit p«vmenta * * * if tbe economy were to be as fully employed in 1976 as it was in 1974, we would have $40 billion 7 . in additional tax receipts, assuming no change in tax rates, and $12.7 billion less in aid to the unemployed. These two factors alone exceed the budget deficit for 1976. O f course, since then, the economic situation has gotten worse and the need for measures to create jobs and stimulate economic expansion has grown. A n d the anticipated budget deficit has grown, too, as a re sult. The way to cut the deficit, quickly and substantially, is to put Am erica back to work. The road the administration and the Congress have taken means continuing deficits, continuing high unemployment, continuing hardship, continuing recession. T he single-minded focus on the deficit spells disaster. W e should face up to the fact that this country is big enough to take a $103 billion deficit if necessary. Business goes out and borrows money to expand. Corporations like A .T . & T . borrow $500 million at a crack. They do not sell their assets; they borrow the funds they need. W h y should not the U .S . Government do the same? W h y not borrow to invest in America ? A fte r all, the U .S . Government is a viable entity, even more viable than the great corporations that borrow huge sums. I f the leadership o f this country had considered only the budget deficit in the early 1940’s, H itler would have won the war. This coun try would not have been able to supply the A llies with urgently needed arms, and Am erica could not have rearmed itself. President Roosevelt and the Congress had faith in America. So the United States per formed a production miracle, and paid no attention to the huge budget deficit. They viewed it as an investment in freedom. In fiscal year 1947, after the war was won, the Federal publicly held debt was over $225 billion. T hat was 103 percent o f the gross national product o f less than $220 billion. In other words, M r. Chairman, we owed more money than the sum total o f all the goods and services we could produce at that time. Our gross national product was $200 b il lion, and we owed— the public debt was $225 billion. A n d that did not ruin America. In 1960, the gross national product was $495 billion, and Federal debt was $237 billion, or 47 percent. In the fiscal year that ended June 30, 1974, the debt o f $346 billion was only 25.7 percent o f the gross national product. In other words, our debt now is one-quarter o f our gross national product. In 1947, our debt was more than our gross national product, and it did not ruin Am erica. W e did not go out o f business. W e invested, and we were able to pay off. The only way that you pay off is to get people back to work, because you start feeding them, you stop expanding special social services, and you put them back where they started; to paying money into the Federal Treasury through taxes. The production miracle o f W o rld W a r I I did not bankrupt the country. A n d a massive investment in America today o f public funds would not bankrupt this N a tio n ; it would restore it to economic health. This country has vast resources. The idea that the Federal Government should impose a tight budget strait jacket on itself in the face o f most serious unemployment is ridiculous. Those who say otherwise— the President and the m ajority in the Congress— have no faith and confidence in Am erica. T hey ignore the basic health and potential vitality o f the economy. They run scared at a moment when Am erica needs bold, courageous leadership. W e say : Am erica’s economic house is on fire. L et us do what all firefighters do : Put out the flames and then mop up any excess water. Firefighters do not do what the administration preaches: Ration the water, put out only a bit o f the fire, because otherwise we m ight be using too much water. So, the only sound way to quickly cut the budget deficit is to put Am erica back to work, so that American workers and businesses can increase their earnings and pay their taxes. Let us get the job-creating measures, now, to put America back to work and raise the needed funds. The present state o f affairs o f the American economy is one o f vast amounts o f idle plants, machinery and productive equipment, as well as idle manpower. Never, in the years since the end o f W o r ld W a r I I , has there been such a huge amount o f unemployed and underemployed manpower and unused and underused productive capacity. T he homebuilding industry has been in a deep depression for many months. A housing shortage is developing, while much o f the manpower, m a chinery and business firms in this industry are without work. This situ ation in homebuilding, combined with the sharp drop in consumer buy ing power and retail sales, have resulted in the steepest recessionary decline o f industrial production since the 1930’s. A n d this, in turn, has resulted in a sharp drop in industry’s operating rate. According to the Federal Reserve Board, only 68.3 percent o f the productive capacity o f manufacturing industries was utilized in the first quarter o f 1975, a decline o f 18 percent since the recession started. The Federal Reserve B oard has also reported a drop o f 24 percent in the operating rate o f the m ajor materials industries in the same period— from 94.5 percent to 70.7 percent. Because o f great amounts o f idle plants and machines and high interest rates, business is cut ting back investment in new productive capacity, hitting the machinery industries and heavy construction. A n 8 % percent drop this year in the real volume o f business investment is expected by the Commerce Department, and the actual decline m ay be much greater. In the face o f such business conditions, talk o f a large Federal deficit crowding out business investment, at any time in the near future, is simply scare talk. Business investment is weak, because the economy is weak and there is so much idle productive capacity. Business invest ment will improve only when sales and production rise enough to cut idle productive capacity. Then and only then will management be con vinced that new plants and machines can be operated profitably. Such rising sales, production, and employment would generate in creased savings, as well as increased tax revenue and would reduce the need for unemployment and welfare benefits. So the deficit would be low or nonexistent, and there would be plenty o f available funds for increased business investment. The No. 1 need, therefore, is to get America back to work, now. The key issue is the need for jobs. Depression-level, double digit unemploy ment continued to hit m ajor groups o f workers last month. U nem ploy ment rates were 20 percent among teenagers, 19.3 percent among con struction workers, 17.2 percent among the unskilled, 14.9 percent among the semiskilled, 14.6 percent among blacks, 14.6 percent among the 20- to 24-vear-olds, and 12.2 percent among factory workers. The un employment rate among black teenagers was 40.2 percent. W h en we look at our inner cities, we look at crime, and we look at the problems, and we look for the cause. T h at figure represents the cause; 40 percent unemployment among black teenagers. However, statistical reports on unemployment in a specific month, or the monthly average during a year, do not deal with unemployment in human and social terms. The clearest picture o f the human and social aspects o f unemployment is indicated by the Bureau o f Labor Statis tics’ report on the annual work experience o f the population. T he most recent o f these reports is for the year 1973. In 1973, when the Labor Department reported an average 4.3 million unemployed in each month o f the year, the impact on people was revealed by the follow ing facts about the population’s work experience; 14.5 million people were un employed at some time during the year. Over 8 million workers were jobless for 5 weeks or more during the course o f 1973; 4.5 million work ers were unemployed for 15 weeks or more during the year. These figures on the work experience o f the population in 1973 present a grim picture o f the probable unemployment realities for workers this year. On the basis o f present trends, the average number o f unemployed in each month o f 1975 will be about 8 million or more. In terms o f the impact on people, this would mean approximately 25 million or more workers will be unemployed at some time during the course o f the year. A bout 15 million or more workers will be jobless for 5 weeks or more during the y ear; 8 million or more workers will be jobless for 15 weeks or more in 1975. So, M r. Chairman, the problem o f unemployment is fa r greater than the official statistics, grim as they are. Nearly a quarter o f the work force is going to be unemployed sometime this year, and many, many more are going to live in fear of losing their jobs. There are very few tragedies in a person’s life that surpass the sudden involuntary loss o f one’s job. “ Y ou are laid off” are words that burn themselves not only into a man’s pocketbook but also into his very soul. Several results are obvious to everyone. The first, o f course, is the loss o f steady income. The fact that unemployment in the 1970’s is temporarily alleviated by unemployment compensation, public assist ance, and food stamps is no consolation to those who want steady work. The second is the burden o f indebtedness. M ost workers are in debt for their homes, cars, refrigerators, television sets, and other appliances, and the fear o f harassment, guilt o f bills unpaid and the shame o f possible bankruptcy haunt the unemployed. The third is unwanted idle time— not tor creative use, but just to stand in line for food stamps, fo r job applications, fu ll o f worry, bitterness, and frustration. B ut prolonged involuntary unemployment causes a number o f changes which are not always evident. The first o f these is the loss o f self-esteem. T his is often accompanied by stresses and strains in fam ily relationships. Tensions between husband and wife, caused by unemployment, are often resolved only by divorce courts, and tensions between parents and children often result in alcoholism, drug abuse, and crime. The tragedy o f unemployment causes not only personal and fam ily upheavals, but social and community upheavals as well. Am erica certainly cannot stand a prolonged period o f such condi tions, breeding troubles that can tear the fabric o f this society. The time for job-creating measures to turn the economy around and move rapidly to fu ll employment is now. I t is time the Congress and the 10 administration live up to the Government’s commitment under the terms o f the Em ploym ent A c t ; to promote maximum employment, productivity, and purchasing power. Specifically, M r. Chairman, we recommend: one, accelerated public works, to create jobs by providing $5 billion o f Federal grants to local governments for short-term public works construction and re pairs that can start within 2 months. Tw o, an expanded public service employment program, to create jobs for the unemployed in the States and local governments in meeting public needs for improved and ex panded services. Three, adoption by the Congress and government implementation o f pending programs to lift homebuilding out o f its depression. Four, extended unemployment benefits fo r the long-term unemployed who have exhausted their unemployment benefit periods under existing law. F ive, aid to the many cities that are hard pressed by high unemployment. S ix , Federal funds for the restoration o f rail road track and railbed. Seven, adoption by the Congress o f a Federal program to continue health insurance for the unemployed whose cover age by such insurance w ill otherwise terminate. E igh t, congressional enactment o f legislation to place a ceiling on interest rates and to require the banks and other financial institutions to allocate available credit for such high-priority purposes as housing. Nine, enactment o f legislation to close the m ajor loopholes in the tax structure, to raise as much as $20 billion or more o f additional revenue and achieve tax justice. Ten, adoption o f effective government measures to stop the export o f American jobs and to regulate the export o f American technology and capital. L et me conclude, M r. Chairman, by expressing our appreciation to this committee for holding these hearings and giving us an opportunity to state our views. B u t I would be less than frank i f I did not add these w ord s: The time for talk is past. The time for action is now. F o r the Congress to delay, to demonstrate tim idity, to sell America short would be sheer tragedy. W e urge the Congress to move sw iftly, courageously, and with compassion and, above all else, to demonstrate confidence in Am erica and her future. Thank you. [T h e follow ing table was attached to M r. M eany’s statement:] RELATIONSHIP OF FEDERAL DEBT HELD BY THE PUBLIC TO GROSS NATIONAL PRODUCT [In billions of dollars] Fiscal year: 1947............. 1948 1949............. 1950............. 1951............. 1952............. 1953............. 1954............. 1955 1956............. 1957............. 1958............. 1959............. 1960............. Gross national product Debt held by public Debt held by public, percent of GNP $219.7 243.5 260.0 263.3 310.5 337.2 358.8 362.1 378.6 409.4 431.3 440.3 469.1 495.2 $225.6 216.6 214.5 219.6 214.3 214.9 218.5 224.5 226.6 222.2 219.4 226.4 235.0 237.2 102.7 89.0 82.5 83.4 69.0 63.7 60.9 62.0 59.9 54.3 50.9 51.4 50.1 47.9 Fiscal year: 1961............. 1962............. 1963............. 1964............. 1965............. 1966 _____ 1967............. 1968............. 1969 1970............. 1971 1972 1973............. 1974 Gross national product Debt held by public Debt held by public, percent of GNP 506.5 542.1 573.4 612.2 654.2 721.2 769.8 826.0 898.3 954.6 1,012.1 1,101.6 1,224.1 1,348.9 238.6 248.4 254.5 257.6 261.6 264.7 267.5 290.6 279.5 284.9 304.3 323.8 343.0 346.1 47.1 45.8 44.4 42.1 40.0 36.7 34.8 35.2 31.1 29.8 30.1 29.4 28.0 25.7 Sources: U.S. Department of Commerce, Office of Business Economics, U.S. Department of Treasury, Office of Debt Analysis, Office of Management and Budget. 11 Chairman B entseist. Thank you, President M eany, for a very fine statement. I must say I agree with you that the time for action is now. I am going to meet with the executive committee o f m y transportation subcommittee and recommend reporting out a bill which will give flexibility to the States in the use o f their highway construction funds, and which will also provide 100-percent matching funds to the States for a period o f a couple years to stimulate those jobs. A n d every billion dollars o f funds I release for that purpose will create another 125,000 j°b s. W e are talking about permanent investment in the future o f this country. So we are going to get some action in that regard. President M eany, I would like to say again, the objective o f these hearings is to focus on economic policies that are requiring us to accept unemployment o f 8 and 9 percent to curb inflation. I cannot accept that. I have been going around the country to make m y point to the public, so they will understand our view. I would be delighted to have you join me at any point. Better yet, I would be delighted to join you in helping spread our message around this country— that we have a strong economy and we can build it. I appeared before the conference board in New Y o rk saying that we must stimulate the economy. This was before some 1,200 or 1,500 busi nessmen. I told them that with business borrowing down, business was not going to be the one to stimulate this economy. The natural thing for business to do when you have a recession is take their capital spend ing plans and put them aside, and say, let us wait this one out. W h en things turn around, then we will make those investments. T hat is why we can handle a large Federal deficit now, because busi ness borrowing is substantially down. W e had 13 bankers testify that we could finance this deficit at this time. Now is the time to stimulate the economy. Productive capacity is down, consumer confidence is down, private enterprise is not spending money fo r capital invest ments. I would say, President Meany, that with high unemployment among teenagers, we m ay have a long, hot summer awaiting us. W e had better take some action now in reporting out some o f the bills and some o f the appropriations requests to see that these young people have jobs. W h en they get out o f high school and college, and they are told they are going to have to wait 3 or 4 years for a job, there are long-term serious social consequences and economic consequences that we cannot accept in this economy o f ours. I want to read you a letter I received from a constituent o f mine. I t says, “ Dear Senator Bentsen, I never thought I would see the day that I would have to ask for help in getting a job, but it is here. I have been looking since mid-December with no luck. Y ou would not believe the places that I have been into in this growing city where I am told I am either over- or under-qualified. T he truth o f the matter is that I am middle aged, and very, very few people have openings for individuals like me. I have one dependent and live in what is called affluent north Dallas. W o u ld you believe it, I now get unemployment compensation which I prefer not to get, but I have no choice. I t keeps me, so far, from having to sell m y home, which would just kill me. I t does not seem right that in this city, where m y fam ily was born and raised, and where I have paid taxes for so long, that I cannot get a job. I do not 12 want to have to sell m y home. I do not want charity in any manner, shape, or form. A l l I want is a job so I can make a living and maintain m yself with respect and dignity.” Now, that is from one o f my constituents. I do not know o f anything that is more disheartening to an individual than to be told that society has no productive role for him or her to fulfill. I do not think that is the way it has to be in this economy o f ours. W e can turn this economy around. W e can take the programs and the stimulative action that will do it, and we can get people back on payrolls, paying taxes and balancing the budget again. So I certainly think there is a need for stimulus. Y o u made the point about targets. I recently asked A la n Greenspan what the administra tion’s targets'for economic policy were, and this is what he replied: “ I do not think that we should set a target. I think that you just con tinue to move, and not decide in advance how far you can get.” N ow that is not the kind o f leadership we ought to be having in the economy. M r. M e a n t . I f American business were in business that way, we would not have any American business. A n d what the Congress is doing, to me, is deplorable. They are saying, in effect, we are going to spend x dollars, no more. W h en I see the President of the United States put his hand across the chart— no higher will the deficit go. H e did not put his hand across the chart and say, no greater suffering are we going to have, no more people out o f work are we going to have. O h, no, he did not say that. Everything is based on this idea o f balancing the budget, this eco nomic philosophy o f the people who have been running this country, and running it down. A rthur Burns has been running this country since February o f 1969, and look at. the track record. Down, down, downhill, all the way, and still he is the oracle now telling us— he is now telling us what the Am erican unemployed need is a dole. A n d this is an insult to the Am erican worker. H e said, let us put them to work, let us make the Government the employer o f last resort, and let us put them to work at the minimum wage so that they will not be encouraged to stay with the Government i f they can find a job outside, intimating that they are unemployed because they do not want to look for a job and do not want a job. A n d this is the man who is running our economy . The way that you should run your business i s : W h a t is the possi bility o f expansion ? W h a t is the possibility o f a wider market ? W h a t is the possibility o f new methods to produce more economically ? A n d then appropriate the money to do those things, not put a ceiling on and sit with, folded arms and say, we are going to do nothing until somebody— some outside force— pushes us in a new direction. N ow , this policy o f not borrowing enough money to put Americans back to work is absolutely ridiculous. W h a t kind o f a society is it ? H ow vital is this thing that we call the United States o f Am erica ? D o we have any confidence in it ? Can we go in debt ? I can go in debt. E very kid who gets out o f college and gets mar ried, he can go in debt. Every corporation in Am erica goes in debt. A n d when you measure the debt, what is the viability o f the entity that you are dealing with? W e could borrow and owe more than our gross national product in 1947, when the debt was 103 percent o f our 13 gross national product, and in 1948 we were 89 percent, 1949 we were 88 percent, and it did not ruin this country. Today we are told, no, we cannot go over $60 billion with our budget deficit no matter how much misery, no matter how much unemployment it causes, no matter how much degradation accompanies that. This indicates to me that the President o f the U nited States and our dear friends in the Congress who are follow ing these eggheads over there who have been hypnotized by Burns and Greenspan— it indicates to me that they do not have confidence in the United States o f Am erica. Chairman B e n t s e n . Let me say to you, President M eany, I do not believe in continuing deficits. T he way you get rid o f continuing defi cits is to put people back on payrolls and get them off unemployment compensation, and back to paying taxes where they want to be. I have always believed that business does well when the people do well. Unless they have some disposable income, they are not going to be putting money in savings and loans and in banks, they are not going to buy products and lift corporate profits and help balance the budget. T h at is why I think you have to take stimulative action to turn the economy around, and you have to accept a larger deficit now to have yourself a balanced budget in the future. M r. M e a n t . One point in the unemployment rate means $16 billion to $17 billion additional revenue to the United States Government. I f we were anywhere near the unemployment rate we had 4 or 5 years ago, we would have a surplus, not a deficit. Chairman B e n t s e n . Senator Kennedy. Senator K e n n e d t . Thank you very much, M r. Chairman. I t seems to me, President Meany, that we have Secretary Simon speaking for W a ll Street, M r. Greenspan speaking for the business community, and A rthu r Burns speaking fo r the banks. W h o is speaking for the American worker in the development of this economic policy? M r . M e a n t . I do not know. I look in vain to the W h ite House. I look with a great deal o f dis couragement to the Congress. I am saying to m yself, where are the friends o f the common man in America ? W here are the people who are concerned? Senator K e n n e d t . Y o u do not see the voice o f the American worker represented in the high councils o f government ? M r . M e a n t . N ot at all. N ot at all. Senator K e n n e d t . I have listened with a great deal o f interest to the President’s talk about the need to keep our commitments around the world. B u t when are we going to start keeping our commitment to the American worker? T h at is a question being asked by hundreds o f thousands o f workers in m y own State, and I am sure it is being asked by millions o f people you represent. W h en are we going to keep tne commitment to the American workers we made in the Em ploym ent A c t o f 1946? W a s that commit ment an empty one, at least at the present time ? M r . M e a n t . I would say so, yes. I do not think that there is anyone around the administration that is concerned with that commitment. T o me it is a commitment that should be honored. 59-082— 75-------2 14 Senator K e n n e d y . Could you tell about the individuals who are suffering because o f this economic policy. I do not see the m ajor oil companies suffering. I do not see the great military industrial complex suffering a great deal with the problems that we are facing in our economy. I t seems to me that the real burden o f our economic problems is fallin g on the working people, on the aged, on the young, and on the poor. I wonder, in terms o f a sense o f equity, if that is what this coun try is all about. Quite clearly you do not believe so. I wonder whether you m ight be able to elaborate on the sense o f inequity that exists about our economy. A re there some groups that suffer a great deal more than other groups ? M r . M e a n y . I t applies to all elements o f the society. T hey are all affected. I t applies to the young, to the middle aged, to the elderly. I feel very keenly now, the most important factor in the new whole unemployment picture is— you know, they break it down every month, they break it down into categories, all sorts o f categories. A key unemployment figure is what they call the heads o f house holds. In other words, the head o f a fam ily. In 1969— i f m y memory is correct, and it m ay not be, but it is not too fa r away— the rate for heads o f families was 1.9 percent unemployed. T h a t is a very, very low rate. Incidentally, a couple o f years ago when it got up to 3 percent, the administration’s spokesmen were bragging about that fact that this was low compared to the rest— 3 percent— even though 3 percent was quite a bit more than the 1.9 percent that happened in 1969. N ow the rate is 6 percent— the heads o f families rate is 6 percent. I t is three times more than it was 3 years ago. This is deplorable. W h en you are talking about heads o f the families, you are talking about a f amily— more than one person. Y o u are talking about a couple o f kids going to school, maybe sending a kid off to college, trying to pay off a mortgage on a house. A n d this is a very, very bad figure from the point o f view o f the overall economy. F rom the point o f view o f equity and human decency. I think the bad figure is the teenage figure, because you take these kids coming into the labor fo rce; they have completed their education, they now want to contribute— maybe to help their families. A n d right now this is one o f the worst figures o f all. Summer jobs, this year, are going to be almost nonexistent. A n d when you think that here is the real tragedy— the older people are right, they have had a life experience, they can take it, and so forth. Y o u take young kids coming into the labor market, just complet ing their education, and they are confronted with nothing. A n d what that is going to do to America— and we have an administration that is sitting back and saying, in effect, this is all right, this is great, we are going to take this 6 and 7 and 7.5 million people unemployed for another 4 or 5 years; i f we do that, well, that is going to be all right, everything is going to come out fine at the end o f 4 or 5 years. I f that is going to happen, we are going to have a very different picture o f Am erica. I t is going to be an entirely different Am erica than we see today. L et me say another thing. Y o u are talking about commitments. I say this Government has a commitment, and it is a commitment to 15 fu ll employment and a commitment by the Congress, and a commit ment that has a bearing on the administration. A n d we are told now, despite the tragedy in South Vietnam , despite the fact that the dis credited domino theory is showing itself in Laos, Cambodia, and these other places, despite this complete loss o f confidence, we are told now that Am erica’s commitments are going to be honored. L et me tell you you are going to have a hard time convincing people in the rest o f the world. I t you have a 7-percent, 8-percent unemploy ment staring you in the face for the next 4 years, you are going to have a lot o f time convincing people in the rest o f the world that other com mitments are going to be observed when we have an administration that cannot honor its commitments to the Am erican people, where its first duty lies. Senator K e n n e d y . H ow are we going to get the President’s ear on this? M r. M e a n y . Senator, I had the honor and pleasure o f testifying to the President sitting just where A n d y is sitting in relation to me. A n d he listened very, very attentively— he is a very good listener— but nothing has happened since. I got his ear— I told him just practically what I told this subcom mittee this morning. Senator K e n n e d y . W h a t kind of a reaction did you get? M r. M e a n y . The only reaction I got was he felt— on the accelerated public works bill, which is one o f the bills I mentioned, he said that this was bad because local politicians would misuse that money, and so on and so forth. B u t he made the point that I have heard other people make— I heard B ill Simon make— that i f this budget goes too high, that this would dry up private financing. The funny part o f this, the Business Advisory Council does not agree; the F irst National City Bank does not agree; M organ Guaranty does not agree. B u t this is the position o f the administration, that this would dry up private credit. W here is the need now fo r private credit ? Is this what is holding up Am erica’s economy ? The fact that private business cannot borrow— that is not the reason. W h y do they not borrow ? They do not borrow because there are no prospects, no reason to borrow. A s you said a minute ago, Senator, they sort o f pull in their horns, and they say, let us wait this one out. W a itin g for what? The only stimulus must come from the Government, it must come from Congress. Senator K e n n e d y . M y time has expired. Chairman B e n t s e n . Thank you, Senator Kennedy. Senator Percy. Senator P e r c y . M r. M eany, at the outset, I threw some marshmellows to you because I agree with some o f your goals and objectives. B u t I will now play an advocate role and throw rocks during the 10minute questioning period, because I think your testimony has enough profound material in it that ought to be questioned. I have just flipped through the testimony you gave before this com mittee in A p ril o f 1972. I think you will remember, because that is the testimony when Senator Proxmire tried to run the clock on you, and you proved your ability to outfilibuster Senator A llen. 16 That morning, the testimony dealt almost entirely with inflation. Inflation then was 6.2 percent. Today inflation is 10.2 percent, and yet this morning, you virtually do not comment on inflation. Y o u do say in your testimony, Am erica’s economic house is on fire. M any economists would say, M r. M eany, you are throwing fuel on the fire this morning. Specifically------M r. M e a n t . The fire is the loss o f jobs. A n d this is 1975, and we have a different situation. Senator P e r c y . Inflation is even worse. M r. M e a n y . W here is your W I N button, Senator ? I do not see your W I N button. W here is it ? Senator P e r c y . I borrowed it when I had it on. I t was the only one that they had, and I had to give it back to the President. I think we have to keep up this battle against inflation, and I would like to specifically ask you, on programs one through seven, you recommend very expensive programs with no price tag on them. H ow much would those programs cost ? D o you have specific recom mendations, with dollar figures, as to what you are recommending ? M r . M e a n y . I t would mean $100 billion deficit this year. I am pro posing that the Congress and the administration have the courage enough to go to $100 billion in debt in order to get America back to work. T hat is what I am proposing. Senator P e r c y . L et me ask this, then. W o u ld you, and the Congress, have the courage to say to the A m eri can people that there are ways you can pay for this as you go? Y ou do not have to add it all to debt. In fact, I think people are going to be very, very concerned about a $100 billion deficit. W o u ld it not be well to raise some revenue, increase some taxes, that would not add impact to inflation? Let me give you a couple o f specifics. Gasoline prices, in my judgment, are too low in this country. They do not give us the incentive for mass transit; they subsidize gasoline, so we use more highways and more automobiles. A penny a gallon is $1 billion to the Federal Government. W o u ld not increasing the gasoline tax— unpopular as it might be— add to revenue and still discourage the use o f gasoline, and help make us independent? W e have not raised the gasoline tax for 23 years. W e have not raised tobacco and alcohol taxes for 25 years. W e sub sidize tobacco and alcohol with our low taxes at the Federal level. W h y should we not double those right today and bring in $5.8 billion on those two products, the consumption o f which, i f we reduce it, would probably benefit the country, not hurt it. W h y can we not pay in more as we go, and have the guts and courage to do it? M r . M e a n y . T hat m ight be your idea, it m ight be a good idea. W e have our idea. L et Congress decide to spend this money, let the Con gress decide to create these jobs. A n d for every 1 percent you reduce the unemployment rate, you get $16 billion to $17 billion additional revenue into the Federal Government. Now when it comes to the question o f how you pay fo r this, we have some ideas as to how you pay fo r it too. There are certain tax loop holes, I think, that you can close, and certain tax breaks that I think business gets that can be cut down a little bit. B u t I think that this decision has to be made, Senator. A re we going to put these people 17 back to work, or are we going to sit with folded arms and wait for doomsday ? I f that is what you want------Senator P e r c y . I f we raise the gasoline tax 1 0 cents and brought in $ 1 0 billion, if we doubled alcohol and tobacco taxes— I am just men tioning a few— that is another $6 billion. That is $16 billion. W e could create an aw ful lot o f public service jobs or public works. W e could have an awful lot o f roadbeds laid for the railroads, as we go, and people would feel you have some sense o f fiscal responsibility. This is rather than saying let us borrow, borrow, borrow for the future. I think people worry about it when all we can do is say, bor row and let ns see what we can do for you instead o f saying, this is your Government and you have to start paying for it. M r. M e a n t . W e ll, by the track record, what about the borrowing we have done before ? This dynamic economy o f ours is operating at 60 percent o f capacity. Get it going again and you would not have to worry about your gas tax or anything else. I say to you, you come with us and give us these jobs and stimulate this economy. W e will talk to you about where you get the money. The first place you will get the money is when you put the people back to work. D o you have any analysis o f the difference between now and 1947 when we were just a poor little $200 billion gross national product, and now we are a $1,600 billion gross national product, and we are able to borrow and pay back? Does that not mean something? Does that not mean something as to the capacity o f this society to go in debt at this time in order to put people back to work ? Senator P e r c y . M r. Meany, you serve as a member o f the Produc tivity Commission. Y ou know what happened after the war. W e were the most efficient producer in the war. “ M ade in U .S .A .” was a sym bol o f efficiency, low cost, and high quality. W e have gradually dropped down, in the last decade or two, to where we are one o f the lowest countries, as fa r as capital formation and increase in productivity. I do not see in your testimony any place for reinvestment o f capital to make our plants and equipment more efficient, our labor more pro ductive, so we can pay our labor more, and get American products producing in a way that once again they will be the envy o f the world. W h a t can we do ? A re not increases in productivity a part o f this, im proving our efficiency and m aking American labor better? H ow can we create that kind o f capital so that it will be invested by business? Does the A F L - C I O have any thoughts for us along that line ? M r. M e a n y . On productivity, yes— get people back to work. P ro ductivity goes down with unemployment. Get them back to work and you get your productivity. W e feel that business investment is deter mined by sales and the prospects o f sales. Y ou should know th at; you have had business experience. Production will raise when you get that— that is the incentive to use this idle plant capacity. Y ou begin by stimulating and getting people back to work. Senator P e r c y . There is no question that capacity is a tremendous amount o f the cause. B u t I think im proving efficiency and increasing productivity is essential. I want to say how pleased I am in this area, with the very constructive attitude o f labor in the past year or so, 18 recognizing that you have to find a way to stay competitive in increas ing world markets. I would like to ask you about tax loopholes. I agree that they have to be closed, but let me mention a few unpopular ones, and possibly you can give us additional ones that should be plugged. W e take a deduction for gasoline tax— State and local taxes on our Federal return. The person who files a standard deduction gets no benefit, but it costs the Federal Government $600 million. W ith the amount o f gasoline tax taken, we know that the guesstimating that is done is generally on the high side. Should we just not eliminate that? Should we not plug up the billion dollar tax loophole where we do not dye our heating fuel when it used in diesel trucks free from the tax the Federal Government imposes on diesel fuel. Canada dyes theirs and stamped out the flagrant abuse we have in this country. A re those not some o f the loopholes we should start plugging up so we pay as we go instead o f having such a loose system and continuing to add to our debt ? M r . M e a n y . Y o u h a v e g o t to a su b je c t n o w t h a t I t h in k I b e tte r g e t m y t a x e x p e r t in o n . M r. G o l d f in g e r . Senator, an awful lot of low-income and middle- income people will be adversely affected by increased taxes or increased prices, which is the effect o f that kind o f a sales tax on the price o f gasoline. T hat is the way they get to work, that is the way they travel to their jobs. T his has become a necessity, and it is a necessity for the low-income and middle-income working people. Senator P e r c y . I w ill not take the time to answer you, M r. G old finger. I have done so extensively on the floor, and will* send you tKose comments. One last comment. I would like to join Senator Kennedy in saying that I thought your statement, M r. M eany, on refugees was outstand ing. The very high level o f attitude taken by organized labor through the years in humanitarian causes is commendable, and I compliment you on it. W e are holding hearings on the emergency refugee budget legislation in the Foreign Relations Committee, and I will have to leave. Thank you. Chairman B e n t s e n . Thank you very much, Senator Percy. I would like to join in the point that Senator Percy m ad e: The need for more investment in manufacturing capacity in this country, and the full realization that it takes over $25,000 just to create a new job in manu facturing. But you are not going to get investment in manufacturing capacity until you have demands for the product. Businesses are just not going to put their money into investment in a period o f recession. So one of the best ways to get the investment that we need in tech nology and manufacturing capacity, so that we can be competitive with the forces around the world, is to get this economy moving again, get people on payrolls so they have disposable income to spend on products manufactured in this country. I want to commend labor on this point, particularly on its stand on the investment tax credit and trying to encourage investment in manufacturing capacity. Senator Kennedy. Senator K e n n e d y . Thank you, M r. Chairman. President Meany, I would be interested in some o f the areas that you mentioned in terms o f tax reform. I do not know whether you want to 19 elaborate on that now, or perhaps make some additional general com ments on it. W e are seeing some important progress. On the tax cut legislation, we repealed most o f the depletion allowance, which was a m ajor and important step forward. I would be interested in your comments as to the prime areas o f tax reform for the future. Mr. M ean y . W e have a long list, and I would be glad to send it to you. [T he follow ing list was subsequently supplied for the record:] AFL-CIO L ist o f Prime A reas o f T ax Reform The AFL-CIO lias urged enactment of a comprehensive program of tax justice which would raise $20-30 billion in annual federal revenue through closing major loopholes in the tax structure. The following is a summary of the key provisions of major tax loopholes, on which government action should be taken to raise $20 to $30 billion of additional revenue per year. 1. Capital gains. The preferential half-tax which applies to gains on unearned income from stocks or other property sold at a profit and the zero tax that applies to such gains when passed on at death are among the most disruptive elements in the tax structure. Closing these loopholes could raise as much as $10-11 billion in annual revenue. 2. Tax subsidies for the overseas operations of U.S.-based multinational cor porations. These preferences have eroded the tax structure, destroyed American jobs and helped make America vulnerable to economic and political blackmail. Specifically, the AFL-CIO urges: {a) An end to the foreign tax credit provision. The foreign income tax pay ments by U.S. corporations and the royalty payments of international energy companies should be treated just like taxes and royalties paid on domestic oper ations— as deductible costs of doing business. The present practice of allowing dollar-for-dollar credits against the company’s U.S. income tax liability must be ended. (b) An end to the deferral privilege which allows multinational corporations to defer U.S. income tax payments on the earnings of their foreign subsidiaries until such profits are brought home— which may be never. (c ) Elimination of the Domestic International Sales Corporation (DISC) gimmick which permits corporations to spin off into export subsidiaries in order to defer taxes— perhaps indefinitely— on export profits. Closing these loopholes could raise as much as $6-8 billion in annual revenue. 3. The depreciation speed-up enacted in 1971. This loophole currently costs the Treasury and the American taxpayer about $1.5 billion annually. The 7% investment credit also enacted in 1971 and increased to 10% for 1975 and 1976 should be eliminated as soon as the present emergency situation is over. The 7% investment credit costs approximately $5 billion per year and at 10% the annual revenue loss is over $8 billion. 4. Mineral Industry provisions. The special tax privileges for corporations in the oil, gas and other mineral industries such as the percentage depletion allow ance for “independent” oil and gas companies and other mineral industries and the immediate expensing of intangible drilling costs should be ended. Eliminating these special privileges could raise some $2.5 billion in annual revenue. 5. The corporate surtax exemption. Under this provision, the first $25,000 of corporate income is taxed at a 22% rate and for 1975, preferentially low rates apply to the first $50,000 of corporate taxable income. The revenue loss from the surtax exemption is approximately $5.5 billion. 6. Tax exempton for interest income from state and local bonds. Such income should be taxed in full with the federal government providing an interestsubsidy to assure that fiscal powers of the state and local governments are not hampered. 7. The maximum-tax provision. This is an uncalled-for tax bonanza to top corporate executives and others whose income comes from very high fees and salaries. The yearly revenue gain would be over $200 million. 8. Tax shelters. The many opportunities for wealthy individuals to shelter and wash-out otherwise taxable income through investments in mineral explora tion and oil drilling ventures, real estate, hobby farms and the like should be 2 0 ended. Revenue losses from these tax avoidance opportunities total over $1 billion annually. 9. An overhaul o f the federal estate and gift taxes. Present law provides unnecessary exemptions and a host of opportunities to minimize or postpone tax payments for generations, through devices such as fam ily foundations, and generation-skipping trusts. An effective and equitable estate and gift tax structure could generate about $3 billion in additional annual revenue. Mr. M e a n t . On the question of business, I think that I want to make it clear that we recognize and have always recognized, a« far as the American labor movement is concerned, that no matter how big the corporation is, you have to try to keep it healthy. In other words, you cannot get a pay envelope from a corporation that does not have any money to put into the pay envelope. Seven representatives of organized labor sit on the President’s Labor-Management Committee, and we are constantly meeting and constantly exploring wavs to help business with its problems. At the present time, we are very, very much concerned with the utility industry, not only because of the fact that the utility industry, by and large, has cut down its expansion program in the last 3 or 4 years, and not only do we need the work, there is no question about it that we need the work, but this country is growing and we do need this additional capacity for the public utilities. We need to try to find a balance between the environmentalists and the need for nuclear power reactors, and we are working very, very closely with the Committee and we hope to be helpful in that field. In other words, we do not look upon this as just labor’s problems; we look upon it as every body’s problem. And certainly we need some new directions; we need new directions from the administration. And I think we need some new directions from Congress. I think that Congress has to trust the American economy a little more. As far as inflation is concerned, sure we all suffer from inflation. But what is the problem? As you recall, last September, we were told there was no recession. You will remember that summit confer ence. Labor was the only one who pointed to the recession. No, no: there was no recession. What we needed was a national will to whip inflation. Remember WIN? “ Whip Inflation Now.” That was the last week in September, and a lot of things have happened since the last week of September. And the thing that has happened that perhaps is more important than anything else is this unemployment rate has been going up, up, and up." Perhaps it would be great if we could get inflation down to 3 or 4 percent and at the same time put everybody in this country to sleep to make sure that everybody is out of work. That will bring your prices down. Get 10 million people out of work and keep them out of work for a year or two; dissuade any efforts on the part of the eggheads over in the White House that would help bring the prices down. Is that the kind of cost, is that the program that we want ? Another thing that has an impact on inflation is the question of 68 percent capacity operations. Suppose we were going 90-95 percent; everyone competing. Would that not have an effect in holding down prices ? Or perhaps bringing them down? 2 1 So if we have got to choose between the immediate evil and the long-range problem of inflation, we have got to put the fire out. And the fire right now is this unemployment rate. Senator K e n n e d y . Let me ask you, if we do not take the steps that you have outlined here, what are the implications in terms of the average American worker ? M r . M e a n t . I hate to think what would be the economic effects. There was a TV program the other night—I do not advocate—every body knows the American trade union movement. We do not man the barricades, we do not take to the streets. If we do demonstrate to let people know how badly we feel, we do so in a peaceful, legitimate way. We come here for redress of the wrongs; we come here to the Congress. This is what this Congress is all about. If there is an evil condition that they can correct, it is the duty of Congress to correct it. There was a TV program the other night, and some man was ex plaining how he was going out hunting and shooting rabbits and pheasant to feed his family. And somebody said, well, a year or two from now, suppose they take your home away. He says, do you see this gun, the gun 1 use on the rabbits. Well, I will use it on the guy who tries to take my home away. This, of course, represented one individual; but it gives you an idea of the feelings on the part of the people. People who are willing to work, who want to work, who want to produce, are being told they are going to lose their homes or they are going to accept the dole that Arthur Burns is now proposing—which all adds up to, w^hen you tell a man with a family to feed and trying to pay oif a mortgage, you tell him you are going to employ him and pay him a poverty wage or less than a poverty wage, this to me is not the answer. The answer is to invest this money, go into debt; yes, go into debt to get people back to work. And then I am sure we will find a solution for our problems, the only solution. Senator K e n n e d y . D o you find that feeling among American work ers, the ones who lose their jobs, the ones who are unemployed, the ones who are in danger? Do you find they are really reaching the boiling point? Mr. M e a n t . A s I say, I just told you this one instance. This was David Susskind’s TV program the other night. It shows you how one man felt. I can see people wTho, as I say, are willing to work and have all these responsibilities and just told they cannot earn any more; I can see them becoming desperate. Senator K e n n e d y . One final area, In the area of monetary policy, do you think we ought to legislate specific increases in the money supply, or require the mandatory allocation of credit? Mr. M e a n t . I am not familiar enough to know can you legislate. Or do you have to appeal over Arthur Burns’ head ? The only appeal you have got over him is to the Almighty. Can the Almighty do some thing about the money supply ? I think if we could ship Arthur Burns over to the Soviet Union and loan him to them for a while—it might help to get him out of here. He is the fellow who has been holding us down. Keep this in mind, Senator, Arthur Burns announced in February 1969, along with the then President of the United States, that the 4-percent inflation rate was unacceptable and he was going to do some 2 2 thing about it. He was going to do something about it without causing more unemployment. Well, you see what he has done about it. We have 9-percent unemployment and double-digit inflation. To me, if he were working for a private corporation, he would get fired. His record is a record of absolute, complete failure. Pie is in charge; he was the eco nomic adviser over there. Then the President put him on the Federal Reserve Board w^here he cannot easily be touched by Congress or anyone else. This is a real tragedy for America; this man is bad news. And increasing the money supply—he restricted the money supply. He restricted credit. The economy was overheated, he said. Well, I tell you, today I wish it was even a little lukewarm, compared to what he called an overheated economy in February 1969. On credit alloca tion, if we have to allocate credit, I think we should allocate credit. I think we should reach into these corporate banks and corporations and say, you loan money for housing; do not loan it to Caesar’s Palace or go into partners with Jimmy Hoff a in Las Vegas in some gambling operation. The only way it is going to do some good for the people of this country, give them more homes and put people back to wTork. I think the Congress should try to reach over Arthur Burns’ head. I do not know how you do it, but I think you should try. Senator K e n n e d y . In the area o f housing and construction, w^ould you be interested in credit allocation ? Mr. M e a n y . Very m u c h . Senator K e n n e d y . I want to thank you very much, Mr. Meany. Chairman B e n t s e n . Thank you very much, Mr. Meany. That was the same Mr. Burns who, in 1972 was expanding the money supply, as I recall, with inflation at that time being around 5 or 6 percent; expanding it before the 1972 elections. M r. M eany. T h a t w a s ju s t a coin cid en ce. Chairman B e n t s e n . Let me say, President Meany, that I for one do not want long-term continuing deficits. I do not think the economy could stand it. The way you get rid of them, in my opinion, is by putting people back to w'ork and on payrolls, where they pay taxes, w'here they have money to spend, and the corporations in turn are making profits and paying taxes. I cannot accept the philosophy that we have to have an 8- or 9-percent unemployment rate in this country to curb inflation. Thank you very much, President Meany. The subcommittee stands in recess until tomorrow morning at 10 a.m. [Whereupon, at 11:25 a.m., the subcommittee recessed, to reconvene at 10 a.m., Tuesday, May 13,1975.] LABOR-MARKET POLICIES FOR FULL EMPLOYMENT TUESDAY, M A Y 13, 1975 C ongress of t h e U n it e d S t a t e s , S u b c o m m it t e e o n E c o n o m ic G r o w t h of t h e J o in t E c o n o m ic C o m m it t e e , Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m., in room S-407, the Capitol Building, Hon. Lloyd M. Bentsen, Jr. (chairman of the subcommittee), presiding. Present: Senators Bentsen and Javits. Also present: Loughlin F. McHugh, Courtenay M. Slater, and Jerry J. Jasinowski, professional staff members; Michael J. Eunde, administrative assistant ; and George D. Krumbhaar, Jr., minority counsel. O p e n in g S t a t e m e n t of C h a ir m a n B entsen Chairman B e n t s e n . The hearing will come to order. We are delighted you were able to find your way up through this labyrinth, Mr. Secretary. It is a great pleasure to welcome as our witness this morning Secre tary of Labor John Dunlop. The Subcommittee on Economic Growth has asked Secretary Dunlop to help us initiate a thorough investiga tion of the specific labor market policies needed to bring this country back to full employment with price stability. Yesterday George Meany, the president of the AFL-CIO testified. He gave us an eloquent plea for bold and immediate action to bring unemployment down from its present disastrous level. He urged us to be concerned first of all with people—people who need jobs and income. If we make people and jobs our first concern, the budget deficit about which everyone is so concerned will take care of itself. The deficit springs from lack of jobs and lack of income. I f we were at full employment, we would have the receipts to balance the budget. In a recent meeting with the press, Secretary Dunlop you, too, ex pressed your concern about “the real side of recovery,” that is, people and jobs. You went on to stress the importance of looking ahead and anticipating the specific labor and capital bottlenecks which may be encountered as recovery gets underway. You told the press that the failure of government and business to anticipate capacity and labor force problems would “make it certain we will have a short-lived boom which will then turn down again.” We cannot afford to have a short-lived boom. We not only need a vigorous recovery, we need a recovery which continues over an ex tended period. Economists use a rule of thumb that real output has (2 3 ) 24 to grow about 7 percent per year in order to bring the unemployment rate down 1 percentage point per year. Four percent real output growth per year is required just to keep pace with labor force growth and productivity gains and thus keep unemployment from rising. W ith unemployment at 9 percent, it will take strong economic growth the remainder o f this decade to get us back to fu ll employment. W e just cannot afford to see that growth interrupted by inflationary bottlenecks on either the labor or the capital side. M r. Dunlop, I share your concern that we must look ahead and anticipate these problems while there is still time to head them off. T hat is precisely why I asked to have this Subcommittee on Economic Growth created. T h e Secretary o f Labor is really in the center o f the action on this issue. I t is your responsibility to see that labor bottlenecks do not occur; that necessary job training is available; that job placement services work efficiently; and that women and minority groups do not suffer from job discrimination. That is a big task. I nope that the hearings and investigations which this subcommittee plans to pursue will be o f help to you in that effort. M r. Dunlop, we have asked that you give us an overview this morn ing o f the specific labor market problems which you foresee over the next few years, and o f the actions you plan to take to ameliorate these problems. W o u ld you please proceed with your statement at this time and then we will turn to questions. I have a number o f specific issues which I would like to pursue in the question period. STATEMENT OF HON. JOHN T. DTJNLOP, SECRETAEY OF LABOK Secretary D u n l o p . Thank you very kindly, M r. Chairman. I would like to make a few introductory remarks and then sum marize, i f I may, M r. Chairman, m y prepared statement in order to leave more time for discussion and your inquiry as to further courses o f action. Some brief comments I would like to make at the outset that are not in m y prepared statement include these p oin ts: First o f all, I want to say that I think the topic you have proposed for discussion is indeed a very important one and I commend you and thank the committee fo r focusing attention on this range o f problems. I wish I knew more about them and I would like to say that I intend to continue to work on them, just come to this position, as you know. Perhaps, with your permission, I would like to come back and see you sometime and say what future ideas I have on that topic after I have had a chance to get into it further. Chairman B e n t s e n . W e would be very pleased, M r. Secretary. Secretary D u n l o p . N o w , in addition, I would like to comment that the subject involves both, it seems to me, short-term focus and longer term focus. In a certain sense there is, I think, at times some confu sion about a topic such as this one. Sometimes some people are inter ested in sim ply the next 6 months or the next 9 months. O n the other hand, it seems to me that any concern over labor market policies has got to be considered in a somewhat longer term frame o f reference as well, because labor market adjustments do not occur quickly. In terms o f fundamental changes, the quality o f workers and their skills take a long time to develop. 25 N ow , turning then from those brief comments to the text o f what I have to say, the first comment I would like to make to you is that the topic itself causes me some professional difficulties which I would like to explain. In ordinary discourse, labor market policies are, as a phrase, to be distinguished from general fiscal and monetary policy and refer, as your statement did, to measure designed to enhance training and skills, to reduce frictionàl unemployment, enhance job sèarch, to eombat dis crimination and the like. They also oftentimes refer to measures to deal with certain pockets o f unemployment or geographical pr structural characteristics o f unemployment. That is really what we have come to mean by the phrase “ labor market policies,” M r. Chairman. The common phrase in the United States in thé 1960’s, fis you know, came to be called an “ active manpower policy,” as distinguished from certain long established manpower policies in this country, like ap prenticeship and vocational education and the employment service, and other such measures. A n d it was really this phrase, “ labor market policies,” that refers to those sorts o f short-term measures o f skills, training, development, rather than the more traditional measures. Now, the second observation I make about the title is that when we speak o f labor market policies we are really not talking about meas ures, therefore, which by themselves are distinctive to create fu ll em ployment. W e are in a sense talking about incremental tools to secure a little higher level o f employment, a better match o f people in jobs, a little less inflationary expansion and perhaps some higher profit. Labor market policies alone, I think, are not powerful enough to achieve or to sustain high employment. Then you will find I have made a brief caveat about the second part o f the title which you mentioned at the outset, which I appreciate par ticularly. W ith out undue inflation, in other words fu ll employment without unreasonable inflation, I think, is a worthy goal, but we have had ample experience to know how modest one must be in trying to achieve this. I do not mean that we should not try, but I very much am o f the view that it is an extraordinarily complex matter in W estern society. I do not think m yself that there is any simple solution to it. Now, with all those introductory comments, M r. Chairman, what I want to say today is divided under three headings. The first is to say something about the changing characteristics o f labor markets that are taking place over the longer term. A n d , second, I want to say some thing about the most important tool in our possession at present to deal with longer term labor market characteristics and that is C E T A . The third area o f those remarks have to do with those you emphasized in your opening statement, the internal relations between labor and capi tal requirements and job creation, and, M r. Chairman, i f I m ight in a sentence give you the single idea which I think is really new in m y own thinking, about this matter it is this : W h en you get down to it, our society and our people are not really just interested in job creation. W e are not simply interested in some more $2-an-hour job or $2.50 jobs. T he society is very interested in good jobs, jobs which pay well, jobs which have stability o f em ploy ment, with good benefits, with chances for advancement, with good w orking conditions and safe working conditions, and those kinds o f 26 jobs, it seems to me, are our objective and we ought to think a little more about the requisites that distinguish those kinds of jobs from just another job. Now, i would be the last to disparage any sort of job, but it does seem to me that there is a growing interest in the quality pf jobs and not just some $2-an-hour jobs, if I can speak to that, and the requisite for cre ating good jobs is somewhat different from creating just one more job. And that is the third area which I wish to comment on. Now, turning to the first of these topics, Mr. Chairman, I would like to briefly discuss the changes in labor market characteristics that are taking place. First of all, we should not, as I remind us, forget that we are seeing a marked change in this period of the age distribution of our population. I f you will turn to table 1 in my prepared statement you will see something of that. The great baby boom of the postworld war has passed. We are seeing in the 1970’s a decline in those who are below age 16 and in the school system. That has very substantial impact on lots of other jobs, like teachers and on utilization of school buildings and the like. We see at the other end of the spectrum, as table 1 shows, a continua tion in the number of people entering the adult work force as well as an increase in the percentage who are over 65. But the middle group, the changes in the youth and in the main working years of our popula tion have very important implications, I should say, for employment, for unemployment, and the like. At the same time we ought to look, Mr. Chairman, at the labor force participation rates, and if you will turn to table 2 in my prepared statement, you will see the tendency for changes in participation rates is well represented. We see continuation of the substantial growth of the participation of women in the labor force. In 1960, you will see that 37.1 percent of the female population was in the labor force. They are estimated in 1990 to have a participation rate of 45.9 percent, thus showing continuous growth in their role in the labor force. In the same way, we note, Mr. Chairman, the continual decline in participation rates of rates of men, particularly over 60 and 65 years of age. You see in 1960 that the group over 65 years of age had a par ticipation rate of 32.2 percent. It has come down and will continue to decline in 1990 to an estimated 19 percent. So you have this structural change in the age distribution which in fluences employment patterns. In table 3 of my prepared statement, you will see, Mr. Chairman, that there are also significant occupational changes underway. Chairman B e n t s e n . Let me interrupt if I may. You are saying these are the percentages of those age groups, male and female, that partici pate in the labor force ? Secretary D u n l o p . Yes. Chairman B e n t s e n . Why is there such a drop in the participation rate of those 65 and over, over the years ? Secretary D u n l o p . That is a subject which is in itself an important topic in the general heading you have proposed to focus on in these hearings. I would have thought that the main reason for that was the growth of pension plans, and social security, the higher benefits which they now provide. There are those who would say the decline of the 27 extended family makes people a little more independent and they per haps become more used to developing travel plans and retirement in dustries, if you care to put it that way. By the way, that trend is an important part of those topics which we are generally discussing about changes in the labor market. We will, just to get over this material, Mr. Chairman, look quickly at table 3 which shows something of the same trends with regard to occupations, and there you will see that, as you might expect, some gradual continued expansion in professional and technical jobs to a point where in 1985 they are estimated to constitute almost 17 percent of the work force. We see a growth also in clerical workers, a small amount, and then as you expect, a decline in the relative position of operatives, semiskilled workers in factories, nonfarm workers, and farm laborers. In table 4 of my prepared statement, you see the same secular de velopments with respect to industry classifications and there again you see the continuing growth of the Government as a regular em ployer. You see the growth of employment in financial and certain services. On the other side you see the rather marked continued de cline in the relative role of manufacturing in total employment as the decline of the proportion of workers involved in agriculture, with agriculture dropping from 7.8 percent of employment in 1960, to only 1.8 percent in 1985, a very sharp drop. And similarly the same sort of trend in manufacturing from 25 percent to about 22 percent in 1985. All I am suggesting in presenting this background is that our labor markets must deal with these changing aspects of our labor force. Finally, I do not have very much here to say, but I ought to rec ognize that we are seeing important geographical changes in the dis tribution of employment and population patterns, the growth of cer tain regions of the country, suburbs, new areas, and the atrophy of other parts of the country and segments of larger metropolitan areas. These are all kinds of secular tendencies in the labor force which do effect job creation, job placements and unemployment. Now, second, Mr. Chairman, in the three sets of points I am making today. I would like to express to you as a second set the view that the Comprehensive Employment and Training Act, which is really very young, established by the Congress a year or two ago, does hold, I think, promise of an important long-term tool for economic policy making and labor market policy. With appropriate Federal support and guidance it holds the promise of a machinery which is specialized to each of our localities, each of our States, to develop, which we desperately need for the long term, an administrative apparatus in each major local labor market area which would have a staff of people who are technically competent to do planning, a staff that can handle and develop the statistics for those particular regions or indusries, and a staff, which instead of just being Government bureau crats, in my view, ought to be well interfaced with local labor people, local management leaders, and with the local vocational and other school systems. The development of that mechanism over time is one of the ideas which the Congress launched in recent years, which I think is an enormously important instrumentality. It is not perfect. It has its present limitations, and yet as a training device, as a manpower 28 oriented group o f people, I think it is enormously promising for the next decade or two in our country. I should like to see it grow and develop in the direction that I have just indicated. I would like to make one further comment about it, M r, Chairman, which does concern me a little bit and has come to m y attention as I have been wandering around the country visiting our regional offices and talking to labor and management and government people in vari ous areas this week. I have been trying to visit, M r. Chairman, one office a week. This week I go to D allas fo r a day. N ow , what has happened is that before these new institutions could be fu lly established they have had, and understandably, thrust upon them a new responsibility, the responsibility o f the public employment program, and new responsibilities to deal with the present economic crisis to create jobs, to expend the funds for public employment, and as I get around there is a land o f tension going on which concerns me. I am very much in favor o f this shortrun emphasis because we do face a desperate situation. On the other hand, I am concerned that this attention to public employment jobs and other short-term functions might so distort and take the capacity and interest away from the long term development o f training and manpower statistics and planning capacity that the longer run function o f the program is aborted and is not allowed to reach its fruition. So, that is a problem in our present circumstances, which I in good conscience must say a word or two about as I have. I think that the mechanism should be at this local level with Federal support and so forth. T he third area, and I will try to keep to my time lim it, that I wanted to say something about this morning, M r. Chairman, relates to the broadest sort o f labor market policies for economic growth. N ow , I thought I ought to start this discussion, M r. Chairman, as I do in m y prepared statement, by pointing out our present problems in a little bit o f historical perspective. The American economy, we should remind ourselves, has shown great capacity to adjust to a changing labor force and to dynamic social and economic developments. In the 25-year period 1949 to 1974, total civilian employment was increased from 58 million to 86 million average jobs, and increase o f 28 million jobs. I t is no small number. In the last decade alone this increase was 16.6 million jobs. Although Government employment in this quarter century increased from 5.9 million to 14.3 million, an increase o f 8.4 million— private nonagricultural employment increased from 37.9 million to 64 million jobs, an in crease o f 26.1 million jobs. In this quarter century the employment o f women doubled from 16.7 million to 33.4 million, while the em ploy ment o f men increased only 28.3 percent from 40.9 to 52.5 million. D uring this period, the participation rate o f women in the labor force, as was pointed out earlier, rose from 33.2 percent to 45.7 percent. The employment o f youth 16 to 19 also doubled from 3.7 million to 7.4 million, but the number o f youths, especially those seeking work, grew even faster, as I had discussed earlier. I want to suggest to you that it is in that dynamic sort o f economic setting that we need to face the future and our present troubles. Now I go back at this point to the theme I was making at the outset ; namely, that the economy and people have increasingly come, I think, to be interested not in low end job, low-level jobs, but in good 29 jobs, and that creates, I think, some new interests. T hey are defined by what I described earlier as the characteristics o f a good job, and if you start asking yourself the question how do you create good jobs in our economy, I think what one must conclude is that it derives from new technology, derives from research, and derives from capital flows within the economy. Even in service industries, in which there are a number o f good jobs, you will find that often those jobs are re lated to various kinds o f public capital, as is in the case o f the medical profession, the legal professions and the like. Skills, o f a highly spe cialized nature, and education often constitute good jobs. I f you will turn to table 5, in m y prepared statement, you w ill see, I think, the ranking o f the amount o f capital per employee in these various industries and the average hourly earnings o f workers in these industries, which is not an absolute measure but some rough indica tion o f this concept o f good jobs to which I referred earlier. Now, you will see that in the highest wage jobs, some o f those jobs are not as safe as they should be, and o f course, through O S H A and other Government programs we are trying to improve that aspect o f the quality o f jobs. I think the table almost speaks fo r itself and suggests to me, i f our interests are not merely the creation o f more jobs— and I do not mean to suggest in the slightest, that a job when one does not have it, is not everything— that I think the creation o f good jobs requires attention to nows o f capital and to research and technology. These tables seem to support that view. I m ight, in drawing these remarks to a close, say pursuant to the things you said at the outset, that one o f the areas where I have been particularly concerned, M r. Chairman, in recent days, is the problem in the electric utility area where we, as you know, have had a great slowdown in the construction o f those plants, and I am concerned because power w ill be needed when the economy moves up. B u t I am equally concerned by the fact that both for the building and operating o f those facilities we w ill need a good deal more skilled labor than we have in some o f those occupations, and i f we wait until 2 or 3 years down the road when we need these skills they w ill then he in very short supply and these shortages will tend to be a factor accounting for unnecessarily high inflationary rates in wages and unnecessary increases in prices o f materials that are not adequately available. In that sense we need to think ahead in this capital area with respect to specific industries— in sector terms, as I see it. One o f m y purposes in this new position o f mine will be to work with various industries, with union and management groups, as well as with the numbers, to provide us a little better sense o f capital requirements and the requisite manpower planning necessary in these various areas. I guess, M r. Chairman, I have taken longer with m y statement than I had hoped to, but I am happy to discuss this range "of issues and file m y statement with you, i f I may. [The prepared statement o f Secretary Dunlop follows :] P repared Statement of H on . Jo h n T. D unlop L abor M arket P olicies T o R estore F ull E mployment Mr. Chairman and members of the committee, I have some considerable pro fessional difficulties— at the outset— with the title of these hearings on which brief preliminary comments are essential. 59-082— 75------ 3 30 In professional discourse “labor market policies’* are ordinarily to be dis tinguished from general fiscal and monetary policies and refer to measures designed to enhance training and skills, to reduce frictional unemployment and enhance job search, and to offset discrimination. They also include measures to deal with structural and area unemployment associated with long-term changes in employment patterns and characteristics of the labor force, indigenous or immigrant. This usage of “labor market policies’’ is often associated with de velopments that received greatest attention first in Sweden under the leadership of Gosta Rehn and Rudolf Meidner. In this country the phrase “active” man power or labor market policies has some times been used to distinguish govern mental manpower measures originating on a broad scale in the 1960’s from such policies as apprenticeship, vocational education, employment exchanges, and other long established activities which influence the labor market. To the best of my knowledge no advocate of an active manpower policy has regarded manpower measures as a distinctive or sufficient means to full employ ment apart from general fiscal and monetary measures. Labor market policies are ordinarily regarded as incremental tools to secure a somewhat higher level of em ployment, a better match of people and jobs, a less inflationary and more sus tained expansion, with perhaps higher productivity and real income and prod uct. Labor market policies alone are not powerful enough to achieve or to sustain high employment. Then, I have some problems with the phrase “restore full employment.” I am not certain when we last had “full employment,” if ever, in the sense of providing “. . . useful employment opportunities including self-employment for those able, willing and seeking to work . .” at prevailing compensation. The level and structure of unemployment historically provide an indication of the extent to which we have fallen short of the objective set forth in the Employ ment Act of 1946 or have found other needs, obligations or considerations to preclude this objective. A final comment on a matter generally associated with discussions of “full employment” : Full employment without “unreasonable” inflation is a worthy goal, but we have ample experience to know how difficult is this high aspiration. The most essential requisite for making headway is the adoption of longer term public policies, less responsive to immediate considerations, with a lesser im perative to meet the dates of November or July or January on the political calendar. The objective now should be for a sustainable expansion that leads to stable high employment and not a peak that explodes in more inflation and collapse. First, I would like to comment briefly on expected characteristics of the labor market over the next decade. Changes in the demographic and skill composition of the labor force have been important factors affecting the rates of unemploy ment, productivity, and the rate of inflation. In the past, we have failed ade quately to anticipate or respond to those trends, perhaps, because we did not have the tools at our disposal to capitalize on those trends that we were able to estimate. Second, I would like to discuss the programs under CETA and the role of this approach in achieving high levels of employment, higher real incomes and economic growth generally. Third, I will discuss an area of economic policy that has significant labor market implications— capital formation. This third subject is, in my view, a prerequisite for providing the economic conditions in which specific labor market policy tools can be most effective in helping Americans find good jobs. Capital formation has received much attention lately under the topic of “capital short age.” Secretary Simon testified before the Senate Finance Committee on the subject on May 7. It is my view that economic growth, particularly at this time, depends heavily upon capital formation, but capital formation can be severely hampered without attention to labor markets, and capital severely under utilized if long term labor policy considerations are not included in efforts to achieve sustainable economic growth. I . LABOR MARKET CHABACTEBISTICS Over the coming decade the economy may be expected to undergo numerous changes in its structure. Many of these cannot be foreseen even approximately, 31 but some will result from forces currently at work and, accordingly, are identifi able now. Three such forces affect labor market developments.: (1) the age distribution of the population, (2) shifts in occupational and industrial dis tribution of employment, and (3) the geographical distribution of employment and population. Table 1 shows changes in the age distribution of the labor force since 1950 and projects these changes through 1990. These estimates are; based on Census Bureau projections of birth rates, current life expectancies, and the age struc ture of the population today. The relative increase in the youth population was a factor in such social phenomena as teenage unemployment, increased juvenile deliquency and the burgeoning of college education during the last decade. The growth in the population age 65 and over has led to a migration to warmer parts of the country and to growing interests in improvements in Social Security bene fits and in other post-employment benefits. Continued growth in this age group will likely sustain interest in these areas. Also, more attention may be necessary to enable older citizens to make the transition from work to retirement. The projected decline in the proportion of the population age 16-24 has import ant implications for education and training needs in the remainder of the 1970’s and in the 1980’s, just as the relative growth of this group during the 1960’s had a major impact. While we found ourselves short of teachers and educational plants in the 1960’s, we now find ourselves with a surfeit of teachers and school buildings. This resulted as many of the youth who crowded our schools during the 1960’s were trained to teach a population wave that was cresting with their graduation. TABLE 1 — DISTRIBUTION OF THE POPULATION BY AGE Projected Age group Below 16___ ............. .......... ............... 16 to 24.................................. 25 to 44.................................. . . . . . . . 45 to 6 4 . . . . . . . . . . . ............. ............. 65 plus................................... .............. Millions: Below 1 6 . . . . . ...................... ............... 16 to 24.................................. .............. 25 to 44.................................. ............... 45 to 64........................ .......... .............. 65 plus............... - ............... .. .............. 1950 1960 1970 1980 1990 28.3 13.3 30.0 20.3 8.1 32.6 12.1 26.1 20.0 9.2 31.1 15.0 23.6 20.5 9 .8 25.4 16.7 27.8 19.4 10.7 25.8 12.8 31.9 18.2 11.3 43.1 20.2 45.7 30.8 12.4 58.8 21.8 47.1 36.2 16.7 61.9 32.5 48.4 41.9 20.2 56.8 37.5 62.3 43.5 24.1 63.6 31.6 78.7 45.0 27.8 Source: “ Manpower Report of the President,” 1975. TABLE 2.— PARTICIPATION RATES BY A6E AND SEX Male: 16 years and o v e r . . . . . .................................................. 16 to 19 years............................................... ......... ........ 20 to 24 years........................................... ....................... 25 to 34 years........... ....................................................... 35 to 44 years......................... ........................................ 45 to 54 years........... ....................................................... 55 to 64 years..................... ............................................. 65 and o v e r .................................................................... Female: 16 years and over............................................................ 16 to 19 years................................................................... 20 to 24 y e a r s . .. . .......................................................... 25 to 34 y e a r s . . . . . ........................................................ 35 to 44 years................. ................................................. 45 to 54 years......... ..................... ................................... 55 to 64 years................................................................... 65 and over............... ....................................................... Both sexes 16 and over................................................... Source: “ Manpower Report of the President," 1975. 1960 1970 1980 1990 82.4 58.6 88.9 96.4 96.4 94.3 85.2 32.2 79.2 57.5 85.1 95.0 95.7 92.9 81.5 25.8 78.0 56.0 83.0 94.6 95.1 91.9 79.1 21.2 78.4 55.4 82.1 94.4 94.7 91.5 77.5 19.3 37.1 39.1 46.1 35.8 43.1 49.3 36.7 31.0 59.2 42.8 43.7 57.5 44.8 50.9 54.0 42.5 35.6 60.3 45.0 45.5 63.4 50.2 53.2 56.2 44.7 37.5 60.8 45 .9 47.0 66.2 51.5 55.2 58.0 45.8 38.8 61.5 32 W ith respect to economic growth during the next decade, the most important demographic change will be the relative rise in the group aged 25-44, which is expected to rise from 24 percent of the total in 1970 to 27 percent in 1980. This increase reflects the bulge in the birth rate that occurred after 1945, which caused the growth in youth population that we have just discussed. In the late 1970’s and the 1980,s the experience, maturity and energy of this group will provide the labor force with the potential to be unusually productive. This con trasts sharply with the late 1960’s when this group was at an historical low, proportionately, and jobs requiring their energy, experience and greater skills went begging or were filled with relatively less productive labor. Beyond these changes due to underlying trends in the relative sizes of the various population groups, additional changes will be caused by variations in labor force participation rates. Predicting these changes is somewhat more difficult than predicting population changes. Two phenomena do, though, seem very likely to occur: (1) Participation rates of women will continue to rise, especially as opportunities for employment of women expand with the easing of sex discrimination, and (2) Participation rates of those age 60 and over will continue to drop. Table 2 provides additional detail on these trends in partici pation rates. As in the 1960’s and early 1970’s, professional and technical employment is expected to increase slightly as a fraction of the total (see Table 3). Recip rocally, during this period, employment of semi-skilled and unskilled workers is expected to fall. This reflects the historical trend toward greater white-collar and skilled employment, which is related to increasingly complex technology, higher educational attainment and diminishing interest in low-level jobs, or those jobs considered menial. TABLE 3.— EMPLOYMENT BY OCCUPATIONAL GROUP, 1972 AND PROJECTED 1980 AND 1985 REQUIREMENTS [Numbers in thousands] Projected Actual 1972 Occupation group Total employment....................................... Professional and technical workers....................... Managers and administrators, except farm......... . Sales workers........................................................... Clerical workers............. ......................................... Craft and kindred workers..................................... Operatives....... ......................................................... Nonfarm laborers..................................................... Service workers...................................... _________ Farmers and farm laborers.................................... Number Percent distri bution 81,703 11,459 8,032 5,354 14,247 10,810 13,549 4,217 10,966 3,069 1985 1980 Number Percent distri bution Number Percent distri bution 100.0 95,800 100.0 101,500 100.0 14.0 9.8 6 .6 17.4 13.2 16.6 5.2 13.4 3 .8 15,000 10»100 6,300 17,900 12,300 15,000 4,500 12,700 2,000 15.7 10.5 6 .6 18.7 12.8 15.6 4.7 13.3 2.1 17,000 10,500 6,500 19,700 13,000 15,300 4,500 13,400 1,600 16.8 10.3 6.4 19.4 12.8 15.1 4.4 13.2 1.6 Source: Manpower Report of the President, 1975s Substantial changes in the structure of employment by industry are also likely. Employment in the public sector may be expected to continue to expand, though much less rapidly than in the 1960’s. Retail trade, finance and services will continue their relative expansion though, here too, the rates of change will hot be so great as they were during the 1960’s. Employment in thé goods-producing sectors— manufacturing, transportation and public utilities, mining and construction— may be expected to continue their relative decline. (See Table 4.) Education is also an important factor in determining the structure of the iatiior force. The more highly educated are interested in obtaining jobs with higher status, higher pay and more interesting content. Educational attainment fo not expected to be changing as fast as in the last decade, but the average level of attainment and accompanying level of skills and expectations will re main at high levels. This makes the search for policies that will create better jobs an important national priority. 33 TABLE 4.— TOTAL EMPLOYMENT BY MAJOR INDUSTRY SECTOR, 1960, 197?, AND PROJECTED 1980 AND 1985 [Numbers in thousands] Actual Industry sector 1960 Total.................................... ............................. Government...................................................... Total private............. ....................................... Agriculture.............................................. .. Nonagriculture........................................ .. Mining.................... ........................... Contract construction.................... Manufacturing............................ Durable goods......................... Nondurable g o o d s............... Transportation and public utilities. Transportation........................ Com m unication.................... Public utilities_____________ Wholesale and retail trade............ Wholesale................................ Retail.................. ....................... Finance, insurance and real estate. Other services................................. Projected Percent distribution 1972 1980 1985 1960 1972 1980 19$5 68,869 85,597 8,353 13,290 60,516 72,307 5,389 3,450 55,214 68,857 645 748 4,352 3,654 17,197 19,281 9,681 11,091 7,516 8,190 4,214 4,726 2,842 2,743 844 1,150 624 734 14,177 18,432 4,235 3,295 10,882 14,197 2,985 4,303 12,152 17,118 101,576 16,610 84,966 2,300 82,666 655 4,908 22,923 13,629 9,294 5,321 3,250 1,300 771 21,695 4,946 16,749 5,349 21,815 107,609 18,800 88,809 1,900 86,909 632 5,184 23,499 14,154 9,345 5,368 3,266 1,312 790 22,381 5,123 17,258 5,932 23,913 100.0 12.1 87.9 7.8 80.0 1.1 5.3 25.0 14.1 10.9 6.1 4.0 1.2 .8 20.6 4.8 15.8 4.3 17.6 100.0 15.5 84.5 4.0 80.4 .8 5.1 22.5 13.0 9 .6 5.5 3.3 1.3 .9 21.5 4.9 16.6 5.0 20.0 100.0 16.4 83.6 2.3 81.4 .6 4.8 22.6 13.4 9.2 5 .2 3.2 1.3 .8 21.4 4.9 16.5 5.3 21.5 100.0 17.5 82.5 1.8 80.8 .6 4.8 21.8 13.2 8 .7 5.0 3.0 1.2 .7 20.8 4.8 16.0 5.5 22.2 Source: Manpower Report of the President, 1975. While changes in geographic dispersion are difficult to predict, we should note the impact on economic growth and investment of recent population shifts, such as those to warmer climates in the southwest, west and southeast; to suburbs and beyond and; to new cities and planned communities. No doubt exist ing population patterns and new migration and settlement trends will have an important effect on the pattern of future economic growth and labor market adjustments. i i . ceta’ s role as a labor market policy tool With this background on the changing nature of our labor markets, I should like to discuss with you, for a few moments, CETA’s important role as a labor market tool. Fifteen months have now elapsed since the passage of the Compre hensive Employment and Training Act (CETA), which represents a desirable initiative toward the type of local cooperation and flexibility necessary for labor market policy. There have been operational problems because of recent economic conditions and, therefore, a diversion away from long term policies toward emergency measures. The establishment of local governments in a lead role appears to be the proper long term approach in making manpower programs responsive to local conditions, and especially to local labor market conditions, and there has been progress towards this during the year. There are three principles which have guided the Department’s implementa tion of CETA. 1. Training programs should produce participant skill levels which match available and anticipated jobs. This is particularly true for persons who have significant disadvantages in competing in the labor market. 2. Skill training must be more responsive to the longer term needs of the labor market where shifting economic demands require increased or different levels of skill. 3. Better labor market and occupational information is required for local decision makers developing program strategies and curricula. The key role in this conception is played by local elected officials and man power directors. The Federal government* therefore, must move more towards assistance to local sponsors to allow them to more effectively plan and manage their programs. Good local and area labor market information is critical to this role, and the Federal government must take the lead in improving our existing information,collection and dissemination systems. At the national level, much more can be done toward effectively coordinating and rationalizing Federal social and labor-related programs which influence 34 the labor market, including CETA. Vocational Rehabilitation, Vocational Edu cation and Welfare and Social Services. The Department of Labor and Health, ^Education and Welfare have taken the initial steps toward coordinated plan ning, and enhancement of the progress gained over the first year of CETA opera tions will be a priority in the future. Rural labor market areas require special attention. One of the most critical elements of an effective labor market policy that can be influenced somewhat at the Federal level is improved interaction of the key participants in a local labor market such as local officials, employers, representa tives of organized labor and the client community. Formal and informal rela tionships between the Federal government and client groups can help form the ¿base for an effective manpower system, but these relations with governments, schools, labor and industry must be nurtured at a local level if the program is to firmly establish itself as a long-term policy instrument. There are some important issues that can be resolved by this more cooperative local approach and by efficient delivery of data and technical assistance, employ ment and other services. For one example, as the President pointed out in his speech last summer at Ohio State University, the incidence of youth unemploy ment can be reduced by local cooperation. Most particularly, the link between the educational establishment, training and work must be strengthened at the local level in order to attack this problem. To digress slightly, the efforts of the military as a link between school and work— especially in more recent recruit ment activities— provide an example of the kinds of things that can be done to improve training opportunities for young people. The efforts of the past year in CETA represent beginning steps in the estab lishment of a locally oriented manpower program as a component in a compre hensive labor market policy and as a component in a more comprehensive economic policy. As we perfect our tools, we will be better able to adjust to changing conditions without having to react to instant emergencies, whose solu tions may only have short term benefits. In part, because of its flexibility and its potential to act in a catalyst role, the CETA program becomes a critical part of long term labor market policy. It can adjust to changing conditions, including shifts in population or technology. i n . LABOR MARKET POLICIES FOR ECONOMIC GROWTH The American economy, we should remind ourselves, has shown great capacity to adjust to a changing labor force and to dynamic social and economic develop ments. In the; 25 year period 1949-1974 total civilian employment increased from 57.6 to 85.9 million average joibs, an increase of 28.3 million jobs. In the last decade the increase was 16.6 million jobs. Although government employment in this quarter century increased from 5.9 to 14.3 million— an increase of 8.4 million—private, nomagricultural employment increased from 37.9 to 64.0 million, an increase of 26.1 million jobs. In this quarter century the employment of women doubled from 16.7 to 33.4 million while the employment of men increased 28.3 percent from 40.9 to 52.5 million. During this period, the participation rate of women in the labor force rose from 33.2 percent to 45.7 percent. The employment of youth, 16-19 years, also doubled, from 3.7 to 7.4 million, but the number of youth, especially those seeking work, grew even faster, as we discussed earlier. This overview of growth in employment should serve to demonstrate the dynamism of the American economy and the context in which we must view future growth. W e have made good progress over the last 25 years, though not without problems and mistakes, and it is our task now to try and identify the requisites for our continued growth. It seems to me that this requires us to con strue the term “labor market policy,, in a rather broad sense. In so doing, one comes to the conclusion that policies to promote stable, long term growth should be the cornerstone of labor market policy as well as economic policy generally. Provision of “ Good” Jobs More specifically, with respect to future labor market policy, the country has raised its sights and is interested not merely in the total number of jobs, but rather in the quality and character of these jobs. Some people are concerned that we have too many low-level jobs and not enough “good” jobs. The social and economic difficulties involved in the elimination or diminution of low-end jobs, or using them as a step to better jobs, is most complicated. 35 I should like to briefly outline the characteristics of a “ good” job : — good pay and benefits — challenging and rewarding job content — opportunities for advancement — pleasant w orking conditions — safe working conditions Although good jobs exist to one degree or another in all sectors, there are certain common characteristics o f industries with such jobs that are worth noting as we seek policies to expand job opportunity. Although the data are somewhat ambiguous on such matters I think it is fa ir to say that capital intensive industries tend to have higher earnings, partly due to their generally higher productivity and partly due to the skill-salary correla tions that typically exist. As an illustration, I have attached, in Table 5, some approxim ations that tend to demonstrate the relationship between the amount o f capital employed and the average hourly earnings per worker in some broad m anufacturing categories. You will notice that higher hourly wages tend to correspond to industries in which greater amounts o f capital per worker prevail. W hile there are various ways to measure compensation and capital stock, I think the attached table illustrates an important relationship in our economy. Furthermore, creation o f jobs through investment in capital broadens oppor tunities, thus allow ing more upward mobility in salary and skills as people are promoted and new jobs created. In industries where new technology and capital exist, w orking conditions gen erally tend to be better than average. Even in older technologies, investment in occupational safety can help to improve working conditions. Even in the service industries, some o f the same parallels hold. H ighly skilled service jobs that require training— and which use educational capital— also pay well or have other characteristics o f good jobs. Oftentimes, these services, such as medicine and law, utilize significant amounts o f public capital in the form o f schools, hospitals and court systems to perform their tasks. In other, low er paying service occupations we might note that the “ white collar” orientation o f such jobs often raises their status and that capital, albeit in low er proportions, often plays a role in improving the quality o f working conditions, often in the form o f buildings or offices. TABLE 5.— CAPITAL INTENSITY, EARNINGS, EMPLOYMENT, 2-DIGIT SIC MANUFACTURING, 1971 Capital per employee SIC and industry Per employee 29—Petroleum and coal_____________ ... ............ 28—Chemicals.................................. - ......... 33—Primary metals...................... . ............ 26—Paper___________ _____ __________ ............ 32—Stone, clay, and glass______________ ............ 20—Food. _________________ __________ _______ 30—Rubber/plastics____________________ _______ 21—Tobacco............ .............. ......... ............ 37—Transportation equipment___________ _______ 35—Nonelectric machinery.......... ........ ............ 34—Fabricated metals........................ ............. 22—Textiles....... .......................... . ............ 19—Ordnance.................... ............. ............ $87,190 36,450 35,060 29,440 20,550 14,160 14,140 12,690 12,080 11,640 11,540 10,840 10,560 24—Lumber................ .................... _______ 38— Instruments.................... .......... 36— Electrical equipment________________ ______ 27— Printing__________ _______________ 39— Miscellaneous......................... .... 25— Furniture.................. ............................. 31—Leather.............. .................... . ............ 23—Apparel........................ ............................ 10,270 9,410 8,830 8,580 6,490 5,210 2,530 2,110 Rank 1 2 3 4 5 6 7 8 9 10 Production worker average earnings ------------------------------Industry Per employment hour Rank (thousands) $4.57 3.94 4.23 3.67 3.66 3.38 3.40 3.15 4.41 1.0 6.0 3.0 9.0 10.0 14.0 13.0 15.5 2.0 3.99 5.0 8.0 20.0 7.0 11 12 3.74 13 14 3.84 3.15 15 16 17 3. 52 18 2.57 3.48 4.20 19 2.97 2.90 20 21 2.60 2.49 15.5 11.0 12.0 4.0 17.0 18.0 19.0 21.0 190.6 1,008.2 1,227.4 683.6 633.7 1,758.3 5E0.9 76.3 1,723.9 1,805.3 1,328.2 957.0 192.1 580.8 437.0 1,768.5 1,071.2 409.6 458.5 302.4 1, 335.7 W hile there are a variety o f ways to approach the problem o f improving job quality, including job enrichment and improvement in m obility and opportunity, the most basic and fa r reaching objective fo r national policy in this context should be to encourage development o f new technologies and the form ation o f 36 new capital. The benefits o f such policy extend to the economic life o f all Am eri cans in the broadest possible fashion, not the least o f which is the direct creation of good jobs. Also, the increase in output and income im plied by new capital form ation means a higher level o f living and income for all Americans, whether or not they are employed by industries involved with new capital form ation and productivity gain. Given the central role o f capital form ation in economic growth, it is sensible today, then, to draw directly the link between policies that have traditionally been considered peculiar to the labor market and policies that relate to the broader issues of growth and capital formation. , Research Technology and Productivity One important component o f capital form ation is research into and development o f new technologies o f production. Many studies have shown that research and development expenditures are correlated with growth in capital stock, produc tivity and profitability. One o f the important relationships defining productivity per worker is the amount o f capital employed per worker. Traditionally, the U.S. has had the highest capital-to-labor ratio in the world. However, other nations have narrowed the gap significantly in the past tw o decades, as the rate o f investment per worker added to the labor force has fallen off in the U.S. (See Table 6.) Table 6—Gross nonresidential fixed investment per person added to civilian labor force [In 1958 dollars] Period : 1956-60 1961-65 1966-70 1971-74 Am ount _____________________________________ _____________________________________ _____________________________________ ______________ ______________________ $49, 500 55, 300 46, 400 141, 000 1 Estim ate based on incomplete data for 1974. Source : Statement of Paul W . McCracken before the Committee on W ays and Means, Jan. 29, 1975. Basic data from the Department of Commerce and Labor. The development o f better technology often spurs new investment, and public and private research and development has been lagging of late. Encouragement of research can have important dividends in increasing the opportunities for capital investment and can add to productivity, jobs and real economic growth. W hile there is little dispute that research and technological development have a positive impact on productivity and growth, the importance of simultaneous skill identification and training is often overlooked. In this area, cooperative effort between industry, labor and government, especially at the local level, can help to ameliorate potential problems. W ithout adequate development o f skilled manpower to operate infusions o f technology, the potential benefits o f capital improvement will go unrealized. The Dangers of a Capital Shortage Many private economists, government officials, businessmen and others are becoming increasingly concerned over the ability o f the domestic economy to provide adequate capital for necessary grow th during the next decade. In addi tion to the direct impact on employment opportunities, job quality and produc tion, there are serious short and long term consequences to a capital-short economy. The U.S. economic experience of 1973 and 1974, wherein high rates o f inflation follow ed shortages in basic industries, is indicative o f the kind o f short-term disruptions that a capital shortage can cause. These shortages came as a direct result o f inadequate capacity to meet demand in these im portant areas. Indus tries such as paper, cement, fertilizer and certain metal products simply could not produce enough to meet demand, given the amount o f capacity available to them. W hile we should not be guided strictly by the various published measures of capacity that are available— for they often misstate the real utilization rates— it is clear, nevertheless, that relatively little need fo r capacity addition was per ceived in 1970, yet in 1973 and 1974 we found ourselves severely capacity-short and this factor contributed to rapidly rising prices for these materials that were in short supply. There are indications today similar to those o f 1970-71 as 37 measured by ratios of capacity to output and by the prevailing high rate o f unem ployment along with low levels of industrial activity. W e do not need statistics to tell us that the underutilization of the labor force and production base is pro nounced at this point in 1975. But, one o f my points today is that, because of the complexity and time involved in adding to capacity, it is not too soon to begin looking beyond the valley towards the next peak. The capacity shortage of 1973 and 1974 also illustrated a number o f other important dangers that inadequate capital can produce such as an adverse trade balance. W hile a number o f factors, such as the ongoing w orldwide econom ic boom of 1973-74, were important determinants o f our poor trade balance, our less modern capital stock in some industries no doubt continue to play an im por tant role in weakening our competitive position. As dom estic industries find themselves at a competitive disadvantage, the prospect o f few er jobs over the longer term is raised. Domestic shortages in one product can have serious price, production and em ployment effects on other sectors. Carried through to their logical conclusion, the im plications for jobs during capital-short circumstances is that production interruptions may mean employment interruptions. It is important to point out that adequate capacity, even in peripherally related industries has important employment implications for each and every sector. Areas Warranting Particular Concern Electric utilities are central to any analysis o f capital form ation, domestically and throughout the world, and thus are important to long-term labor market conditions. The reason for the importance o f utilities comes from the simple fact that power is necessary for running industries. The lack of adequate power means less industrial expansion and few er jobs in the long run. In the short run, inter ruption of power generation can result in job loss. W e can recall that the 1973-74 energy shortage created anticipations of massive power interruptions and related severe employment effects. A secondary reason for the importance o f utilities to today’s topic is that utilities are highly capital intensive. Not only does the placement o f utilities create jobs in the industries that provide the machinery, equipment and services fo r utilities, but new utilities mean both construction jobs and new permanent jobs. Also, new utilities mean higher quality jobs and, in this context, we should note that the utility industry ranks among the top 10 industries in both average hourly earnings and in capital employed per worker. Basic industries are another area where capital form ation is critical to long term growth in the most fundamental sense : Basic industries provide the building blocks fo r capital form ation of any kind and, in this respect, represent a particu larly critical link in the process o f form ing adequate productive capacity. M a chines cannot be built without basic metals, nor can plants be built without cement. W ith respect to the number and quality o f jobs, we might point out that most basic industries, especially in the metals, are among the top ranking industries both in capital per w orker and in average hourly earnings, as Table 5 points out. This is an indication of the impact on employment and job quality that investment in basic industries can have. Finan cial Con siderations W hile the actual construction and operation o f new industrial capacity is the immediate link between jobs and the capital form ation process, the availability of financial capital is also important. W ithout adequate financing, the capacity necessary and desirable for economic growth cannot be put in place. Secretary Simon, in his May 7 testimony before the Senate Finance Committee has sug gested that substantially larger funds w ill have to be committed during the next decade, compared to the last, in order to provide adequate financing for expected capital needs. Inflation and Growth Because o f widespread concern for growth without “ unreasonable inflation,” as some have put it, I thought I should mention briefly my views on this. As you know, I have testified on numerous occasions before various subcommittees o f the House and Senate on the matter, so I shall not burden you with an ex tensive discourse today. However, in connection with labor markets, the most fa r reaching policies with respect to dampening inflation are those that aug ment productivity, improve the collective bargaining structure and dispute set 38 tling machinery in each sector, and those that work to prevent product and skill shortages. Hence, policies to encourage capital form ation and concomitant labor force development at this time are the most appropriate vehicles both fo r providing jobs and for promoting price stability. Thank you fo r the opportunity to present my views on these important mat ters. I shall be pleased to answer any questions you may have. Chairman B e n t s e n . Thank you, Mr. Secretary. As you w ere testi fying, I went through your prepared statement looking at some of the points you made. One of the things we are faced with immediately is the fact that the conferees have cleared a $5.3 billion bill for creating jobs, a part of which is legislation to provide $458 million for summer youth em ployment, up to 900,000 jobs for the summer. We heard testimony yesterday from Mr. Meany expressing his con cern over the unemployment rate among youths and some minority groups. We could have some serious problems this summer if a very high percentage of those young people are out of work. I have heard re ports that the President might veto this bill. Would you be recommending his signing it or not, Mr. Secretary? Secretary D u n l o p . Well, I have not seen the final bill. What I know about it, Mr. Chairman, is this: There are two items in the bill for which the President has expressed, if I am not mistaken, very strong support. One item is the $1,600 million for the so-called public employment jobs, title VI, through fiscal year 1976. That would pro vide maintenance for some 320,000 public employment jobs through fiscal year 1976. The President is very much in favor of that. Second, there is in that bill, at least one stage, a sum of $412 million for youth unemployment to which you referred. That figure has been increased in subsequent versions and I am not sure-----Chairman B e n t s e n . $458 million ? Secretary D u n l o p . Yes, sir; it may well be the figure. Now, from the President’s perspective, as I understand it, he has said he was very much in favor of that $2 billion. I take it the problem is that the $2 billion is now encased in a bill which contains a number of other matters about which the President may well be less enthusiastic if you take the figure of $5.9 billion. First of all, as to the first billion aspect of it, I know the President is in favor of it, and I have long been in favor of it since I came here. I am not as familiar as I ought to be with what the rest of the items are, and therefore, I cannot speak to them. Chairman B e n t s e n . Mr. Secretary, which of the CETA programs seem to have been most effective for matching workers to jobs, for training workers, for disseminating labor market information ? Which are useless, which should we get rid of ? Secretary D u n l o p . You were not referring to particular geographic areas, I take it. Chairman B e n t s e n . N o ; programs. Secretary D u n l o p . Types of programs. Well, I am not all that certain that at this stage I would get rid of very many of them. I think our problem is to discover which of them work best in each particular locality, given their labor market areas, and which ones, therefore, we should shift funds into, with congressional approval, and which ones we should phase out. 39 Now, we are in an area where there is no great kind of absolute wis dom, I think, and that is the reason I face it that way. The manpower training and development, the kind of thing that enhances funda mental skills, the development of a job orientation—the whole orig inal MDTA, if you like—I think, has, on the whole, had a pretty good record. One other comment I am sure you expect me to make is that these programs have to be judged in terms of the client group to which they are directed. A particular program for some group may be very good. Designed for another group, it may be quite bad. So I would have said that this particular group of training pro grams generally has had, over a long period of time now, a fairly good record of effectiveness. With respect to the area of Job Corps and that kind of program— and I have been visiting some of those to see them with my own eyes and ask questions at first hand rather than reading a bunch of numbers on a piece of paper that are submitted to me—I have been impressed with the quality of some of them, but it seems to me that they do con stitute a very expensive set of programs per dollar per person, and therefore there ought to be a somewhat more limited development rather than extending them to our full client personnel. As to the public employment components of this manpower train ing, title II and title VI, I think the situation is that, in the present economic atmosphere, there is growing recognition that that is really a quite limited labor market tool. When I say limited, I do not mean in any way to cut down on the 330,000 jobs we have been talking about, but as I get around the country and talk with mayors and talk with public employees about it, there are a number of problems that arise. One is the problem of laying off regular employees in the city wTho are then being picked up under the manpower title VI. That causes a lot of trouble although there is a requirement that 30 days must elapse. There is a good deal of controversy where such practices contravene the congressional intent. Chairman B e n t s e x . How much is used by municipalities just t o replace attrition and to pick up people that would have been replaced anvway ? Do you see much of that ? Secretary D u n l o p . Well, I think what we are seeing is that it varies with the state of finances, if you want to get down to local circum stances. We do see some of the attrition. We do see some cases, which concern us very much, of actual layoffs and rehires later. Then we face this kind of-----Senator J a v i t s . I s it not illegal under the law ? Secretary D u n l o p . Yes. There are on my desk, Senator Javits, a set of regulations wThich further spell that out, which is called the maintainence-of-effort provision of the statute. Senator J a v i t s . I f I may say so, I am going to have to le a v e, Mr. Chairman. Would you allow me. I think the main problem we have run into in the public service jobs is that the law has not been ade quately enforced. I do not blame anybody, it is difficult, it is subtle, it is tough to deal with, but it seems to me, Mr. Secretary, you could render a great service by issuing such regulations to really tighten, up, because like the chairman has said, you hear about these things, tyou find some validity to them, they are all in violation of the law. I am one of the authors of this bill. I cannot put up with that. 40 Secretary D u n l o p . Well, I agree that there is not as much violation. Of course, it only takes a few illustrations for people to give it a black eye to what is, in my judgment, Senator Javits, a very good program and a mechanism which I am interested in seeing further perfected as I think I have said in my prepared statement. There is the following kind of problem. You get employees who have passed tlieir civil service exams, potential employees, they have been of the civil service list, they are trying to get jobs, a job in the city or country or something, and they are first on the civil service list. Along comes the CETA program that creates new jobs in the locality, but that job goes to a different person because we now have a different access route. That makes those people a little unhappy, to put it mildly, because they thought the next job belonged to them. And it is this sort of problem which has, I think, created some of the prob lems, but I do think on the whole it is a good program and wre ought to continue it, and I am in favor strongly of our trying to make the best use of those public service jobs for the unemployed. I think we have to face a problem of better targeting those jobs toward people who need them most. There is some tendency for public service jobs to go more to the more highly educated and to the higher income groups, less representative of the unemployed, if I can put it that way, than random distribution of the unemployed, and that is a problem with the program. So, I would say, if you look at these programs, the basic manpower training programs, I think, you will find them sound and should be continued. I think there is a limit to the public service employment, of precisely the point where it now stands. I do think, on another mat ter, that we have finally made some headway with the WIN program, Mr, Chairman. Chairman B e n t s e x . What? Secretary D u n l o p . The “W-I-N.” Work incentive. WIN is the acronym. Work incentive program. It is a program designed to pro vide jobs for those who are employable and on welfare, and that pro gram—I have spent a weekend reading a detailed report about it— on the whole seems to me to have come along much better than many of us thought it might. The basic programs, however, should be in the area of manpower training, as far as I can see. Now, there are a number of improvements, that can be made Mr. Chairman. Finally, in the unemployment insurance system, I think, and in the employment exchange and employment service, we need to work more on their long-term development. Senator J a v i t s . I like your one point—it occurs really in a collateral reference by Senator Bentsen, that the requirement for surmounting even 1 percent of unemployment is a 7-percent improvement in output. It is so impressive that I hope that we can really alarm the country over the likelihood of a short-lived end of the recession. We may have 2, ?>, 4 years, at the most, in which wre will have a chance to deal with industrial deficiencies, then a real bust like we have not seen for a very long time. I cannot say that often enough, and I am glad you are, and I hope that we will open our ears and listen. Secretary D u n l o p . Yes, sir, we w ill, I a m glad to have that kind of help. Senator. 41 Chairman B e n t s e n . I would add to what Senator Javits has said, and eloquently stated, that the most important issue before this coun try is how we achieve fuller employment without inflation. Talking about the amount of money that has to be spent to create jobs turns us even more to the problem of matching jobs to talents and training people with skills to fill the voids. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . And along those lines, let’s look at the situa tion you were talking about concerning the change in the age composi tion of our population. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . And resulting surplus of teachers. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . What was done in the way of counseling stu dents to try to head off that kind of thing? I f it was not done suffi ciently, then what are we doing now? What future job surpluses and shortages are we looking toward in counseling ? Secretary D u n l o p . Well, Mr. Chairman, I think that is an enor mously important area and, as it also happens, one which I have just a little association with, if I can say, at even more academic level. You take when wTe, you and I were talking about teachers, I assume we were talking largely with high school teachers or primary school teachers. I f I should talk to you about the Ph. D . market and graduate school, what you have just said would be true even more. Now, you see the fact of life is that it takes a number of years to train people. Take a physi cist which just exaggerates the problem. It takes a number of years to train a physicist. Chairman B e n t s e n . Take an easier problem. Talk about high school teachers. Secretary D u n lo p . Take high school teachers. It takes, about 4 or 5 years, you see. And not 8 or 9 as in the physicist’s other case. Some people tend to choose their careers based on what looks—at the present moment—to be a good market and then the}^ get out there and go looking for a job. Everything was up during the 1960’s, as you will recall, in this market, as the age distribution was very favorable and one had to get all kinds of new teachers in order to take care of that great youth movement that was going through the schools. The trouble was the youth movement went completely through and nowTthe number of teachers is greater than necessary. The teachers were geared up not merely to teach a constant number of students, but they were geared up to teach increasingly larger numbers of students. When that turned around and started down the number of teachers required was very sharply reduced and that is what we have run into. Chairman B e n t s e n . Well, Mr. Secretary, I looked at your projec tion out to 1985. Secretary D u n l o p . Right. Chairman B e n t s e n . On employment in industry and agriculture, and I see things as dramatic as the projected decline in employment in agriculture, for example, going down from 4 percent of the labor force in 1972 to 1.8 percent in just 13 years. Secretary D u n l o p . Yes. Chairman B e n t s e n . It is a very dramatic decrease. I would not be encouraging someone to go into that line of work. 42 Secretary D u n l o p . Well, it depends, the choices. There let us use the absolute numbers, Mr. Chairman. In 1960 there were 5,389,000 peo ple and the projection for 1985 is 1,900,000. So you are certainly cor rect in noting what a substantial drop that is. That is correct. But on the other hand if you get schools of agriculture established, and you get people interested in it, some additional people can be working in it. But, no doubt we do need a very greatly enhanced kind of sense of counseling. We need, I think, one other thing out of this, we need a school and work situation which provides feedback so that once people start down a particular road it is not as if it were a lifetime commit ment because such lifetime commitment can not be delivered upon in many cases in the kind of dynamic world in which we live. Chairman B e n t s e n . Let me ask you this. You are talking about a reduction in manufacturing. Secretary D u n l o p . Yes. Chairman B e n t s e n . And the percentage of people employed in it ? Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . And you are talking about a reduction in farm ing, and the percentage of people employed in it. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . And a gain in the service industries? We know that productivity increases are much easier to bring about in manu facturing and farming than in service industries. It is going to be more difficult to make gains there. We also know we have a problem with our balance of trade. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . Does this mean that we are going to depend more on foreign manufacturing? Should it be an objective of our country to try to stop this kind of trend or not? You said we want good jobs, and yet traditionally the good jobs have not really been in the service industries, they have been in manufacturing. Secretary D u n l o p . Well, I thought I was careful to indicate that there were indeed a number of good jobs there. First of all, for the United States, Mr. Chairman, my view about this is that there are two areas where the United States has a substantial advantage in trade which we ought to push. One, of course, is in the agriculture area, as you know perhaps even better than I do, and our balance of payments can be enhanced by that, and the second is in what I like to call high technology industries. And one of the things that con cerns me about the future state of our country is that we really get to work in the pushing of technology and science because that is at the frontier. Although lots of countries are able to catch up with us, we have a great relative advantage in areas where jobs have been cre ated in recent years and that are related to technology—for example, the worldwide computer industry. Similarly, you can take airplane manufacturing, and things of that sort, which are high technology in dustries. I f you take industries like nuclear-power development and so forth, these are good high technology jobs. And it seems to me that it is in those sorts of activities which we have a chance of pushing to our advantage. I would want to be clear that my testimony does not mean to imply only that employment in every sector is declining. The service sec tors are increasing considerably as I pointed out. The Government 43 sector is clearly increasing as I pointed out. Finance, insurance, and real estate is also a sector that is increasing in employment. Chairman B e n t s e n . D o you try to counsel young people that are starting out ? Do you have some input at that level ? Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . Have you been working with the school sys tem and trying to counsel them as to where jobs are going to be in creasing and where jobs will be decreasing ? Secretary D u n l o p . Yes. I do happen to think, Mr. Chairman, that one of the things, one of the problems and one of the institutional arrangements a committee like this might help do something about, and one of the problems I now wish to take just a couple of moments to raise with you, is the topic which might be labeled the interaction or interface between work and education. That is really what you are talking about. I do think we need some new arrangements in our local communities to deal better with this problem. This is not a new idea, it is an idea that has been growing around the country, Mr. Chairman, in the last 5 or 7 years. I happen to have been interested in it for a long time trying to work with a group of businesspeople and educators on just the kind of thought you are talking about. But what I would envision is a world in which not only would we have a society that dealt with the kind of manpower planning and projections of jobs in each local ity—we now have 400 sponsors in 400 or 500 different localities in the country—but that a group of people would interact with the school systems. I would envision that you would have a board of counselors, people who had worked in business or labor unions, who were a little older and who could sit down with a class and counsel the students as individuals, drawing on what they had learned about this sort of career business. These people w^ould sit dowTn and discuss what might amount to 50 or 100 different kind of career patterns. Some people know when they are young where they want to go—say a mathematician and a musican and sometimes a physicist. A lot of the rest of us wander around, try this for a while and try that for a wrhile, and I think the students in schools at these critical ages need to have what is essentially a feedback process, where once they go out they can come back. Our junior colleges in many communities are doing a very good job on this but they need to be more directly oriented toward work. This requires more participation on the part of businesspeople and union people and those who have access to the work environment and the work community. There are a whole host of things to be done there, Mr. Chairman. The President, I think, opened up some of this with his speech last summer at Ohio State University, as you may recall, and in this position I, for one, now wish to follow up on that and push it very hard. Chairman B e n t s e n . What kind of target does the administration have for unemployment for, say, the end of 1976 and 1977. Do you have a target, an objective that you are striving for ? Secretary D u n l o p . Well, let me say two things about that. First of all, if I am not mistaken, under the status of the budget arrangments, the administration is required to send up on the first of June an update of its January budget projections, and if I am not mis 44 informed, discussions about those numbers for that June 1st date are now under discussion in the appropriate groups including the Economic Policy Board. So I cannot answer precisely at this time because the issue is under discussion but the resolution to that issue should be forthcoming. There is one other point. I think your use of the word target is very important. One must raise some questions about it. If you say what is a professional economist’s projection, that is one thing: Given budgets, given dispositions of households, given business plans for in vestment, what is your best projection of GNP, and then what is your projection of unemployment and so forth. That is one thing. That, I think, is not a target in the sense of an objective which one seeks to attain. That is a projection. That is a kind of technical building from economic data. I am not aware that the administration has stated any particular target. Chairman B e n t s e n . I am not aware of one either, and that is what concerns me. It seems there ought to be an objective we are striving for, and we ought to be planning such programs as we think would accomplish that objective. Let me ask you another question. Secretary D u n l o p . I do not disagree with that. Chairman B e n t s e n . In the CETA program we provided for data banks and computerized job banks for the matching up of jobs and talents. Secretary D u n l o p . Yes, sir. Chairman B e n t s e n . H o w effective has the nationwide computerized job bank been? How many job matchings were brought about in 1974 and what do you expect in 1975? What has been done to implement that provision of the act ? Secretary D u n l o p . Well, I will have to furnish for the record the answer to your question with a national set of numbers.11 can tell you, though, Mr. Chairman, that there are technically two kinds of opera tions in this procedure. The first is where a person looking for a job in an employment office, sits down in front of a scanner w^here a num ber of jobs are coded by industry and the person presses the button for that group of jobs and then operates the scanner to see the jobs that are available, the wages that they pay, the location, and so forth. Chairman B e n t s e n . That is actually in operation ? Secretary D u n l o p . That is now in operation. I , with my own eyes, saw it in operation in Kansas a couple of weeks ago and I saw it in New York Cit}r in operation last Friday. Chairman B e n t s e n . People look and say, I would like to try for this job. Secretary D u n l o p . People in the employment office seeking work and seeking it from that kind of bank. Now, there is a second and more sophisticated technique which I saw in New York which operates at least for a range of white collar jobs. I can testify to this because I was visiting with the people not only working in the emploj^ment office but talking to the people who w^ere in the office looking for work, Mr. Chairman. This system allowed the characteristics of the person looking for work to be fed 1 The information was not available at the time of printing the hearings. 45 into the computer essentially saying I want a job at this salary, want a job at this location in New York City, the East Side and so forth. They can specify the type of shift such as from 9 to 5 or some other hours. Chairman B e x t s e x . The machine does that matching. Secretary D u x x o p . The machine then came up with five different jobs which that person might be considered for and the next step in that process was that-----Chairman B e x t s e x . Sounds like a dating program. [Laughter.] Secretary D u n l o p . I do not know about that. Chairman B e x t s e x . I do not know about that either. Secretary D u n l o p . I do not know, it is a mechanical marriage, it is not the way I did it. [Laughter.] Now, but what then happens, just to complete the narrative briefly, is that the individual worker in the employment service then calls up to see if the job has been taken in the intervening time. This could occur since there are 20 such machines at various points in New York City. Nevertheless, there are still three jobs which that person may then be referred to and go out and look at. So these techniques are being effected. I myself was rather impressed with the scanning device alone. One of the byproducts of it that appealed to me is that the person gets a much better idea than they would otherwise have about the nature of work that is available. Chairman B e n t s e n . Sure. Secretary D u n l o p . Here you have some wage data, you have some locational information, you have some occupational data, all describ ing what is available and that is an important way of communicating with people that might not, by looking through w7ant ads, get the same idea of what the labor market is all about. Chairman B e n t s e x \ The final payoff is how many people actually get placed ? Secretary D u n l o p . I agree. And I will try to get you that data since I have not seen the aggregate data. I am simply saying that with my own eyes I saw it at work in those two cities. Chairman B e x t s e x . Mr. Secretary, I think this has been very help ful to us, and I appreciate very much the time you have given us this morning. I know you have other commitments. Secretary D u x lo p . Thank you. Chairman B e x t s e x . I know how busy you are. Secretary D u x l o p . I would, with your permission, like perhaps to come back and talk with you or other members of the subcommittee about these same ideas when my views and the information I now have being prepared and analyzed have been more fully developed. Chairman B e x t s e x . Well, Mr. Secretary, let us do this, let me sub mit some additional questions, since you are still firming up some of your thoughts. Let me submit some questions, and I would appreciate your giving us the answers to them for the record. Thank you very much. Secretary D u x l o p . Thank y o u . 5 9 -0 8 2 — 7 5 ------- 4 46 [The follow ing written questions and answers were subsequently supplied for the record:] R esponse of H on . Joh n D unlop to A dditional W ritten Q uestions P osed B y C h a ib m a n B entsen Question 1. Mr. Secretary, this is the first time you have appeared before the Joint Economic Committee as Secretary of Labor, but you appeared many times as Director of the Cost of Living Council. You endeavored, unsuccessfully, to have the life of that Council extended. I believe you felt very strongly that its continuation was necessary. What kind of price-wage policy do we need over the next few years? Does the present Council on Wage and Price Stability have adequate staff, adequate powers, and sufficient permanance to develop and enforce a price-wage policy? What is your prediction for 1975 and 1976 wage settlements under contracts coming up for negotiation these two years? Can we expect “wage-push” to become a serious source of inflation? I f so, what are we doing, and what should we be doing, to anticipate this problem and defuse it? Answer. In response to your first question, as I stated in my testimony, the most effective anti-inflationary policies would be those that augment productivity and that work to prevent product and skill shortages. Second, business, government and labor should be brought together, on na tional, local and industry levels in an effort to seek accommodation on mutual problems that contribute to inflation. This can be done outside a regulatory framework as well as within a statutory program. For example, the structure and results of collective bargaining in many industries can be improved in this fashion in an effort to reduce the incidence and level of inflationary wage settlements. Third, the Federal Government’s own activities need to be examined for their inflationary tendencies. The President’s interest in “Inflation Impact State ments” by Federal agencies is a major step towards improving the government’s own part in controlling the inflationary process. Activities in this area on the part of the Council on Wage and Price Stability are also to be encouraged. Fourth, collection of additional and improved data to be monitored and analyzed w^ould provide a method for early warnings on inflationary sectors and provide the opportunity for remedial actions to be taken by affected and inter ested parties. The Council on Wage and Price Stability would have a direct interest in any such data and its evaluation. Finally, direct wage and price controls should be considered only in rare, specific instances. General wage and price controls are inappropriate to an economy with specialized sectoral problems and with different price and wage determination processes applying to different sectors. Our experience has shown that, unless a broad national consensus is developed, such controls are pro hibitively expensive to enforce. Furthermore, general controls can cause distor tions in industries whose production, and price and wage determination processes do not parallel the processes assumed in the general regulations. I do not want to venture a specific prediction on wage settlements over the next. 18 months, as those settlements may well depend on factors we cannot yet foresee. However, we may be sure that some of our 1973-74 inflationary experi ence will be reflected in wage demands. On the other hand, I would expect the more recent down-turn in inflation to serve as a moderating influence on the size of wage demands during the next several years. Also, to the extent that there is slack in particular labor markets owing to recent increases in unemployment, wage demands will also be moderated. With respect to the pass-through of these costs, increasing rates of productivity gain that typically accompany a recovery will soften the impact on prices of any increase in wage costs. The Council on Wage and Price Stability will no doubt be watching these developments care fully and other efforts will be made to foster a healthy collective bargaining climate that will promote responsible and equitable wage settlements. Question 2. Mr. Secretary, a study several years ago by George Perry of the Brookings Institute argued that the shift in the age structure of the labor force toward a higher proportion of teenagers increased the difficulty of achieving any given unemployment target without inflationary consequences. This idea has become widely accepted, especially in Administration circles. Your first table shows that from now on the age structure of the labor force will be shifting back the other way. A rising proportion of all workers will be 47 in the age 25-44 group. To the extent that Dr. Perry’s thesis is valid, won’t that mean less inflationary pressure at any given level of unemployment? Answer. The relationship between the rate of unemployment and the rate of inflation are determined by a number of factors, an important set of such factors being the age and skill composition of the labor force. Dr. Perry’s thesis implies that these factors will not contribute to inflation and unemployment as strongly as they did in the late 1960’s and early 1970’s, as the increment of new entrants to the labor force recedes and relatively greater numbers of workers are more highly skilled and experienced. However, other factors contributing to inflation and unemployment, such as energy shortages, agricultural shortfalls, rapid increases in foreign demand or foreign prices, capacity shortages, etc. may or may not change in a favorable direction. So, to the extent that Dr. Perry’s thesis is valid, we can expect relatively less inflation to arise at a given level of unemployment as a result of the factors that he examined. However, to the extent that other and often less predictable factors affect unemployment and inflation, it is difficult to predict the amount or direction of inflation or unemployment. Question 3. Mr. Secretary, in a May 13 Washington Post article, “What Kind of Economic Recovery”, Joseph Kraft argues that a strong and sustained recovery will require, along with the right kind of monetary and fiscal policy, a number of innovative manpower policies to improve the structure of the labor market. He says a lot of little things are needed: “Money, materials, and labor can be pushed into the potential bottleneck areas— notably construction of electric power plants. . . Improvements can be made in labor mobility, and in the present modes whereby the transit from school to job is made.” “Unfortunately,” Kraft continues, “these things are not going to happen by themselves. They require a stimulus. The only official in the Administration keenly interested in such little steps now is Secretary of Labor John Dunlop. The President’s other economic advisers are too caught up in ideological battles to take new initiatives.” Does the Administration have a comprehensive, forward-looking, manpower policy? If so, who participates in its formation and what process is used? Have any formal arrangements been made for cooperation between the Labor Depart ment and other agencies affecting manpower policy ? As we recover from the recession, in which occupations and industries can we expect manpower shortages and surpluses? What actions has the Labor Depart ment and other agencies taken to reduce or eliminate anticipated shortages and surpluses? What further authority from Congress do you need? Answer. With respect to your third question, on manpower policy and doing “little things” to stimulate improvement in labor markets, a number of activities are now underway to reinforce manpower policy as an important labor market instrument. I discussed a number of these areas in my testimony. First I would reiterate my point that a strong economy is the first prerequisite of an active manpower policy. Certainly, the Administration is making progress towards that goal. On May 13, I made the further point that capital formation was a critical link in creating good, permanent jobs and building a healthy economic base. The capital needs of the nation are of concern to us and are being explored by a num ber of people both inside and outside of government. In addition, I pointed out in my testimony that the concept of the CETA pro gram, represented a valuable manpower policy tool focusing on labor markets as they actually exist, especially when placed in the context of an economy that is growing and creating good job opportunities. The Labor Department continues to assess the performance and prospects of the CETA program as the results of its first year of operation become available for examination. W e intend to make adjustments to the program where appropriate and continue the progress of the program towards improving employment opportunities and in making the labor force more productive. I hope to have the opportunity to review some of these matters before interested and appropriate committees of the Congress in the near future. Additionally, the Department of Labor is working with the Department of Health, Education and Welfare on a number of issues that properly concern the respective Departments, as, for example, with the W IN (Work Incentive) Pro gram and other matters of mutual concern. With respect to the recovery that is now beginning to get underway, there would appear to be sufficient labor resources available in most sectors to handle the economy's short term needs, although, to be sure, some shortages are likely 48 to occur that cannot be foreseen. The type of skill shortages that I referred to in my testimony are of a longer term nature and relate to the need to develop labor resources in conjunction with development of capital resources and other job determining factors such as population and geographic location. As I noted in my statement, there is need for cooperation, particularly local, between schools, em ployers and unions to help young people plan their education and careers and to allow older people to have adequate opportunities for retraining. I believe that the basic tools to accomplish this exist in the framework of the CETA program. I am looking into the question somewhat further at this time, and would appreci ate the opportunity to discuss my thoughts as they become more fully developed. Question 4. Mr. Secretary, in your prepared statement you said: “the most essential requisite for making headway toward full employment without un reasonable inflation is the adoption of longer term public policies, less responsive to immediate political considerations, with a lesser imperative to meet the dates of November or July or January on the political calendar. The objective now should be for a sustainable expansion that leads to stable high employment and not a peak that explodes in more inflation and collapse.” What is your preferred time table for getting back to full employment? What would you consider a reasonable unemployment target for the end of 1975? For the end of 1976 and 1977? Will current monetary and fiscal policy attain those targets? I f not, what changes would you suggest? Answer. As I pointed out in the introduction of my prepared testimony, I find the use of the term “full employment” to be somewhat ambiguous, especially in view of the various definitions offered and our experience with meeting the goals so often set forth. It is clear that current levels of unemployment are unaccepta ble and I would hope that we could see significant moderation in unemployment before the end of the year, continuing to even lower levels in the future. I believe that the appropriate short term steps have been taken in the form of tax legisla tion, emergency employment and the like to achieve a reduction in unemployment. Despite these measures, wTe should expect to experience a period of rather higher unemployment than we would like. In this regard I should like to restate my view that the key to a sustainable long term expansion in production and em ployment lies in considering longer term measures, including capital formation and labor-market based manpower policies. Question 5. According to Treasury Department figures published March 21, United States labor productivity {measured by real domestic output per em ployed worker) grew an average of 2.1 percent yearly between 1960 and 1973, compared with an average of 5.2 percent yearly for the countries in the Organiza tion for Economic Cooperation and Development (OECD) and an average of 9.2 percent yearly for Japan. Our real level of investment during those years was also very low— an average of 13.2 percent of our real national output yearly, compared with 19.4 percent for the OECD countries and 29.0 percent for Japan. Answer. In response to your concern about U.S. productivity relative to the OCED countries and Japan, it is well known that productivity in most other industrialized nations has been increasing much more rapidly than in the U.S. in recent years. Part of the explanation lies in the fact that their industrial plant is relatively newer than ours, since those nations have devoted a relatively greater share of their national income to investment than has the U.S. in recent years. While other factors, both social and economic may be cited, it seems to me that measures designed to advance and apply new production technologies and to enhance capital formation are the most appropriate means by which to im prove the productivity of the U.S. economy. Question 6. Why has our labor productivity and investment record been so dismal in comparison with that of the other industrialized countries? What changes in our economic policies are needed to bring the productivity growth of American workers up to the standards set by European and Japanese workers? What ongoing programs does the Labor Department have for increasing the productivity of American workers, and wliat new programs are being contemplated? I fully share your belief that stepped-up capital investment is necessary for a sustained economic recovery. It sems to me that two of the most useful things we can do to encourage increased capital investment are: . . . 1. Establish a timetable for returning to full employment, thereby giving busi nessmen the assurance that by the time their investment is completed, the market will be there; and 49 2. Conduct monetary policy so as to make adequate funds available at reason able interest rates. Do you agree that these are fundamental? What else would you do to promote investment? Answer. With respect to labor productivity, the various training programs in the Department of Labor, especially within CETA are designed to reduce unem ployment by providing skill training and skill matching services. As I also men tioned in my testimony, a stronger link needs to be forged between the educational establishment, unions, and employers, especially at the local level. By aiding workers in acquiring the skills to match jobs in both old and new technologies, the productivity of the American worker can be improved, but clearly the development and placement of productive equipment is a prerequisite of marked improvements in labor productivity. In response to your final point, I agree that it is important to have a healthy economic climate including an appropriate monetary policy in order to stimulate business investment, but our experience with the establishment of targets and timetables suggests that this is not necessarily the most effective way to create such a climate. Nevertheless, a,s I suggested during my appearance before your subcommittee, I believe that the process of setting goals can be helpful in establishing priorities and designing policies. Concerning the encouragement of capital formation, I am currently looking into this question. As you were kind enough to recall my interest in testifying before your subcommittee at a later time, I would appreciate the opportunity to more fully address specific steps to encourage capital formation after I have reviewed the issue in more detail. In response to your question about the number of placements by computerized job banks, I would like to provide you with the following information : Because of the method of reporting, it is not possible to accurately determine how many Employment Service placements are made through the job banks system. These reports wTere not designed to indicate the number of placements made through job banks alone, but rather through all placement efforts. How ever, it is probably safe to say that the vast majority of placements are made via job banks since job-bank areas cover over 80 percent of the population. Job banks are operational in 49 States and in 43 of these States, the job banks are statewide. Further, all major Standard Metropolitan Statistical Areas (SMSA’s), with the exception of San Francisco, have operational job bank systems. At least 110 SMSA’s have job bank systems installed. Remembering, roughly, that 80 percent of placements are made through job banks, total placement data for all of FY 1974 and for FY 1975 through February (latest available data) are listed in the following table: Fiscal year 1974................ ............................................................................. 1975through February*................................ ........................ ..................................................... Individuals placed1 2,174,000 Total placement transactions1 6,671,000 4,030,000 1 When an individual is counted once in a given cell for a given fiscal year he is not counted again if he is given the same service later in the year. The transaction count on the other hand records each time an individual is given the same service. 2 February, fiscal year 1975 data are estimates based on reports from 42 States. Chairman B e n t s e n . The subcommittee stands adjourned. [W hereupon, at 1 1 :05 a.m., the subcommittee adjourned, subject to call by the Chair.] LABOR-MARKET POLICIES FOR FULL EMPLOYMENT TU E S D A Y , JUNE 3, 1975 C ongress op t h e U n it e d S t a t e s , S u b c o m m it t e e o n E c o n o m ic G r o w t h of t h e J o in t E c o n o m ic C o m m it t e e , Washington , D .C. The subcommittee met, pursuant to notice, at 1 0 :05 a.m. in room S -4 0 7 , the Capitol Building, H on. Lloyd M . Bentsen, Jr. (chairman o f the subcommittee), presiding. Present: Senators Bentsen and Javits. A lso present: Loughlin F . M cH u gh, Courtenay M . Slater, W illia m K . Buechner, and Jerry J . Jasinowski, professional staff members; Michael J. Runde, administrative assistant : George D . Krum bhaar, Jr., minority counsel; and M . Catherine M iller, minority economist. O p e n in g S t a t e m e n t of C h a ir m a n B entsen Chairman B e n t s e n . Gentlemen, i f you will be seated, the subcom mittee will come to order. Last Thursday, President F ord showed, I thought, a disregard for the tragic plight o f 8.2 million Americans who are jobless by vetoing the Emergency Em ploym ent Appropriation A c t o f 1975. T h at act would have appropriated $5.3 billion for job-creating programs. I t would have put to work about 1 million Americans who are currently on unemployment or welfare and create about 840,000 summer jobs for young people. M y concern is that these young people coming out o f high school and coming out o f colleges are not finding gainful em ploy ment, not finding a productive role to fulfill in society. W e m ay well have a lon^, hot summer facing us. A m on g job programs vetoed by the President were $458 million for summer youth employment, $30 million for community service em ployment for older Americans, and $1,625 million for an additional 180,000 public service jobs above the existing 310,000. Once ag’ain, I think the President showed a disregard for people and jobs, and has let the budget deficit dictate whether or not we are going to get out o f this recession and put Americans back to work. I t seems to me that one o f the ways to get rid o f that budget deficit is not to veto a bill that w ill spur recovery. Y o u know I have a great sympathy for the Vietnamese refugees that are here, and I agree that we ought to appropriate funds to try to help them fit into our society and help them be gainfully employed. I t is a little difficult for me to understand the President’s then turning around when he supports that and vetoing money to put American citizens back to work. The way to take care o f this deficit is by having people back on payrolls wThere they are paying (51) 52 taxes and not drawing unemployment compensation and being on welfare rolls. I t has often been cited that fo r every 1 percentage point reduction in unemployment, we can reduce the budget deficit by about $16 billion. So the President is headed in the wrong direction. I am deeply concerned by this administration’s willingness, it seems, to accept high unemployment as normal for a period o f 3 or 4 years at least. This policy just condemns millions o f Americans to the tragedy o f semipermanent joblessness. I t tells hundreds o f thousands o f Am erican teenagers, the future o f our country, that we have no desire to provide summer jobs for them, that they have no productive role to fill this summer. I do not believe this country can afford an economic policy that keeps 8 million Americans out o f work. Gentlemen, it is a pleasure to welcome you as witnesses to this sub committee, where we are trying to determine what can be done to de velop a new labor market policy and what is needed to restore our economy to fu ll employment without inflation and to keep it there. That is not an easy task. A n d that is why we tried to choose people o f your expertise to help us along the way. There is no better time than right now to begin this task. W e are currently in the midst o f our worst recession since the end o f the Great Depression o f the 1930's. In A p ril, there were 8.2 million Americans jobless, almost 9 percent o f the labor force. Moreover, the official unemployment figures for a single month do not tell all o f that story. The fact is that almost 25 million Americans will be out o f work at some time during this year, almost a third o f all workers, and alto gether some 75 million American workers and their families w ill have had their lives tragically disrupted this year because o f unemploy ment. T his is a national tragedy, and we ought to try to avoid it. Our opening witness at these hearings on labor-market policies to restore fu ll employment was A F L - C I O President George M eany. President M eany made an eloquent plea to Congress for job-creating measures to bolster the economy and get us quickly back to fu ll employ ment. Unemployment not only hurts the jobless worker, it hurts the Nation as well, causing lower growth, lost output, broken homes, more alcoholism, more drug abuse, more crime. A s President M eany said, America certainly cannot stand a prolonged period o f such conditions creating troubles that can tear the fabric o f this society. T he tim e for job creating measures to turn the economy around and move rapidly to full employment is now. Our second witness was Labor Secretary John Dunlop. In his state ment Secretary Dunlop warned that recent changes in the age, skill, and sex composition o f the American labor force have had a m ajor effect on our ability to achieve fu ll employment without inflation. So, too, have changes in the occupational distribution o f job opportunities. For some industries and occupations there could be labor shortages, while large numbers o f workers go unemployed because job skills and job needs do not seem to match up. W e must begin to develop policies to prevent these labor market changes from stalling a return to full employment. W e must enhance training and skills. W e must reduce frictional unemployment and the burden o f searching for a job. W e must end discrimination against blacks and women and youths and others. 53 Congress lias called for more than $7 billion in fiscal 1976 for a wide range o f manpower programs already in the works— -for public service employment to train the unskilled or to provide temporary jobs for the unemployed, for the Job Corps, for the work incentive program to put welfare recipients on payrolls, for on-the-job training programs, for programs to help older workers, youths, Indians, migrant workers, non-English-speaking persons. A re the programs working? A re they providing the skills fo r the unemployed ? A re they im proving the ability o f our economy to match up workers and jobs? A re minorities, women, youths, older workers getting the programs they need fo r the specific problems? W h a t new initiatives in manpower policy should we begin to work on right now ? O r do we need new initiatives, or is it just getting what we nave now to Work properly? Above all, how can we put together the central elements o f a total program to deal with the massive unemployment which appears to confront us for the remainder o f this decade? W e are pleased to have this morning M r. Ginzberg, Chairman o f the National Commission on Manpower Policy, which was established by Congress in the Comprehensive Em ploym ent and Training A c t o f 1973; M r. Levitan, professor o f economics and director o f the Center for Manpower Policy Studies, George W ashington U niversity; M r. H o lt, director o f inflation and unemployment research at the Urban Institute ; and M r. R alph Smith, senior research associate at the Urban Institute. I hope yôu gentlemen can answer some o f those questions. M r. Ginzbèrg, i f you would proceed first. STATEMENT OF HON. E l i GINZBERG, CHAIRMAN, NATIONAL COMMISSION FOR MANPOWER POLICY M r. G i n z b e r g . Senator Bentsen, I want to first say that I welcome the opportunity to come before you and to share with you how fa r the National Commission has come. I t really became operative only this year because we were not appointed until the last day in September and had our first meeting in November. S o I w ill plan to bring you up-to-date as to how we are approaching some o f these questions in which you have expressed particular interest and then I will put on m y other hat as a professor and share with you some opinions that I have to which I will not commit the Commission because we have not had a discussion on all o f these issues as yet. I want to state that I think it is very fortunate that the Joint E co nomic Committee has, I would say, i f you permit me, belatedly come to pay more attention to the interfacing between economic ana man power policy. W e have had legislation on the books since 1946, and I would say that while I have not read all o f the semiannual presenta tions before this committee, the committee in general was preoccu pied with questions o f expenditure programs and budgetary balances and only very recently has become interested, I think, in what was the m ajor objective o f the act, which was to ask what the Federal Government could do to assure a high level o f employment. I read both M r. M eany’s and Secretary D unlop’s testimony, so I have those inputs by way o f background. 54 L et me begin by saying that we are just now preparing for Con gress, it is in the press, a second interim report o f the Commission based on its M ay meeting which will deal specifically with our rec ommendations as to the place o f public service employment in the larger picture o f the manpower policies o f the United States. A n d there is also in the press the proceedings o f a conference that the Com mission held in order to prepare itself for making recommendations in this area. I am pleased to say that M r. Levitan, on m y left, was one o f the contributors to this symposium and a colleague, M r. A la n Fechter, o f M r. H o lt and M r. Sm ith was another contributor. W e asked four experts to prepare special papers which together with the conference discussion will be published. I understand that we will have the proceedings available in about 3 weeks. The Commission has been very concerned with what is known as section 503 o f its charge from the Congress, which is to identify the manpower goals and needs o f the Nation, so we have been very sensi tive to the importance o f trying to see how the structures and mech anisms which we now have could be improved so that the Nation can come closer to fulfilling its manpower goals. Now some o f the other things that we have done : W e have just sent a senior retired official o f the U .S . Department o f Labor as our con sultant to visit a group o f O E C D countries with a large questionnaire to consult with government, the trade unions, and other economic com petent people there to flush out and bring back to us some o f the im portant newer efforts that the European countries are m aking to establish and maintain a high level o f employment. W e do not want to rediscover the wheel, and we think that tney may have some ex perience that would be useful. Second, we are just in the process o f commissioning a group o f p a pers by leading American economists focused on the issue o f what can be done to improve thé articulation between economic and man power policies so that we do not have the kinds o f serious shortfalls represented by 9 percent unemployment. In addition, the Commission is looking at particular dimensions o f the problem, such as you mentioned, the youth problem, and when we met with the President in January, this was a matter o f very high concern to him in his charge to the Commission. W e are m aking some plans in depth about how to tackle the question o f from school-towork, the whole transitional problem W e are also concerned with the question that we really have three programs, Senator, as we see it, all responsive to some degree to the needs o f the unemployed and they are very badljr articulated. T h e one is the basic U I system. The second is public service employment. A n d the third is the welfare system. A n d as fa r as we see, one o f the serious challenges that both the administration and the Congress face is that the operation o f these three systems runs along separate tracks. L et me illustrate. The average payment under U I — now I feel stronger; I see the Senator from New Y o rk has arrived. Chairman B e o t s e n . Y o u do have a very distinguished Senator who just arrived. W e are glad to have him. M r. G i n z b e r g . I was going to point out that under the U I , the aver age benefits these days are about $3,500. The average benefits under 55 public service employment about $8,000, and the welfare benefits, you know, fluctuate all over the lot, but they are, at least in some States, considerably above the U I benefits. I would like to begin by pointing out that I had a warmup for this meeting by being at Senator Culver’s and Senator Javits’ day-long conference last week relating to putting in place an economic plan ning mechanism for the United States. A n d a good part o f that dis cussion really dealt im plicitly, i f not explicitly, with the shortfall o f the economy on the job front. L et me very quickly tell you now what the emerging positions o f the Commission are. I think I can reflect correctly the Commission’s views that have been developed. First, the Commission firmly believes that the country— and that means both the administration and the Congress over many years— has not been adequately responsive to establishing the kinds o f programs and improving the kinds o f mecha nisms needed to keep employment at an appropriate level. T hat is, although we passed the Em ploym ent A c t in 1946, we have sim ply not paid enough attention to its implicit and explicit goals. Therefore, the Commission is planning as part o f its continuing work to come fo r ward with a series o f recommendations to the Congress as to how such mechanisms and what kinds o f additional policies and programs are needed to enable the United States to come much closer to a realistic fu ll employment policy. Second, the Commission is not w illing to accept at all that this country has to live with a 7-, 8-, 9-percent unemployment rate for a period o f years. That is intolerable to a Commission that has the charge o f figuring out how the goals, the manpower goals o f the country, ought to meet the needs o f the population and it cannot live with such figures. T hird, and this is important, I think, the Commission does believe that the major challenge to maintaining a high level employment economy rests with macroeconomic policies. T hat is, it rests with tax, budgetary, expenditure, and related matters. T hat is, what you can do with manpower policies is to fill in crevices to make special pro grams available to improve the training and capabilities o f people on the periphery o f the labor market, but the Commission surely does not believe that it is the manpower policies themselves that can overcome such serious shortfalls as we now have. W ith respect to public service employment, we really see that as an instrument which has multiple potential possibilities— and there are four that I would like to mention. I think the discussion about public service employment often gets confused because these different goals are not clearly differentiated. The original C E T A had title I I , and that aimed to use public service employment as transitional opportuni ties for people in the labor market, or who had not yet been in, to get special training and work experience transitional to getting regu lar jobs either in the public or private sector. I testified last week before Senator Nelson’s subcommittee. Senator Nelson and Senator Beall were both very strong in their statements about their concern that this title I I objective o f facilitating the em ployment o f the hard-to-employ to make them eventually ready to take civil service jobs was being lost in the shuffle, and they thought that since State and local employment represents the biggest industry in 56 the country, it was most unfortunate i f minority groups and liard-toemploy persons would not have that opportunity o f getting jobs in this sector. Hence, they stressed title I I . Second, title V I is a kind o f countercyclical device, and frankly, being drafted in haste it has some weaknesses. I testified before Conressman Daniels in October and pointed out that P S E p>ut alongside o f the IJI and the welfare system should have a real limitation based on fam ily earnings, otherwise some people could get a public service job where their fam ily situation in terms o f total income was reason ably good, while long-term workers on IJI could get ony h alf as much, or less. Moreover, at an average cost o f $8,000 a job, I do not think that with over 8 million unemployed people that one can look to public service employment no matter how far it went as the principle. The Joint Budgetary Committee o f the House and the Senate, it is m y understanding, recommended 400,000 P S E slots. T hat is as far as they wanted to go. O ur Commission at the moment is not really enthusiastic about go ing any further. I cannot tell what figure they will come up with be cause the draft report is out, but it is unlikely to recommend a large expansion o f public service employment. I t does not see it as a very effective instrument for coping with the recession. The mayors and the Governors are having great trouble o f hiring new people while they are letting go their regular employees. A n d I would say there is some sympathy among the Commissioners, I do not know exactly how much, to look to emergency revenue sharing as a better device than public service employment to maintain adequate State and local payrolls, i f that is a key objective. T he third point relates to the fact that we really do think public service employment has real potential to cut certain problems. W e are very worried about unemployment, not only 1975 but what is likely to happen as the economy slowly improves. W e see the likelihood o f serious structural unemployment pockets, especially in the M idwest, connected with the slow recovery o f automobiles. W e can see entire communities that have their economic base eroded. W e think that pub lic service employment alone will not provide the fu ll answer, but to gether with some kind o f financial help from the Federal Government and other supportive measures the economic base in these communities may be turned around so that we do not go through what New England went through after W o rld W a r I ; that is, a textile industry that just slowly died on the vine and left a whole area fo r 20 years in bad shape. T he reason we do not feel comfortable about public service em ployment as in your anticyclical device— you come from Texas— is that the Austin rates o f unemployment these days are in the neigh borhood o f under 2 percent and Detroit is in the 17-percent range. So we do not think P S E is the easiest instrument as presently de signed to be responsive to that kind o f variability, although we do believe that it has the potentiality o f being used differently in response to higher and lower rates o f unemployment. L astly, I think there is a real place for public service employment within a fu ll employment concept with the Government being the employer o f last resort. A s the Commission has begun to think about employment goals for 57 the country, it sees a place for public service employment in that relationship. One other point. W e are very nervous about the rate o f the recovery because we see a large housing inventory overhanging the market. A n d we do not see automobiles coming back quite that fast. A n d we ask the question where is the stimulus coining from in the face o f a fairly slow recovery from housing and automobiles ? T h at is about as far as the Commission, as a commission, has discussed these issues to date. W e will have our second interim report in your hands very quickly, probably by the end o f the month. A very few other comments now with my professional hat on. The United States does not yet appreciate fu lly its human beings, the competence o f its people represent its m ajor resource and should constitute its m ajor goals. People are the major input into the econ omy and this ought to be the m ajor goal o f the econom y; that is, the output should be to make their life better. I do not know what else the economy should strive to accomplish. O n the other hand, I would like to persuade this committee and any other committee I can talk to that the improvement, the longrun improvement o f the employment performance o f this economy is not subject to simple gadgeteering. I am going to testify on Thurs day morning before M r. Daniels’ committee. They are coining in with some new proposals on public service employment. A s I do not think that the issue is sim ply changing the appropriations level or intro ducing some additional amendments, we have some very serious, long-range institutional changes that we need i f this economy is to perform better. A lthough I thought M r. M eany’s testimony was eloquent and much o f what he said I am in fu ll agreement with, but I do not believe that it is just a question o f jobs and income. I submit it has to be a question o f productive jobs and continuing income. There is no big trick to put more and more people on public service employment. I f that is the only thing that one is interested in, obviously, the Federal Government can create the money by fiat and put more people on public service employment. The question is what are the short- and long-run implications o f doing that in terms o f keeping our economy productive, competitive, and innovative. So I would say to M r. M eany that while he is right to be very concerned about the steps that have to be taken to expand jobs, I am sure he means productive jobs. A n d I would submit that the British have a pretty good record o f approximating fu ll employment, but their economy is very weak as they are in dire straits. A t present, they are running between 25 and 30 percent inflation and the pound is sinking. So I do not think it is just job s; it is productive jobs and that is another way o f saying that the Federal Government can go oiily part o f the way in terms o f assuring that we have a productive economy. I f the management o f the auto companies is as inefficient, in m y opin ion, as it has been, as evidenced b y the fact that they ignored the handwriting on the wall about small cars for the last 5 years, then I think that the price we pay for a quasi-free international economy are the large number o f unemployed people in Detroit. There is little, I think, that the Government can do except give some support to 58 those unemployed people, given the earlier mismanagement o f the automotive industry. Likewise, in the serious matter that you referred to, Senator Bentsen, about young people, I would say that that question o f the transi tion from school to work, also involve very much more than the F ed eral Government. W e have had neighborhood youth corps, job corps, summer programs, but the critical issues involve more than the F ed eral Government, and more than local government; they involve the schools, business and the trade unions. M y view is that Am erican industry has been allergic to hiring young people and as long as it will not make room for a large number o f young people under the age o f 21, then we are in a bad way. M ore over, i f young people come through a school system at $1,000 per year o f social investment and do not possess any competences in which an employer is interested, that means that a big part o f what we are trying to do in this country needs to be improved. I would say that the Congress ought to try to put together a picture in its own mind o f how the public service employment, man power training, job creation, and U I reform fit together because I do not think you can just handle one o f these without reference to the others. L et me just point out one thing. In our Commission report that is coming to the Congress we are in favor o f the emergency ex tension to 65 weeks for TTI, but that is not a sensible long-range policy. I f somebody is going to be unemployed for 65 weeks, the odds are overwhelming that he is not going to get his old job back. So long before 65 weeks is up he needs special supports, maybe m obility allowances, special training or something else, but he should not be encouraged to stay on unemployment insurance for 65 weeks. I will conclude, therefore, by saying that the Commission cannot and will not accept 7 percent, 8 percent, or 9 percent unemployment as even an interim goal if an interim goal means 3 to 4 years. Second, and here I do not pretend to be an expert on the bill that the President just vetoed but I must say that I would like to point out, Senator Bentsen, that in most public works programs the lag between appropriating the moneys and getting people into active em ployment can frequently be 18 months to 2 years, a critical factor in judging the program. T he basic position o f the Commission is that the economic and manpower policies o f the country must be more carefully coordinated so that we can better use the basic macropolicies to try to establish and maintain a high level o f employment, and rely on manpower policies to add strength to these broad efforts. Chairman B e n t s e n . Thank you very much, M r. Ginzberg. I know that both Senator Javits and I have a number o f questions we would like to ask. I want to get all four o f you gentlemen to testify before 12 noon, and I would like to ask M r. Levitan to proceed. STATEMENT OF SAR A. LEVITAN, PROFESSOR, CENTER FOR MANPOWER POLICY STUDIES, GEORGE W ASHINGTON U N IV E R SIT Y M r. L e v i t a n . Thank you, M r. Chairman. I f you would permit me, I would like to submit a short prepared statement that I have prepared, together with a policy statement o f 59 the National Manpower Policy Task Force, for the record, and I would rather comment on the thoughtful remarks that you made. Chairman B e n t s e n . A l l rig h t; we will place them in the record at the end o f your oral statement. M r. L e v i t a n . I say amen to the comments that you made about the Presidential veto o f the emergency employment bill. I also agree with you that George M eany, with all due respect to the others, is the best economist so fa r to appear before this subcommittee and that basically the advice that he gave to Congress was sound. I am a little less happy with Secretary o f Labor D unlop’s testimony, particularly with the point that you made a few moments ago. A l though he is one o f our best labor economists. Secretary D unlop’s suggestion that we have no choice but to live at a higher level o f unemployment because o f the demographic changes in the labor force is a partial analysis. I f the Secretary o f Labor thinks that the com position o f the work force forbids achieving tight labor markets, then I think he also should consider the rising educational level. During the same period that larger numbers o f women entered the labor force, and presumably contributed to the higher level o f unemployment, the educational level o f the work force rose considerably. A n d since higher eduaction is closely correlated with lower unemployment, it should have been a countervailing force. Moreover, the relevance o f the demographic change to the current high level o f unemployment is limited. A t most, the demographic changes add only a fraction o f a percentage point to unemployment. In the late 1960’s, we did approach fu ll employment, with practically the same demographic composition o f the labor force as we have today and with what would look to us right now like very little inflation. Now, turning to the points I made in m y prepared statement, as usual Mi*. Ginzberg is correct when he says that i f we continue with present policies, we are going to have to tolerate high unemployment for a very long period, possibly for the rest o f the decade. But that would be inexcusable since we can prevent it. I would agree again with M r. Ginzberg that manpower policies will not give us all o f the answers. H e said manpower policies can fill crevices i f I m ay paraphrase him. I would say, however, that man power policies can fill many large holes, not just crevices, and those are gaping holes. I believe that under current conditions manpower policies can do a great deal. To respond to your question, Senator, about what new initiatives we need, I do not know that this would be particularly original, but the title o f the task force policy statement that I asked you to include in the record is, “ The Best W a y to Reduce Unemploym ent Is T o Create Jobs.” I submit that this would be a very good starting point and that this would make a very good slogan for the Joint Economic Committee. W h a t other initiatives would I suggest ? I agree with M r. Ginzberg that the number o f public employment jobs that can be beneficially created right now are limited. W ith out going into detail, I would suggest, however, that we can at least double the present level o f support by the Federal Government. That would raise the total to 600,000 jobs. Can public employment work? The answer to that question is, in a word, yes. There are qualifications, but the fact is the Emergency 60 Employment Act that Congress passed 4 years ago worked well. Six months after the legislation was enacted it had put to work close to the maximum number of participants allowed. Obviously, conditions are not the same now as they were in 1971. In 1971, the economy was in an upswing; by 1972, the economy was recovering very rapidly. At the present, we are getting all sorts of promises of recovery, but that is all. Until there is some hard evidence that recovery is well underway, we should have a much larger public employment program. As I said before, about 600,000 is a reasonable limit because the capacity of State and local governments to rapidly absorb additional employment is limited. Moreover, I would not want to saddle State and local governments with swollen payrolls in the future. However, the creation of an additional 300,000 jobs is entirely too small a program to fill present needs. There are 8.2 million unemployed, more than a million discouraged workers who are not counted as unemployed—but who are even a greater problem because they have given up any hope of getting jobs and therefore are not looking— and 4 million people who are now working part time for economic reasons. Before any new hiring will occur, the chances are that these part-time workers will have to be absorbed first. I ’m not talking about the 12 million to 14 million who work part time for voluntary reasons, but the 4 million who are working part time because their employers cannot give them full-time jobs. Since private sector expansion is still far off, we should not be satis fied with public employment jobs alone, but should also undertake em ployment and public works projects. I know that sounds like WPA, but I don’t see that there was anything wrong with WPA. The image of the W PA has been long maligned. I think that W P A workers did very useful work. In my prepared statement, I mentioned a few of the things that they did—the roads and sewers they built, for example, that were used to great advantage later on. Such projects have great potential and could be a silver lining to the present recession. For instance, the bill that the Senate passed providing for improved rail road bedding would fit in very well with national energy policy and would definitely be a very useful project. Another possibility is for Congress to provide the necessary stimuli for the construction of 300,000 or 400,000 low- and middle-income hous ing units. The crucial question, of course, is whether these projects would add so much to the budget deficit to hamper expansion in the private sector. Based on previous testimony before other subcommittees of this com mittee, there appears to be very little evidence that private expansion would be deterred; we could increase expenditures and antirecession programs, carrying an $80 billion deficit and still have sufficient credit for private expansion. And it is not at all clear that increases in public expenditures mean dollar for dollar increases in the deficit. The crea tion of new jobs will also raise Government revenues and decrease the deficit. One of the criticisms of the $5 billion public works bill that is now pending before the Senate is that there will be a long lag before any jobs are created. But that is an oversimplification, if not a misrepre sentation. As soon as funds were distributed to Governors, to mayors, 61 and to county supervisors, they would order, from the private sector, a great many bricks and mortar for the projects that they are going to build. Those expenditures could stimulate the economy very rapidly. Therefore I think that we can, in addition to the expansion o f public employment, also extend to $5 to $10 billion various forms o f public works that would create jobs very rapidly. Looking at the alternatives to expanded job creation programs, I would agree with M r. Ginzberg’s point about unemployment insurance. W e are relying too heavily now on unemployment insurance. Obviously i f it were the only possibility for jobless persons to get any income, I would be all in favor o f it. B ut I think that we ought to be more con cerned about extending unemployment insurance for 65 weeks without doing anything for the people who are unemployed fo r a long time. Y o u also asked in your letter that I comment on the Comprehensive Em ploym ent and Training A ct. The Comprehensive Em ploym ent and Training A c t could do a great deal more for the unemployed than it, does now. Long-term unemployed should be induced and encouraged to undertake training on a voluntary basis. M ost o f them will not regain their old job. But the Office o f Management and Budget has weakened the Comprehensive Em ployment and Training A c t and has emasculated the Manpower Administration and decreased its capabil ity to administer the law. I f we’re going to offer training and relocation assistance to the longer term unemployed, it will be necessary to have a much stronger Manpower Administration. Unfortunately, during the period that the Comprehensive E m p loy ment and Training A c t has been in existence, the Office o f Management and Budget has been insisting on continually cutting the Manpower Administration. I think that is a grave mistake, particularly since Con gress very clearly insisted in passing the Comprehensive Em ployment and Training A c t that it would be a real partnership between Federal, State, and local governments. One illustration is the cutting o f the Manpower Adm inistration re search budget by 30 percent in a period when we need to find out what the impact o f long-term unemployment is. W e are talking about spend ing just a few millions for research to study, among other things, the impact o f this $20 billion that we are now spending to support people who are forced into idleness. Finally, to turn to the future, while Congress has taken leadership in attempting to reduce the current high unemployment, it cannot outlaw the business cycle. One lesson that we can learn from this very un fortunate and deep recession is that during the next downturn Congress should provide for a trigger mechanism so that when un employment rises above a certain level, there are programs that begin to operate automatically. Such a provision is now applicable. in unemployment insurance, and it should be expanded for job creation efforts. Senator Javits has just cosponsored a bill about which I am going to testify tomorrow, S. 1695, and there are other bills that would adopt that kind o f a' trigger mechanism. The Joint Economic Committee which is concerned with overall economic policy m ight profitably ex plore the elements and the desirability o f trigger mechanisms that would coordinate unemployment insurance, public works, and public service employment. I f we had such trigger mechanisms in operation a 59-082— 75-------5 62 year ago, I think we could have avoided a great deal of the unemploy ment that we have now. I hope that Congress would consider these measures before the next recession and not wait 18 months after the recession, starts, as we are doing right now. Thank you, Mr. Chairman. Chairman B e n t s e n . Thank you very much, Mr. Levitan. [The prepared statement of Mr. Levitan, together with a policy statement of the National Manpower Policy Task Force follow:] P repared S t a t e m e n t of Sa r A. L e v it a n The follow ing remarks were prepared in response to Senator Lloyd Bentsen’s invitation to comment on “ manpower policies needed to restore our economy to non-inflationary fu ll employment.” A. UNEMPLOYMENT LAGS IN RECOVERY (1 ) Assuming the most optimistic economic outlook under current policies, wThich promises recovery to begin before the summer doldrums are over, relief fo r those forced into idleness is still fa r away. Many unemployed w ill have to depend upon unemployment benefits averaging $65 per week. F or most, this w ill have to make do as they w ill get jobs after a short spell o f unemployment. But not all w ill be that lucky. It is, therefore, crucial to consider not ju st the number o f jobless but the duration o f their unemployment as the recession con tinues. During the past fou r months as the economic slump deepened, the aver age duration o f unemployment rose by three weeks, and despite the extension o f unemployment benefits, exhaustions of unemployment insurance have been on the rise exceeding 35,000 per week. The number o f long-term unemployed (15 weeks and over) has nearly tripled during the past year and reached 1.5 m illion in April 1975. (2 ) W ithout putting too much store in econometric projections, it is a welldocumented fact that the decline in unemployment lags most other economic indicators during a recovery. Intolerably high unemployment can be expected to persist fo r several years. It would take, according to one presumably authori tative rule o f thumb, a 7 percent annual real growth in GNP over three years to reduce unemployment to 5 percent. However, we have not achieved this level o f .sustained growth since the Korean war. (3) It is disturbing that some eighteen months after the recession started Congress is still debating the means o f reducing the highest unemployment to befall this nation in 34 years. The administration and Congress are still pre occupied with the impact o f job creation on inflation, although the causes for the recent rise in prices were not to be found in the labor market. The belated tax cut and easing o f monetary policy w ill be slow in bringing relief to the unemployed and in preventing the continued loss in GNP. B. TRAINING I have been asked to comment upon the progress made under the Comprehen sive Employment and Training xlct. (1) Regrettably, hard data are as scarce as hen’s teeth, and little is known about the progress made. In part, the problem lies with administration officials who have confused federal oversight responsibilities with minimizing the federal contributions to the administration o f the Comprehensive Employment and Traning Act, which Congress clearly intended to be a partnership o f federal, state and local governments. The Office o f Management and Budget (O M B ) conducted a sustained cam paign emasculating the Manpower Administration during the year after Con gress passed CETA. That year OMB forced a 16 percent cut in the national office strength. Another instance o f weakening the federal manpower capability is the 30 percent cut in research funds during the first year o f CEETA when Congress imposed new research responsibilities upon the Secretary o f Labor. (2) Adjusted fo r inflation, overall funds appropriated fo r skill training under CETA are significantly lower than they were before the current recession started. Training efforts consequently are bound to suffer. F or example, funds for the much-maligned .Job Corps that offers training to the disadvantaged youth have been cut during recent years despite inflation. However, the reces 63 sion may be the most propicious time to upgrade the skills o f those who are idle today to better enable them to take advantage o f the eventual recovery. Form er Secretary o f Labor George P. Shultz took that position during the 1970 recession. Additional funding o f OETA would not only improve training but also bolster total demand. C. PUBLIC ¡SERVICE EMPLOYMENT But training w^ill create few jobs during the recession, and clearly more should be done fo r the unemployed than income support o f $65 per week. There is no need to settle fo r mass unemployment fo r the rest o f this decade. In the spirit o f the Employment A ct which established this committee, I would recom mend the Joint Econom ic Committee adopt the slogan, “ The best way to reduce unemployment is to create jobs.” (1) The first step in a job creation program should be an expansion o f public employment. Based on the experience w ith federally-funded public service em ployment, there is ample evidence to justify the expansion o f such a program. The program helped the unemployed not only to find job s but also improved their opportunities to get better jobs after they left federally-subsidized public employ ment. Other evidence indicates that a lot o f useful work was done. (2) Granted that a society*« work is never done, there still remains to be determined the lim its o f a public service employment program aside from costs constraints: {a) The fact that a small program under the Emergency Employment A ct which peaked with 160,000 jobs was successful does not necessarily guarantee that a much larger program would have similar results. (&) Fortunately the Labor Department’s Manpower Adm inistration ex perimented with larger programs in 12 communities located in 5 states. These demonstration projects suggested that the absorptive employment capacity of state and local governments may be double or even triple the 160,000 peak reached by the public service unemployment program initiated in 1971. (c ) State and local government employment has expanded rapidly in recent years. In the past seven years alone, state and local government em ployment rose by 112 percent, more than h alf as much as the increase in gross national product. Therefore, it can be assumed that most high priority jobs have been filled. (d) Another constraint on public service employment is that state and local governments should not be saddled w ith swollen payrolls when federal countercyclical funds are withdrawn. (8) Nobody knows what are the limits o f public service employment, but recent experience may serve as a guideline. Since 1967 the net annual increase in such employment w as about 400,000. It would not take too much imagination to fund useful w ork fo r another 50 percent above recent expansion; that would put the lim it at 600,000. Assuming that the fiscal binds o f state and local government would arrest most growth during the recession, this would require doubling the current level o f federal funding o f state and local jobs. D. PUBLIC WORKS (1) But with 8.2 million unemployed, m ore than a million who have given up on the search fo r w ork because jobs are not available fo r them and nearly 4 million working part time, the funding o f an additional 300,000 jobs is clearly not enough. (2 ) Congress has already reached this conclusion but has been slow to act. W hat is needed is a flexible public works program ranging from labor-intensive employment projects to capital-intensive construction projects. The cost-effective ness o f these projects in terms o f job creation can be expected to vary widely. Simple employment projects, along the lines o f Operation Mainstream, could require as little as $5,000 a year to create a job paying the bare minimum wage with little overhead. The direct annual cost per job in contract construction might range from $30,000 fo r a dredging project to $43,000 in private home building. The high costs o f the latter projects are somewhat exaggerated, how ever, since the direct costs count only on-site jobs and ignore the secondary impact o f increased demand fo r construction supplies. (3 ) The lag in implementing public works is a problem to be reckoned with if public works is to serve as a countercyclical tool. This may have been a real 64 drawback in earlier post-war recessions when the rapid turnaround in the business cycle reduced the need fo r job creation. Regrettably, we are too fa r down the road for such speedy recovery. I f Congress is ready to act without additional delay, the time lag problem should not stand in the way o f public works as a counter cyclical tool in the current recession. (4 ) Public works has the advantage o f providing a silver lining to the present econom ic ills. W orthy projects o f lasting value that would not have been under taken if idle resources were not available could be selected. F or example, the funding o f railroad bedding passed by the Senate last month may be desirable as part o f a national transportation system and as a means to save fuels, even if w e were not in the midst o f an economic clump. Moreover industries and areas hardest hit by the recession could be targetted for help. E. COSTS A job creation program that w ill help significantly to reduce unemployment before, say, the 200th anniversary o f the nation w ill be a costly undertaking. A 600,000 job public employment program would cost $5.8 billion, and a needy equal amount fo r public w orks is currently being considered and should be enacted without further delay. The massive outlays are not a sufficiently persuasive argu ment against undertaking these efforts. W hile the deficit w e are facin g is stagger ing, the preponderance o f opinion suggests that the money market w ill be able to absorb a much larger deficit than the administration is w illing to risk. Accord ing to the First National City Bank o f New York a 1976 deficit o f $80 billion “ could be financed w ithout crowding out private borrowers.” W hile the prospective deficit is unprecedented in peace time, so are the costs we are already paying fo r high unemployment. Certainly the $20 billion the nation is payng for unemployment benefits during this year is more inflationary than a public works program, and these and other transfer payments are ap parently going to continue as long as unemployment remains high. Congress has not outlawed the business cycle, and the opportunity to benefit from our experience with costly delays during the current slump should not be lost. Congress, therefore, may want to consider additional trigger mechanisms along the lines now applicable to extended unemployment benefits, for job creation programs. W hat goes up should also go down, and to prevent perpetuation o f these programs atfer recovery, provision should be made fo r phasing out job creation programs when unemployment drops. F. COORDINATED PROGRAM NEEDED (1 ) Grave as the present unemployment situation is, the danger o f uncoordi nated and fragmented efforts cannot be ignored. (2 ) No mechanism exists now to exercise coordination. The Office o f Man agement and Budget contribution has been nil, i f not negative, because it has invariably opted for excessive caution. Fortunately Congress has ignored the ad vice o f OMB but at the cost o f considerable delay. The recently established estab lished congressional budget committee also have leaned on the side o f caution. (3 ) The challenge is fo r Congress to come up with a program that would minimize deprivation and reduce current levels o f unemployment by more than h alf without drying up credit fo r private job creation and eventually overheating the economy. (4 ) Fiscal and monetary policies alone are not likely to achieve the goal speedily without sewing the seeds of another inflationary spiral and accompanying high unemployment. (5) Public service employment and public works are long overdue as integral partners o f a concerted policy to combat the recession. T h e B e s t W a y To Reduce Unem ploym ent Is To Create More Jobs (A policy statement by the National M anpower Policy Task Force, 1819 H St. NW., Suite 660, W ashington, D.C., June 1975) THE NEED FOR ACTION Eight million Americans have been forced into idleness and more than another m illion have given up on the search fo r w ork because no jobs are available fo r 65 them. Nearly four million more are working part-time, although they would like to have full-time jobs. This idleness, deprivation and lost income are the direct consequences of public policies. Having contributed to the recession, the federal government has a special responsibility to ameliorate its consequences. The primary response to the current slump has been the application o f macroeconomic measures. The tax cut for individuals and businesses was aimed at stimulating consumer spending and private investment. Increased governmental outlays resulted as needs-based programs expanded autom atically in the recession and as Congress opened its purse strings in the belief that increased public spending would be stimulative. The growth of the money supply also has been accelerated to lower interest rates and to stimulate investment. Although Con gress extended liberally the duration o f unemployment benefits and has expanded its coverage, direct job creation for the unemployment has received less emphasis. The goal has been to engineer a gradual recovery after wringing out infla tionary pressures. Since unemployment tends to linger long after economic recovery sets in, existing restraints ensure the continuance o f intolerable jobless ness for several years to come. The m ajor constraint to direct job creation ha* been the fear of pushing the economy into a new inflationary spiral. T H E U N U SE D AN D N E C E SS A R Y OPTIONS W e believe that current policies do not exhaust the practical and necessary options available to the administration and Congress. Compared to the $22.8 billion tax cut and the $20 billion being spent this year on unemployment benefits, job creation strategies have been implemented sparingly despite the gravity o f current unemployment conditions and the gloomy longer-term prospects. A s an alternative to accepting high unemployment over the long run, the federal govern ment should adopt, in addition to the monetary and fiscal approaches, direct job creation through funding public service employment, employment projects and public works. The public sector can usefully employ idle workers to provide more goods and services when the private sector is in decline. Employment projects (also called works projects or work experience program s) are another option, putting the unemployed to work perform ing the most labor-intensive public works, but keeping them off regular public payrolls. A third option, public works, involves more capital intensive projects carried out mostly by private contractors. Public service employment was begun on a modest scale by the Emergency Employment Act o f 1971, which provided $2.5 billion to state and local govern ments over three years to create useful jobs for the unemployed. Congress con tinued this approach in the Comprehensive Employment and Training A ct o f 1973, and added emergency provisions one year later when the recession deepened. These provided for about 325,000 public service jobs on an annual basis, absorbing less than 5 percent of the unemployed. The level of employment or w ork experi ence projects has remained virtually unchanged over the past five years and the administration recommended only minor changes for fiscal 1976. On the public works front, court action was required to force the release o f $2 billion appro priated for highway construction and $4 billion for construction of municipal waste treatment facilities. Only $125 million o f an authorized $500 million emer gency public works program was appropriated, and Congress had to fight a Presidential request to rescind even that amount. Total expenditure for public service employment, work experience and special public works represented only one percent of the federal budget in fiscal 1975, and much o f that outlay was not countercyclical in intent since it only continued the modest efforts o f the past decade. The meager scale o f such endeavors is highlighted by comparison with the emergency job creation efforts during the Great Depression. W ages paid by the federal job creation agencies accounted, during the New Deal years, for nearly three-tenths o f all federal expenditures. The proportion o f total employment provided by these programs at their peak would equal 5.8 million jobs in today’s labor market, and the 2.8 percent o f GNP spent would require an annual outlay o f $40 billion. This is not to suggest that today’s conditions qualify as a depression or that similarly massive job creation efforts are required, but it does indicate the timidity of our response to the deepest economic slump in three decades. On the other hand, the $4 billion we spend annually on direct job creation is only one-tenth of the funds expended for income support o f the unemployed and for tax reduction. W hy has direct job creation been deemphasized? The image o f idle leaf-rakers and shovel-leaners has lingered since the New Deal. A wide-spread belief persists that publicly created jobs are necessarily unproductive “ make-work” compared 66 with “ real” jobs in the private sector. Some who grant that useful w ork could be done, doubt the ability of government to respond in a timely and efficient manner. Others fear that expansion o f the public sector is a one-way street in the wrong direction. An overwhelming concern is cost; employment o f large numbers at adequate wages is an expensive proposition. But so is the real decline o f $75 billion in 1974 GNP, not to mention the potential loss that could have been avoided if the law of the land were carried out placing upon the federal govern ment the responsibility to assure an economic climate conducive to maximum production, employment and purchasing power. It w ill take more than three years o f economic growth at a rate of 7 percent per year to reduce unemployment to 5 percent. But this level o f sustained growth was last achieved during the Korean W ar. DIRECT AN D IN D IRE CT JOB CREATION---- A M E A N IN G F U L D IC H O T O M Y ? The rules o f economic life have not changed. Jobs are still created only by the spending o f money for the purchase o f goods and services, and the process can be accelerated only in certain ways. All of them involve additions to total ex penditures and to total employment, and all have multiplier effects as receivers o f the added income spent for other goods and services. T ax cuts have differential job creation impacts depending on whose taxes are cut and how recipients choose to spend their added disposable incomes. Lowered interest rates will have a m ajor initial impact on capital goods and construction industries. Public works have an initial impact in the markets for construction equipment, supplies and services. Public service employment has its initial im pact on public payrolls. Beyond these immediate impacts, the job creation incidence o f any of these form s of added spending differs little. Choice among them, therefore, ought to be made upon three bases : 1. W here and for whom are jobs initially needed? 2. W hat timing pattern of job creation is preferred? 3. W hich goods and services does society prefer? A s a consequence of the much delayed tax cut, consumers are accelerating job creation by spending money which wTould otherwise have entered public coffers. Also belatedly, the Federal Reserve Board has increased the money supply, hoping to ease interest rates and to encourage spending in investment and housing. The impact o f this manipulation w ill depend upon public confidence and incentives to borrow and invest. In any case, job creation responses are likely to be slow but persistent. Public works jobs o f relatively short duration become available as soon as contracts are let, but engineering, architectural and contracting processes may delay spending. Public service employment programs can result in almost immediate jobs and can be shut off as labor markets tighten and alternative jobs become available. Differences between costs per job and the social contribution o f ihe jobs are not as great as conventional wisdom would have it. To say that the annual direct cost per public works job is $40,000 ignores the jobs created by the latter in m anufacturing and other industries. At the same time, to insist that a job created by a tax cut has more inherent worth because it produces goods or services preferred by consumers, ignores the clamor for added public services and facilities. The differences are less than is frequently asserted and a balanced employment policy should include them all. PU B L IC SERVICE E M P L O Y M E N T Public service employment is a relatively new approach, and its lessons are fresh. The 1971 Emergency Employment Act provided 160,000 non-summer jobs at its peak. Federal grants went directly to state and local governments who determined the services they considered most vital and hired workers to pro vide them. Positions were similar to those already payrolled— teachers, social workers, policemen, maintenance men, road crews, secretaries, and a variety of aides. The federal government offered little interference in the day-to-day administration o f the program, except to enforce some general guidelines. The rules o f the game required that only unemployed or underemployed workers would be hired, that the state and local governments were not to substitute federal dollars for their own expenditures, and that 90 percent o f the total funds would be used for the wages and salaries and not for overhead or “ frills.” The experience under the Emergency Employment Act offers persuasive evi dence that public employment can be a useful antirecessionary tool. 67 First, despite fears about the creeping pace of bureaucracy (and every level of federal, state and local bureaucracy was involved), about 150,000 jobs were created within six months after funds were appropriated. As it turned out, more than 95 percent of funds went for wTages and salaries, carrying an average annual cost o f $7 ,500. This maximized the immediate employment impact. Simu lations by the Federal Reserve Board in 1972 suggested that the public service employment approach had a more immediate and larger impact on employment than equal federal spending on other programs or equivalent tax cuts. Second, the make-work image of public jo b creation notwithstanding, a num ber o f evaluations concluded that most workers perform ed necessary public services, and that the productivity of the newly hired workers wTas up to par. Third, public service employment benefited participants in the long as well as short run. Most o f the hired employees were lifted from the ranks o f the unemployed. The public employment program not only gave them work, but their employment and earnings after leaving the program also improved. Fourth, the costs o f the program were offset by reductions in income support payments and by the taxes paid by the hired workers. For participants receiving some assistance prior to being hired, the level o f aid fell nearly 50 percent. Overall, it is estimated that the value o f income support savings and increased taxes paid equalled between one-fifth and one-third of all program costs. Fifth, experiments with more intensive funding in some areas indicated the potential fo r significantly expanding on the scale o f the program. In 12 areas, extra funds were provided to absorb between 5 and 28 percent of the unemployed compared with the 3 percent potentially absorbed by the program nationwide. Yet the demonstration programs were put into operation w ith only a few delays. The jobs created paralleled those established under regular funding, and a ma jority o f both administrators and participants in the demonstration areas felt that the jobs contributed useful services. Despite as much as eight percent net additions to the public payrolls, it appeared that the potential limits for expand ing public employment were not reached. There was some evidence that efforts of this scale could noticeably reduce area unemployment rates. Using statewide unemployment changes as “ controls,” 10 o f the 12 sites did better than expected. On the average, each public employ ment slot was accompanied by a decline in unemployment o f 1.6 persons in demonstration areas. I f this average were to be realized nationwide, the Na tional Planning Association researchers estimated that a $4.2 billion public employment program could have reduced national unemployment levels by one percentage point. No single approach can offer a panacea. There is always a likelihood that state and local governments w ill use federal funds to offset some o f their own personnel costs, but only guesstimates are available about the magnitude o f the “ displacement.” To the extent that budget substitution occurs, neither net new public employment nor net additional public expenditures result. Any production from otherwise idle people is a net gain, but recipients of public service funds may not make the best use o f the “ free” labor paid with federal government funds. Some have also criticized public service employment because not enough disadvantaged were hired by state and local governments. These are arguments for tighter guidelines to secure a balanced job creation policy. E M P L O Y M E N T PROJECTS Employment, projects specifically created to absorb large numbers of the unemployed have been suspect since the days o f the New Deal, more because they conflict with the ideology of the free market than because they are proven failures. The W ork Projects Administration has been treated harshly by history. Yet W P A and related agency workers, when not leaning on shovels and rakes, sewed 380 million garments for distribution to the needy, served 1.2 billion hot lunches to school children, and produced 108,000 paintings. They built or im proved 651,000 miles o f highways, roads, and streets, 78,000 bridges and via ducts, 6,000 new schools, 150 libraries, 3,200 stadiums, 8,200 parks, 16,000 miles of new waterways, 1,500 sewage treatment plants and 900 airports, not to men tion 5 million outdoor privies that undoubtedly improved the quality o f life for their users. These outputs were essentially net gains to the nation, utilizing otherwise idle human and physical resources. Operation Mainstream, initiated under the antipoverty legislation a decade ago, was very similar to the W PA, though much smaller in scale. Its aim was to provide work support for a clientele stranded in areas with surplus labor. 68 Despite limited long-term benefits, Operation Mainstream has been popular. The clients, consisting mostly o f middle age and older workers, were considered a “ deserving” group. Assessing the program on the basis o f income— albeit meager— “ psychic” gains provided to participants, the useful work done, and any savings in public assistance, there was a consensus that the benefits far outweighed the costs. Several employment programs w ere also initiated for welfare recipients in the 1960s, but these proved much less popular both because o f their m ore com plex mission and the stricter standards by which they were judged. The largest direct job creation program o f the 1960s was the Neighborhood Youth Corps, combining in-school, out-of-school and summer job opportunities for teenagers from poor families. There is no sound proof that any o f these efforts had a long-run impact on participants, encouraging school completion or improving subsequent work experience. But they clearly did provide income, an “ aging vat” and constructive activity at a very low cost. W ork experience programs for youth and the elderly are now being funded under the Comprehensive Empolyment and Training Act. Program levels are estimated to have levelled off because o f budget stringencies, and many cities are facing the summer of 1975 without the resources for an adequate summer youth program. There is no doubt that a vastly increased number o f jobs for youths and the elderly could find takers in the recession. Different types o f employment projects rae appropriate fo r different groups, ranging from the part-time, low-level activity needed by youth to keep them in schoool, to more substantial employment fo r the disadvantaged who find no job opportunities in a slack labor market. There is no reason to believe that these unutilized resources could not be put to constructive work, and there is every reason to believe that if they were, the benefits to the individuals and society would be positive. PU BLIC WORKS Public works— the construction of schools, highways, hospitals, low-ineome housing, industrial parks, subways, sewers, parks and navigable waterw ays— are a longstanding and essential part o f government activity. The question is whether a separate “ emergency” public works program can undertake expedi tiously projects which would otherwise not have been carried out anyway in order to help combat unemployment. A central issue in funding countercyclical public works is the timing of im plementation. There are lags between congressional action and project approval, and between approval and the start o f construction and hiring. The $133 million Public W orks Impact Program was signed into law in August 1971, and the first projects were not approved until late in the year. Employment resulting from fiscal 1972 funds peaked in August 1972 and nine-tenths o f the direct employ ment generated by then was completed before August 1973. By that time it would appear that the turnaround in the economic conditions reduced the need for additional job creation. Yet the seriousness o f the one-year lag between authori zation and on-site employment peak and the two-year lapse before substantial completion was not as great as some have claimed. In fact, the flow o f expendi tures, once started, coincided remarkably well with the pattern o f recovery from the 1971 recession. Even in that brief recession, the recovery failed to outpace the outlays for public works. The time lag from legislation to job crea tion may be even longer fo r fiscal or monetary stimulus to private investment than fo r public works. TH E CASE FOR DIRECT JOB CREATION The case for direct job creation is not limited to its employment impacts alone. It should be supported onsother counts, also. First, public works have added benefits when cost-effectiveness is considered, because the projects constructed increase the wealth o f the nation and leave lasting impacts. W e are still using the parks, roads and post offices built with PW A and other agency funds. Moreover, tangible results also tend to gain-wide spread support; public works jobs are generally accepted as “ real.” The list of proposals is almost endless, and when the chaff is separated from the wheat, there remain thousands o f potentially useful projects which could employ large numbers o f idle workers. Public w orks projects tend to have a relatively high 69 skill mix and are tailor-made fo r construction workers, who despite their skills, are subject to high unemployment during recessions. However, by sacrificing some productivity and efficiency, useful tasks can be perform ed by large num bers o f the unskilled, which is rewarded in reducing income maintenance costs, alleviating unemployment and mitigating social ills such as crim e and dependency. Second, the government can move efficiently and effectively. The rapid imple mentation o f the Emergency Employment Act suggested that public service em ployment can be expanded rapidly. Public works take some time to arrange, but the delays, once funds are available, have frequently been exaggerated and are not an impediment where conditions are so severe that adequate recovery is not imminent. Practically every community has at hand some public facility projects already planned but delayed fo r lack o f available funds. These can be instituted very rapidly i f a quick start is made a prerequisite fo r the receipt o f funds. Employment projects can be, and usually are, geared up quickly, and in fact, a more considered pace o f implementation might be useful in some cases. There should, therefore, be little doubt about the capacity o f federal, state and local government to create and rapidly fill hundreds o f thousands o f useful and pro ductive jobs. The timeliness o f job creation must be considered alongside other strategies. Increased public spending across-the-board is slow in its impact, and tax cuts for business and individuals have long lags before they affect employment. D irect job creation on a large scale is feasible, and in terms o f timeliness, may well complement other strategies. Public service employment and employment projects are likely to have the most immediate impacts. W hile the implementation o f public works may take a little longer, fiscal and monetary policies may require even a longer lag before they stimulate added employment. Such a sequence may well fit a balanced strategy to reverse economic slumps. The need, in cases o f economic downturn, is to act quickly and vigorously on all appropriate fronts, adopting each strategy as conditions require. W e stress this point because this is not the last recession we w ill ever experi ence. The business cycle has not been outlawed. To still be debating nearly a year and a h alf into a recession what should be done about alleviating the deprivation o f millions forced into idleness is discouraging and suggests to some the bankruptcy o f responsible public policy. D irect job creation lends itself well to a triggering approach which can quickly create jobs in either a localized or a national recession. Third, the cost o f direct job creation is not as great as it seems. Multibillion dollar pricetags are disturbing, and it is more palatable to hide stimulative meas ures in popular tax cuts or to spread them over a number o f “ urgent” expendi tures. However, if properly designed and implemented, job creation can give more “ bang for the buck,” can be more effectively targeted in reducing unemployment, and can provide valuable goods and services. The output o f created jobs is fre quently ignored and the outlay per direct slot is assumed to be the cost. Yet the value o f useful work perform ed by otherwise idle resources must be considered. Under the Emergency Employment Act, fo r example, participants perform ed the same tasks as other employees and the costs o f the program, therefore, produced equal benefit in terms o f goods and Services. The reduction in income maintenance costs that resulted was a benefit bonus. Under public works, the primary output is the completed facility, and, i f cost-effective projects are undertaken, the job creation effects tend to be a bonus. The justification for employment projects is that participants have few alternative employment opportunities, the jobs con tribute substantially to their well-being, and income maintenance costs are re duced, even if productivity may be limited. THE CHOICE OF STRATEGIES Public service employment, employment projects, public works, tax cuts and monetary policies, while part o f a continuum o f job creation strategies, neverthe less have important distinctions which must be considered in setting priorities. Public service employment serves as a shot-in-the-arm approach to counter a short-term recession, and to create jobs for the unskilled and deficiently educated in prosperous times. O f the alternative measures, public service employment has the most rapid and direct job creation impact. It is easier to launch effectively and efficiently than employment projects, and it creates more direct jobs per 59-082— 75------- 6 70 dollar o f expenditure than public works. Public service employment is appropriate for the complete range of unemployed and can put them to work with minimum delay. On the other hand, public service employment may have a limited role in countering a long-term recession. Its impacts are reduced over time as states and localities substitute federally-funded slots fo r jobs that would have been funded with state and local budgets. In contrast, the clientele o f employment projects are not easily replaced by regular public employees, wThile public works can be selected which are net additions. To thè extent that the public sector can be induced to do more o f the same over the long run, there is an unanswerable question whether this results in diminishing returns, and “ bloats” the public sector permanently. It may be harder to cut back on public service employment than on work projects which have high turnover and public works which are norm ally perform ed under contract with private enterprises. Employment projects are an essential part o f a comprehensive job creation effort because they can utilize the Unskilled and the poor. Paying low er wages, more persons can be hired and few er o f these would have gotten jobs on their own. M oreover, part of the cost is offset because persons hired may be otherwise dependent on "welfare or social insurance. Output is the m ajor issue with em ployment projects. It is generally believed, though impossible to prove, that the useful goods and services provided per dollar o f expenditure are less than under the public service employment and public works approaches. Since the goods and services provided by the alternative direct job creation strategies vary widely, comparisons o f their relative outputs are not useful. But the presumed low er productivity o f employment projects may be offset by their greater w elfare and employment impacts. Public works yield a lasting product with an immediate impact on the private sector, without expanding the public sector. Although the direct job creation per dollar o f outlay may not be as great as in the other strategies, the multiplier impact o f public works may be greater than that o f other job creation measures. Tim ing is also an issue, but with proper congressional and executive action, start up time can be kept within the time limits required for economic stimulation. The direct labor requirements tend toward highly skilled workers, but these norm ally experience high unemployment rates in a recession and early recovery. P roject selection is the key, and this must be done with great care. CREATING MORE JOBS The nation is engulfed by grave economic difficulties. Even rapid recovery mny leave a high rate o f joblessness fo r several years, and a timid application o f macroeconomic tools due to fear o f future inflation will insure this even tuality. Policymakers seem hypnotized with fear less we be overtaken by an inflationary res ugence, ignoring the fact that the parentage of the recession is not to be fo md m the labor market. Its cure should, therefore, not be sought in labor market r( sti aints. Direct job creation is one tool which can and should be used to a greater extent than in the past. Analysis o f recent experience suggests that public serv ice employment, employment projects, and public works can provide vitally needed goods and service. They can be implemented rapidly and effectively. They can be cut back, if appropriate, when conditions improve. They provide useful output and sustain and develop skills. And they are a less costly wayT to fight unemployment than many other approaches. The scale o f job creation and the mix o f strategies depends on economic developments in the future. The most likely scenario, in the absence o f appro priate policies, is a very slowly declining unemployment rate, stagnating at a level o f 6 percent or higher for the remainder o f the 1970,s. However, further deterioration or a more rapid than expected turnaround are also possibilities that shourd not be ignored. Based on the assumption o f stagnation, but rec ognizing the need for flexibility in the case o f a quick rebound or a reversal, the National Manpower Policy Task Force makes the follow ing recommendations : (1) Public service employment should be expanded. The Ta.sk Force suggested in December 1972 a triggering form ula which would have provided funds to hire one-fourth of the unemployed above a high unemployment level. Assum ing a tolerable level o f 4.5 percent unemployment, the present 8.9 percent rate means 3.6 million excess” unemployed and calls for 900,000 public service jobs. 71 Since som*} 300,000 public service jobs are currently available, an expansion of 600,000 jobs is needed, carrying a pricetag o f about $5" billion. ■Such an ex pansion would have been feasible if the recommended trigger mechanism had already been in place. Having lost time, it may be difficult to achieve this goal all at once. Nevertheless, a doubling o f present efforts should be feasible. (2) I f public service employment is expanded rapidly, states and localities w ill need more resources for supplies and equipment. Some are already claim ing difficulties in puttiiig all their public employment funds' to good use because needed materials and equipment were not available. The limitation on on-wage expenses should be liberalized, yet some strict precautions should be taken to assure that money is not siphoned off for other purposes. Public service em ployment should shift in the direction o f employment projects as its scale is increased. (3) It is regrettable that the training provisions o f the Comprehensive Em ployment and Training Act are being deemphasized, A recession may be thè most propitious time to upgrade the skills of many to better enable them to take advantage of the eventual recovery. Additional funding for CETA would add to total demand while enabling state and local elected officials and manpower planners to take approaches which meet the specific needs o f their communities. (4) The pending emergency public works legislation should be. strengthened. Greater specificity of project selection criteria, including public service needs, local unemployment rates, and occupational skills required by the proposed projects, are essential, and preference in allocation of funds should be given to early applicants promising speedy completion. Mechanisms should also be estab lished for linking job creation projects with the CETA system, so, that the cre ated jobs are an outlet for its clients. (5) The longer-run implications must also be considered. A trigger formula under both public service employment and public works would rèduce as well as expand funds automatically. These trigger mechanisms should be coordinated with similar provisions made under the unemployment compensation system. Countercyclical public works and employment projects should be short-term in nature, so that they can be cut off upon completion if this is desired. On the other hand, to provide options in the case of further economic deterioration, it might be useful to develop not only “ shelves of public w orks,” but also plans for employment projects and public service needs, keeping a running inventory o f detailed job creation options. These recommendations carry a multibillion dollar pricetag. Yet, so does a tax cut, expansion o f unemployment compensation, and other “ emergency” measures which have been taken with no more guarantee of their potential im pact. Despite a fa ir degree o f experience to date with direct job creation which suggests that it can usefully undertaken in the present conditions,: a bias per sists against an active employment policy. Shedding the misconceptions on which this bias is founded is long overdue. Properly designed and triggered job creation programs can play an important role in augmenting m acroeconom ic measures and preventing repetition o f the current deep recession. i Condoning mass unemployment ^ no way to begin the third century o f our nation’s history. An economic slump, essentially created by policymakers in their anxieties about inflation, can be alleviated by them if they can redress their priorities. The National Manpower Policy Task Force is a private nonprofit organization of academic manpower experts. It is devoted to the promotion o f research in manpwer policy. This statement represents the combined judgment o f the Task Force members. Despite divergence o f opinion on details, the members agreed to a unanimous statement without indicating individual exceptions. T A S K FOECE M E M B E R S H IP Sar A. Levitan, chairman, the George Washington University. Curtis C. Aller, San Francisco State University. Rasili Fein, H arvard University. Ernest Green, Recruitment and Training Center. Frederick Harbison, Princeton University. Myron L. Joseph, Carnegie-Mellon University. Charles C. Killings worth, M ichigan State University. 72 Garth L. Mangum, the University o f Utah. S. M. Miller, Boston University. Charles A. Myers, Massachusetts Institute o f Technology. R. Thayne Robson, The University o f Utah. Philip Rutledge, H oward University. Gerald G. Somers, University o f Wisconsin. Lloyd Ulman, University o f California— Berkeley. Phyllis W allace, Massachusetts Institute o f Technology. R obert Taggart, Executive Director. Chairman B e n t s e n . Mr. Holt, please proceed. Mr. H o l t . Ralph Smith and I are pleased to be here. We are testi fying as individuals and not on behalf of the Urban Institute or its sponsors—Ralph will talk about the near-term economic prospects, and I will consider the needs for a structural change and manpower policy. I prefer that Ralph precede me. Chairman B e n t s e n . OK. Mr. Smith, please proceed. STATEMENT OF RALPH E. SMITH, SENIOR RESEARCH ASSOCIATE, THE URBAN INSTITUTE Mr. S m i t h . The latest unemployment figures show that in April, 8.9 percent of the Nation’s labor force—over 8 million people—were un employed. As Senator Bentsen noted, 25 million are likely to experi ence some unemployment this year. For many population groups, conditions in the job market are even worse than implied by these overall statistics. Blacks had over a 14percent unemployment rate; teenagers, over a 20-percent rate; black teenagers, over 40 percent. In addition, the unemployment statistics do not fully reflect the gap "between the number of people working and the number of people who would be available for work under better job market conditions. A person without a job will only be counted as unemployed if he actively sought work during the past month. In a recession, the labor force shrinks as many people without jobs— particularly among minorities, women, and youth—withdraw from or delay entry into the labor market because of the lack of adequate job opportunities. In our analysis at the Urban Institute, we have defined potential labor force as the number of people who would be working or looking for work if the Nation’s economy were operating at full employment. We are using a 4-percent unemployment rate definition of full employ ment, which is the one used by the Council of Economic Advisers in determining potential GNP, an analogous concept. We define and measure our “ jobless rate” as the proportion of the potential labor force that is not working. It differs from the unem ployment rate by focusing on potential rather than actual labor force participation. In this w^ay, it picks up both unemployment and labor force shrinkage. In April, over 92 million people w^ere in the civilian labor force. Erom our modeling of the labor market, we estimate that if the economy had been operating at full steam, the labor force in April would have been 1.5 million people larger. By adding these people to 73 the unemployment figure, we estimate that about 9.5 million potential workers were jobless, resulting in a jobless rate of 10.3 percent, compared to the April unemployment rate of 8.9. This subcommittee’s hearings are focusing on policies to restore full employment. To achieve this ambitious goal will require the ex pansion of job opportunities sufficient to provide employment to both the unemployed and those who will be attracted back into the labor force by the improved economic conditions. The unemployment rates of several major demographic groups re ported by BLS and the jobless rates that we have estimated for April are shown in table 1 of a handout that we prepared. [Table 1 follows:] TABLE 1.— MAJOR UNEMPLOYMENT AND JOBLESSIINDICATORS, APRIL 1975 [In percent] Group Unemploy Estimated ment rate jobless rate1 Total, 16 years and over______ _______ _____ ______ _____ ....................... ........ Males, 20 years and over............. .......... .............. ........... ........... ....... Females, 20 years and over............................. ...... .......... .................... Both sexes, 16 to 19 years......... ............... ........... ______________________ White, total............. .................... ........................ ______________________ Males, 20 years and over______ ________ _______ ____ .................... .......... Females, 20 years and over______ ________________________ ______ ______ _ Both sexes, 16 to 19 years.............. .............. ....... ..... .................. ...... Negro and other races, total................ ..... .................. ______________________ Males, 20 years and over........................ ...... ....... ______________________ Females, 20 years and over......... .......... ............... ______ ______________ Both sexes, 16 to 19 years_______ ___________________..................... .......... 8.9 7. G 8.6 20.4 8.1 6.4 8.2 17.8 14.6 12.6 11.2 40.2 10.3 7.3 10.5 25.9 9.3 6.3 9.8 23.8 17.8 15.4 15.2 42.7 1 Estimated jobless rate equals unemployment plus labor force gap over potential labor force, where potential labor force is the number of people who would be working or looking for work if the national unemployment rate ware 4.0 per cent. Mr. S m i t h . Notice that the unemployment rate not only understates the degree of slack in the labor market—8.9 percent versus a 10.3-per cent jobless rate—but it also distorts its demographic incidence. The general pattern that we get for April was typical of what we have been observing in recent months. White male adults have the lowest unemployment rates of any large demographic group. In addition, their labor force is least susceptible to cyclical variation; hence, their jobless rate—6.3 percent—is quite similar to their unemployment rate. Youth, women, and blacks, on the other hand, are subject to both high unemployment and a greater tendency to adjust their labor force behavior to the state of the job market. In the current recession, their labor force has generally been far below its potential size, resulting in higher jobless rates. The fiscal 1976 budget submitted by OMB in February assumed that the unemployment rate next year would average 7.9 percent—a reduction of 1 point below where it is today. The budget review re leased late last week maintains this assumption. Our group has used it as the basis for forecasting the job outlook for 16 demographic groups. These estimates have been reported in a short article entitled “ Unemployment and Job Discouragement,” which I would like to sub mit for the record of these hearings. Chairman B e n t s e n . Without objection, it will be included. 74 [ T h e a rtic le r e fe r r e d to f o l l o w s :] Ml Search'/ A re p o rt fro m th e u rb a n in s t itu t e Vo l. 5, No. 1-2 S p rin g 1975 -Recession’s impact onthe labor market- UNEMPLOYMENT AND JOB DISCOURAGEMENT T h e costs and im plication s o f contin ued h igh un em p loym en t m ay he far m ore serious iha-n they are frequently pictured. • By failing to maintain full e m p loy m en t, A m e r ica suffers a substantial loss o f incornc. U n em p loy m en t translates into a d ro p in G N P (g ros s national p ro d u ct) o f billions o f d o l lars a year. T h e extent o f this loss and the severity o f its im pact on certain groups is not w idely u n derstood. • T h e jo b gains achieved by blacks and w o m en o v e r rccent decades are in danger o f being reversed. T h e m ost o bv iou s, but not the on ly, trigger o f setbacks is the ‘ la st-h ire d , firstfired ” p o lic y adhered to during layoffs. Effects measured according to government’s own 1976 forecasts • T h e discou ra ged w orker cft'eot leads to o ffi cial unem p loym en t rates that understate the size o f the o u t-o f-w o r k segment o f the p o p u lation. W hen persistent efforts to find work fail, m any p eop le d ro p out o f the ‘ la b o r fo r c e " so they are not cou n ted am ong the “ u n em p loy ed .” Later, during recov ery , a return o f these “ d ro p o u ts” to the labor fo rce will add to the un em p loym en t rate and im pede its redu ction . • Just as som e industries and g eogra p h ic areas o f the nation suffer d isp rop ortion a tely from a depressed e c o n o m y , so d o certain d e m o graphic sectors o f the pop u lation bear e x trem ely high burdens. T o the extent that p u blic policies are aim ed at the average c o n d itions, m any o f the m ost desperately needy will be p oo rly served. T h ese con seq u en ces o f past efforts to slow inflation unfortunately are larger than had been anticipated, and will last lon g er than expected. R alp h E. Sm ith, Jean E. V an sk i. and C harles C . H olt o f the Institute began exam in in g in late 1 9 74 the em p loym en t o u tlo o k in 1975 fo r var ious d em ograp h ic grou p s, assum ing a national un em p loym en t rate averaging 7.1 percent o f the la b o r fo rce ( “ R ece ssio n and the E m p loym en t o f D em og rap h ic G r o u p s ,” Itrook in g s P apers on E co n o m ic Activity^ 3 : 1 9 1 4 ). In view o f the deep en in g recession and the general exp ectation that high u n em ploym en t will contin ue fo r sev- erat years, the Institute econ om ists recen tly m ade new estimates fo r these d em ograp h ic grou p s for both 1975 and 1 9 76 . T h is research was su pported b y the M a n p ow er A d m in istra tion o f the D epartm en t o f L a b o r , the N a tion al S cien ce F ou n d a tion , and the F ord F ou n d a tion . T h e researchers are using as a basis fo r their new estimates the A d m in istration ’s e c o n om ic assum ptions p rovid ed in the fiscal 1 9 7 6 budge? as subm itted by the O ffice o f M a n a g e ment and B udget in Febru ary. T h e assum ption was m ade (hen that the national u n em p loym en t rate w ou ld average 8.1 percent in 19 75 and 7 .9 percent in 19 76 . B eca u se o f the sharp rise in u n em ploym en t in January, reported after the bu dget had been p repared. Sm ith. V an sk i, and H olt based their estimates on an S.4 p ercen t average this year, but m aintained the 7 .9 p er cent assum ption fo r next. T h eir em phasis in the num bers reported b elow js on the im plication s o f the high u n em ploym en t p redicted for next year. If, in fact, the A dm in istration ’s assum p tion prov es to o optim istic, then the ou tlo o k fo r each d em ograp h ic grou p w ou ld b e still w orse. Modeling the Labor Market T h e forecasts o f each d em og rap h ic g rou p 's activities are m ade from a detailed m od el o f the national la bor market w hich d ep icts on a m onthly basis the large m ovem en ts o f p e o p le into and ("at o f job s and u n em p loym en t. T h e m od el is bein g d evelop ed prim arily as a tool to assess the im pacts o f governm ental program s and policies that in fluence these m ovem en ts, such as jo b training, pu blic em p loy m en t, u n e m p loy m en t insurance, and anti-bias m easures. W ith ou t dealin g with the technicalities o f h ow this m od el is constru cted or op era ted , it is instructive lo observ e som e o f its ba sic elcr rnents. T h e num bers o f p e o p le em p loy ed and u n em p loyed at any given tim e— and frozen into a certain statistic— d o not reflect the essentially fluid nature o f the market. P eop le are constan t ly leaving jobs becau se they desire to find oth er w ork, becau se they are fired, or becau se they wish to quit w ork altogether. O th er p e o p le are entering the w ork force. T h e num bers o f p e o ple in various categories dep en d to a great e x - 75 13! S e a r c h '/ A REPORT FROM THE URBAN INSTITUTE tent on the tim e required to m atch jo b desires with jo b vacancies. Economic downturn hits hardest those who are already worst off T h e annual average u n em ploym en t rate depends not o n ly o n the n um ber o f p e op le w h o pass through the status o f u n em ploym en t but also o n the duration o f their jobless periods. F o r exam p le, if 3 m illion p e o p le be c o m e un e m p loy ed each m onth and remain un em p loyed fo r about 2 .5 m on th s, then the level o f u n em p loym en t at o n e p oin t in time w ou ld be about 7.5 m illion p e o p le. I f p e o p le fou n d jo b s faster and, say, cut the average duration o f u n e m p lo y m ent in half, then the u n em ploym en t level w ou ld be redu ced p rop o rtio n a te ly ; a similar re sult w ou ld co m e fro m reducing the flow o f p e o ple into u n em p loym en t w ithout altering the average duration o f th ose w h o are u n em ployed. M o re o v e r, the various p robabilities— o f entering and leaving the jo b market, o f finding w ork, o f rem aining e m p lo y e d , and o f.b e c o m in g u nem ployed;— have been fou n d from extensive research to d iffer a c co rd in g to o n e ’s age, sex, and racial grou p . T h e se probabilities and the w ay they dep en d on business cond ition s are built into the Institute’s la bor market m od el. T h e sim ulation o f the m od el w orks on a m on th ly basis. T h e con d itio n s at the end o f on e m onth determ ine s om e o f the im pacts o f the next m o n th ’s o p era tion . T h e o u tc o m e , for each age-sex-ra ce categ ory , is the num ber in the la b o r fo rce , the nu m ber o f those w h o are e m p loy ed and u n em p loy ed , and the num ber cha n g ing their la b o r fo rc e status. T h ese data in turn m ay be used to express, in p ercentages, the rate o f unem p loym en t and the rate o f participation in the la bor force . Forecasts for Demographic Groups T o m easure the im pact o f an average 7.9 percent u n em p loym en t rate in 19 76 requires Table 1. Aggregate Impact of Employment Outlook Assumed by Administration, 1973 (an n u al averages in thousands, e xce p t fo r percentages) Lfibûr Market indicator Labor Fore« Employment Unemployment Unemployment Rate At "Full Employment" or “Normal” Unem ployment Rate At Recession Rate Aggregate Impact 95,586 SO,899 4,687 4.9% 94,050 86,594 7,452 7.9% -1,536 -4,305 2,769 3.0% som e basis fo r com p arison ; an unem p loym en t rate o f 4 .9 p ercent has been ch osen . W h ile this is ob v iou sly far higher than the ideal “ full em p loy m en t,” lon g declared to be on e o f the na tion ’s goals, it is within the u n em p loym en t range that econ om ists have been forced to a c c ept as the best that can be attained w ithout either im p rov in g the structure o f the la b or m ar ket or generating a high inflation rate. F o r per spective o n this base level, 4 .9 p ercent was the average u n em p loym en t rate in 19 70 and in 1 9 73 . F rom 19 6 6 -th rou gh 1 9 6 9 , the rate was betw een 3.5 and 3.8 percen t, but d uring that p eriod ou r present acute inflation started. T a b le 1 show s the ga p betw een the full em p loym en t base and what is bein g f oreca st for 1 9 76 fo r m a jor la bor market indicators. T otal em p loym en t is d ow n by 4 .3 m illion. T h e labor fo rc e is constricted , indicating that abou t 1.5 m illion few er p eop le find it w orth w h ile to be in the la bor market. T h e ranks o f the u n em p loy ed increase to alm ost 7.5 m illion, 2 .8 m illion m ore p eop le than w ou ld have been u n em p loy ed if the e c o n o m y operated at full em p loym en t. It is im portant to note that the total loss in em p loym en t resulting from a recession o f this m agnitude next year is o n e and a half times the loss that is indicated by the increase in m ea s ured un em p loym en t. O ut o f every three p eop le w h o will be m ade jobless b y the recession , o n e is exp ected to be d iscou ra ged from actively seeking w ork ; th erefore, that person will not sh ow up in the official unem p loym en t statistics. Th is discou ragem en t p h en om en on has already, in fact, begu n ; in Febru ary, the la bor fo rc e shrank by 5 0 0 ,0 0 0 p eop le. T h e researchers exp ect virtually every m a jo r d em og rap h ic g rou p to suffer jo b losses, with the grou p s already w orst o ff in the la bor m ar ket bein g hit hardest. T a b le 2 spells ou t their pred iction s fo r each o f 16 d em og rap h ic grou p s. T h e first colu m n p rovid es the la bor fo rc e , em p loym en t, and u n em p loym en t levels exp ected in 19 76 if the e c o n o m y w ere operatin g at near full em p loym en t ( a national un em p loym en t rate o f 4 .9 p e rc e n t). A ls o show n are the correspon d in g pred iction s o f their u n em p loy m en t rates and la b or fo rc e participation rates. T h e secon d c o l um n reports the researchers’ p red iction s fo r these grou ps if the e c o n o m y follow s the path assum ed b y the A d m in istration,-w ith an aver age u n em p loym en t rate o f 7.9 percent. T h e third colu m n p rov id es the im pact o f the reces- 76 Table 2. Impact on Labor Force Status of a Recession in 1976, by Demographic Group* " Full Employment" Recession ¿White Males ? Labor F orce ...... Employment ___ ¿Unemployment ... .Unemployment Rate ¿Participation Rate £' ' ¿Labor F orce ...... Employment ...... Unemployment ... Unemployment Rate ‘Participation Rate . :Labor F o rce ...... .Employment ...... Unemployment . .. 'Unemployment Rate ’Participation Rate L 'Labor F orce ...... ^Employment . ---¿Unemployment ... 'Unemployment Rate [Participation Rate Impact " Full Employment” Recession Impact White Females ■a ■ AGES 16-19 H H -6 6 Labor Force ....... 3,929 -286; Employment . __ _ 3,454 220 Unemployment ...... 475 4.9% Unemployment Rate . 12.1% -1 .0 % Participation Rate .. 56.0% ■■ AGES 20-24 HUH Labor F orce ........ 5,524 -538 Employment ....... . 5,124 403’ Unemployment ..... 401 6.2% ■ Unemployment Rate . 7.3% — 1.7% i Participation Rate . . 66.8% 3,788 3,172 617 16.3% 54.0% -141 -282 142 4.2% -2 .0 % ' 5,403 4,823 ‘ 579 10.7% 65.4% -122 -300 178 3.6% -1 .5 % 4,705 4,126 578 . 12.3% . 67.9% , 4,638 3,840 798 17.2% 66.9% 6,755 6,302 454 6.7% 87.4% 6,621 5,764 857 12.9% 85.6% . 34,958 34,215 743 . 2.1% . 93.0% 34,903 33,282 1,621 4.6% 92.9% -933 878 2.5% - .1 % 21,821 Employment ....... 20,981 840 Unemployment . ---Unemployment Rate . 3.8% Participation Rate .. 54.9% 20,597 19,516 1,081 5.2% 51.8% -1,224 -1,465 241 1.4%; -3 .1 % 4,305 4,145 161 . 3.7% 36.1% 4,468 4,149 319 7.1% 37.5% 2,528 2,482 Employment __ . 46 Unemployment ..... Unemployment Rate . 1.8% Participation Rate . 15.8% 2,912 2,679 238 8.2% 18.2% ' 5 153 3.4% 1.4%. 528 .'Labor Force ...... 405 !Employment ..... 123 'Unemployment ... 'Unemployment Rata . 23.2% 44.8% ¿Participation Rate 473 304 169 35.7% 40.2% -101 47 12.5% -4 .6 % 470 336 Employment ....... 135 Unemployment----Unemployment Rate . 2S.S% Participation Rate . 37.2% 400 253 147 36.8% 31.6% -70* -83; 13 8.2%: —5.5% I 914 [Labor Force . .. 771 ¡Employment — 143 'Unemployment ... Unemployment Rate . 15.7% Participation Rate 79.6% 894 670 224 25.0% 77.9% -101 ; 81 9.3% -1 .7 % 883 Employment ... 714 Unemployment .. . 168 Unemployment Rate . 19.1% Participation Rate 62.2% 819 656 163 20.0% 57.7% — 64i -5 9 ■-5 : 0.9% -4 .5 % ; 4,087 Labor Force V. r.: . Employment — ” ... . 3,890 . . 197 .Unemployment 4.8% ^Unemployment Rate ‘¡Participation Rate «88.7% 3,990 3,683 307 7.7% 86.6% ^ ^ ^ ^ ^ ^ ^ ^ ^ L a S o ^ o r c ^ T . .... 3,420 3,219 -206 Employment ...... 201 110 Unemployment ...,. 2.9% Unemployment Rate . 5.&% -2 .1 % Participation Rate . 60.0% 9 ,m 3,081 284 8.4% 58.0% -61: -13«: 83 2.6% -1 .0 % Labor Force ..... . ,S423 408 Employment ...... 15 Unemployment ... •Unemployment Rate 3.6% [Participation Rate . . 33.8% 428 385 40 9.5% 33.9% 335 ____ 327 Employment ....... Unemployment ...... 3 Unemployment Rate . 2.4% Participation Rata . 20.7% 353 841 13 S.6% 21.«% . . Nonwhite Males * Nonwhite Females » -2 3 25 5.9% .2% a. Annual averages are in thousands, excepit percentages; datai may not add prec isely due to rounding, b. "Nonwhites" include blacks iind other minorities. 384 m ' .-■192* 6.3% • 2.4% ; 18 14 4; 1 1% 11 S e a r c h '/ A R E P O R T F R O M t h e u r b a n i n s t i t u t e sion , as m easured by the d ifferen ce betw een the first tw o co lu m n s. T h e researchers em phasize that these are su bject to error and that the er rors are likely to b e relatively larger fo r the smallest grou ps in the la b o r fo rc e , such as blacks and p e o p le in the o ld est age category. T h e ex p ected distribution o f jo b losses an d con seq u en t increases in u n em p loym en t and la b o r fo rc e discouragem ent is sim ilar to the esti m ates m ad e last year b y Sm ith, V an sk i, and H o lt fo r 19 75 , when the recession was not ex pected to be as d eep. T h e m ost im portan t d if feren ce betw een their current and previous esti Unemployment count may omit many recession victims mates (asid e fro m the total m agnitude o f the em p loy m en t lo sse s) is that, in the p rolon ged recession n o w e x p ected, a larger p ortion o f the em p loy m en t im pact will b e reflected in la bo r fo rc e d iscou ragem en t rather than u n e m p lo y m ent. T h is o ccu rs becau se m any p e o p le will begin b y lo o k in g fo r w o rk but then give up and withdraw fro m the la b o r m arket. T h e u n em p loym en t rates o f y o u n g p e o p le , particularly black teenagers, are ex p ected to be quite sensitive to the general state o f the e c o n om y . T een a g e b lack m ales, fo r exam ple, w ou ld have an u n em p loym en t rate o f abou t 2 3 per cent if 1 9 7 6 w ere a full e m p loym en t year, but actually their jobless rate will b e alm ost 3 6 p er cent if the aggregate un em p loym en t rate hovers around 8 percen t. P rim e-age white males (ages 2 5 - 5 9 ) , the largest and m ost fav ored d e m o g raph ic g rou p , w ou ld have an u n em p loym en t rate o f o n ly abou t 2 p ercen t if the e c o n o m y were op era tin g at full e m p loy m en t, but they can ex p ect a rate 2 .5 percen tage points higher as a result o f the recession . N o tice that the u n em p lo y m en t rate o f the secon d largest g ro u p , prim e-a ge w hite w om en , is not m u ch affected b y the general state o f the ec o n o m y ; the recession raises their u n e m p lo y m ent rate b y o n ly 1.4 percen tage points. This, h ow ever, is quite m isleading. In fact, the em p loym en t o f w o m en , including this age sector, is badly hurt b y a recession. T h e m a jo r part o f th eir e m p loym en t loss is reflected in redu ced la b o r fo rce participation. M an y few er w om en are e x p ected to participate in the la bor market as a result o f the recession ; this keeps their offi cial u n em p loym en t rate d o w n , but does not m ake their jo b situation any better. Figure 1 provid es a clearer picture o f what the c o m b in e d effects o f u n em ploym en t and la b o r fo rc e d iscou ragem en t m ean fo r various grou ps. T h e circle at the left sh ow s the race and sex distribution o f the 2 .8 m illion addition al u n em p loyed resulting from the recession. W h ite m ales are exp ected to a ccou n t fo r the largest part o f the u n em p loym en t increm ent, alm ost 6 0 percen t, while white fem ales w ou ld incur 2 7 percen t o f the addition al u n em p loym en t, an d blacks (a n d oth er m in orities), 13 percen t. T h e circle at the right, h ow ever, d e m on strates h ow in adequ ately unem p loym en t statis tics d escrib e what is h ap p en in g to the la b or market. W h en the u n em p loyed and the p e o p le d iscou ra g ed from participatin g in the la b or f o rc e are co m b in e d , the p ersons w h o m ay p r o p erly b e cou n ted as victim s o f the recession rise from 2 .8 m illion to 4 .3 m illion , and the d e m o graphic distribution o f the recession ’s la b or market im pact shifts tow ard w om en and blacks. (T h is d oes not take accou n t o f oth er effects o f a recession on w orkers, su ch as their w ages, opportun ities f o r overtim e an d advan cem en t, o r in voluntary assignm ent to partim e w o r k .) If white m en suffered em p loy m en t losses in p rop ortion to their share o f full em p loym en t, they w ou ld incur o v er h alf o f the em p loym en t im pact; instead they suffer o n ly ab ou t 4 0 p er cent o f the losses; w hite w om en h old ab ou t 35 percent o f all jo b s , bu t w ou ld receive 4 3 per cent o f the em p loy m en t loss; and blacks, w h o h old abou t 11 p ercen t o f the full em p loym en t job s, w ou ld incur 16 p ercen t o f the losses. Y o u n g p eop le will suffer high u n em p loy ment and la b or fo rc e d iscou ragem en t relative to other grou ps. T h e researchers estimate that p eop le under age 2 5 will incur ab ou t 4 0 per cent o f the aggregate em p loy m en t losses, even though they a ccou n t fo r on ly ab ou t 23 p ercen t o f aggregate em p loym en t. W h ile the recession w ou ld redu ce aggregate em p loym en t in 1 9 7 6 b y about 4 .7 p ercen t b e lo w its full em p loym en t level, em p loym en t o f white teenagers w ou ld be redu ced b y 7 .5 p ercen t and em p loym en t o f black teenagers b y alm ost 2 5 percent. T h ere fore, in terms o f the severity o f recession im pact, you th are the hardest hit o f all. Sm ith, V an sk i, an d H olt’s m od el p rovid es som e o f the im p lication s o f in e high aggregate u n em p loy m en t rate exp ected by the A d m in is tration next year. T h e y poin t ou t that w hile their com p arison with an ec o n o m y op era tin g at b elow 5 percen t u n em p loym en t is useful fo r exam in in g the losses resulting from the reces sion , it is n ot an in dication o f the c ost o f the 78 13 Searüh / A REPORT FROM THE URBAN A d m in istration ’s plan co m p are d with any oth er p lan. T h e y k n o w o f n o set o f p rop osa ls fo r stim ulating the e c o n o m y that w ou ld b rin g un em p lo y m e n t d o w n sharply b y next year. It is likely that con sid era ble joblessness will contin ue th rough ou t 1 9 7 6 , although at a redu ced level. R egard less o f the precise size o f the recession, it is lik ely that blacks, w om en , and you th will co n tin u e to suffer d isp rop ortion a tely fro m re d u ce d o p p ortun ities fo r w o rk and that the lost e m p lo y m e n t will b e greater than will appear in the u n em p loy m en t statistics. B eca u se o f the dis cou rag em en t effect, unem p loym en t rates will u n derstate the severity o f the joblessn ess and distort its d e m o g rap h ic incid en ce. A m easure o f joblessn ess reflecting b oth u n em p loym en t and re d u ce d p articipation is currently bein g d evised by the Institute staff. Policy Implications W h y is it im portant to identify the kinds o f p e o p le w h o will b e m ade jobless b y the re cession ? E ven though the hardships that will b e suffered are difficult to assess— they will d e pen d, in part, o n each individual’s needs and the availability c f oth er pu blic and private sou rces o f su p p ort— it is clear that the fo rm u lation o f p o licies and program s to deal with these hardships must consid er the special p r o b lem s each g rou p will face. P rogram s to am e lio rate o r offset the im pacts o f a recession are o ften targeted on particular groups in the la bo r m arket. F o r exam ple, extending u n em ploym en t com p e n sa tio n fo r those w h ose paym ents are e xhausted d oes little fo r the u n em p loy ed u n der age 2 5 sin ce a small p rop o rtion o f them have the necessary w o rk history to m eet the eligibil ity requirem ents. Jobless w om en and blacks are likely to have sim ilar problem s. T h e in dividuals w h o will suffer the great est loss o f e m p loy m en t are those w h o bear all the h an d icap s that are reflected in bein g y ou n g, black, and fem ale. T h e d em ograp h ic handicaps m ay, the researchers recogn ize, translate into such n o n d e m o g ra p h ic matters as discrim ination and in fe rio r ed u ca tion , la b o r m arket k n o w l edge, jo b skills, and seniority. T h e high levels o f u n em ploym en t and w o rk discou ragem en t affecting these groups must be cou n ted not on ly in terms o f current in com e losses, but also in terms o f their losing ou t on jo b skills an d o n seniority relative to other em p loy ees. W o m e n and blacks have m ade Figure 1. INSTITUTE it and Total Employment Loss impacts, by Sex and Race UNEMPLOYMENT IMPACT 2,800,000 people NOTES a. Estimates ara baaed < unsmploymint rata vs. b. "Black* includa------ TOTAL EMPLOYMENT IMPACT (Unemployment ply« Discouragement) 4,300,000 people • comparison b«tw#«n 1878 avarae« kv«ls cefrMporid'r.j t .9% unemployment raw. Numb*r$ at* in thou*and» ’* Web about 90 parcent ara blacks. I 7.9% national im portant gains in the jo b m arket in recent years. A lo n g and d e e p recession can w ip e out their h ard -fo u g h t-fo r im provem en ts, becau se they are still relatively disadvantaged. W ith jo b s scarce, these groups will tend to be left out." T h e same point applies even m ore fo rc e fully to the u n d er-25 w orkers. I f th ey d o not d ev e lo p their full potential— including skills, k n ow ledge, and attitudes co n d u civ e to su ccess ful career d ev elop m en t— at this stage, their loss to them selves, their fam ilies, and to the nation is disturbing to contem p late. T h e correlation betw een u n em ploym en t and crim e, suicides, im prisonm ent, and so forth further suggests what recession will mean in the lives o f m any. T h e traditional way o f fighting inflation by slackening dem and has particularly disastrous im pacts on the m ost disadvantaged w orkers. T o the extent that the researchers’ m od el accurate ly reflects the structure o f the A m erica n la bor market, it reveals serious structural prob lem s and inequities that even under “ n orm al” c o n ditions acco u n t fo r ex clu siv ely high rates o f u nem p loym en t and d iscou ragem en t from p ar ticipation. B ut these u n solved and largely un treated structural p rob lem s are seriously ag gravated by the intentional creation o f slack cap acity to fight inflation. Structural changes in the p rod u ct and la bo r m arkets that w ou ld fa cilitate expan sion w ithout inflation and that w ou ld im p rove the relative position o f the c o m p etitively disadvantaged are urgently needed. □ Prolonged denial of jobs may impose lifelong handicaps on young 79 Mr. S m i t h . Our major findings are shown in table 2 o f the same handout, entitled “Major Unemployment and Jobless Indicators: 1976 Averages, With a 7.9-Percent National Unemployment Rate.” [Table 2 follows:] TABLE 2.— MAJOR UNEMPLOYMENT AND JOBLESS INDICATORS: 1976 AVERAGES, WITH A 7.9 PERCENT NATIONAL UNEMPLOYMENT RATEi Group Estimated Unemployment rate Total, 16 years and over________________________________ __________________ Males, 20 years and over___________________________________ _ _________ _________ Females, 20 years and over________ ____________ _____________ Both sexes, 16-19 years________________ ______ ___________________ White, total__________________ ________ _______ .... ___________________ ... Males, 20 years and over__________ _________ _______ _____ _________ Females, 20 years and over_______ _______________ ... ______________ ___ Both sexes, 16-19 years_______________ ____ ____ .. ______ _____ .Negro and other races, total_____________ ________ ___ ________ ... Males, 20 years and over____ _____ .. _____ ________ Females, 20 years and over_____________ ________________ ________ _____ Both sexes, 16-19 years_______________________________________________ . 7. 9 6.5 7.0 18.6 7.3 6.1 6.6 16.8 12.6 10.8 10.1 36.2 Estimated jobless rate 10. 0 7. 0 11.0 22.3 9.2 6.2 10.7 19.6 16.2 13.4 13. 0 45. 7 1 The fiscal 1976 “ Budget” submitted by the Office of Management and Budget in February assumed a 7.9-percent unemployment rate in calendar 1976. Mr. S m i t h . Even if unemployment is brought down to 7.9 percent, the unemployment rate for blacks would still be over 12 percent. Over 18 percent of the teenage labor force would be unemployed. The unemployment rate among black teenagers would be over 36 percent. Their jobless rates would be considerably higher. We understand that other economists testifying before this sub committee have presented unemployment forecasts for next year that are even higher than that projected by OMB. To provide you with an indication of some of the job market implications of these high unemployment estimates, we have estimated the impact of a 1-point higher unemployment rate on the unemployment and jobless rates of various population groups. These are shown in table 3 of my handout. [Table 3 follows:] TABLE 3 — MAJOR UNEMPLOYMENT AND JOBLESS INDICATORS: 1976 AVERAGE, WITH AN 8.9 PERCENT NATIONAL UNEMPLOYMENT RATE 1 Group Total, 15 years and over............... .......... .............. . ______________________ Males, 20 years and over______ _____ _____ _____ _ ______ ________________ Females, 20 years and over________________________ _______ _______________ Both sexes, 16-19 years...----------- ----- -------------- - ______ ________________ White, total...____ - ________ ____ _____ ________ - ____ ______________________ Males, 20 years and over__________________________ ___________ _____ . . . . . . Females, 20 years and over___________________ ____ ___________ _____ _____ Both sexes, 16— 19 years___ ____ __________________ _____________. . . . . . . . . . . Negro and other races, total........... .......................... ................. ................. Males, 20 years and over._________________________ ______________________ Females, 20 years and over______ _________________ _______________ . .. . . . . . Both sexes, 16-19 years.............. .............. ........ ................. ................. . JThis is one percentage point higher than the OMB assumption. Estimated unemployment rate 8.9 7.7 7.7 20.1 8.3 7.2 7.2 18.1 13.6 14.2 10.6 39.4 Estimated jobless rate 11.2 8.1 12.0 24.5 10.3 7.3 11,8 21.4 17.8 15.2 13.7 50.9 80 Mr. S m i t h . We find that no major group would escape the con sequences of a more severe recession. An 8.9-percent unemployment rate next year would indicate an even worse job market than the same rate indicated last month. This would be due to the increased discouragement from looking for work that such a prolonged reces sion would generate. The current job market is quite weak. The outlook for next year is not promising. The recession is having a devastating effect on the job market, only partially reflected in the unemployment statistics. Youth, women, and minorities are particularly vulnerable to both unemployment and labor force discouragement. Their problems re flect in part chronic structural deficiencies in the labor market. Even in periods of low aggregate unemployment, members of these groups have excessively high rates of unemployment and joblessness. Their problems are seriously aggravated by the current recession. In the remainder of our testimony, we will focus on policies that would improve the structure of the labor market and thereby facili tate the achievement of full employment without inflation and im prove the relative position of the groups with the highest jobless rates. Thank you, Mr. Chairman. Chairman B e n t s e n . Thank y o u , Mr. Smith. Please proceed, Mr. Holt. STATEMENT OF CHARLES C. HOLT, DIRECTOR, INFLATION AND UNEMPLOYMENT RESEARCH, THE URBAN INSTITUTE Mr. H o l t . I certainly agree with Professor Ginzberg, in welcom ing the attention this committee is giving to joining macroeconomic issues with manpower issues. I think this is long overdue and would like to focus on what is involved in bringing these two areas together and indicate what wTe do not know about doing it. In order to do this, I would like to talk first about the role and limitations of macropolicy. Ralph Smith’s presentation, based on our econometric study of the labor market, shows vividly both the severity of current and prospec tive unemployment and the unevenness of its impacts. It also sug gests the existence of severe structural problems in the labor market. I will return to those issues. However, doing something about unemployment requires the recog nition of its intimate connection with inflation. The Phillips diagram in figure 1 1—there are plenty of copies of this figure around, and there should be copies of the prepared statement as well—shows the recent history of unemployment and inflation in the United States and a long-run Phillips curve fitted to data from 1954 to 1969. The data from recent years, of course, reflects extraordinary international impacts from wheat, oil, and so forth, but even before that, the increas ingly adverse unemplovment-inflation tradeoff is evident. We have also plotted the administration’s extrapolations to 1980. One might ques tion whether their unemployment and inflation figures are mutually 1 See fig. 1, p. 87. 81 consistent much less optimal, but they do need to be taken seriously as the best indication of the President’s intentions. If you look at this figure and concentrate on the periqd from 1954 through 1969, you will see that any time we were left of this line, inflation tended to rise; and when we were to the right of this line, inflation tended to decline. I am afraid I have to disagree with Professor Levitan’s pointing out the happy days of the late 1960’s. You will see, if you trace the years, starting in 1954 there is a dynamic loop shown in this diagram. When we first lower unemploy ment we are not troubled with inflation; but if we keep unemploy ment low, inflation gradually builds up and then we have to run un employment up again, and the inflation gradually wanes. The period from 1966 to 1969 is one of virtually constant unemploy ment and increasing inflation. Chairman B e n t s e n . Mr. Holt, I am having trouble following that chart. Mr. H o l t . I am not surprised. There is the history of the U.S. economic policy from 1954 to date an extended to 1980—all crowded into one figure. I will be glad to go into it as deeply as you would like. If you start in 1954, which is the beginning point on this figure, you see next in 1955 that there is a marked drop in unemployment and very little inflation response. By the second year, 1956-----Chairman B e x t s e n . Well, now, where do I correlate the inflation response ? Mr. H o l t . Inflation is shown on the left axis; the vertical axis is the inflation rate. Chairman B e n t s e n . All right, I am with you now. Mr. H o l t . Inflation is vertical, and unemployment is horizontal. C h a ir m a n B e n t s e n . I see. Mr. H o l t . S o , when we lower unemployment, after a period we gradually get inflation. And we see, going up to 1956, we got an in flationary response; 1957 was just about on that long-term response line. The next year, we had an inventory cycle, in 1958, with a run up of unemployment and a decrease in inflation. More recently, since 1969, for the first time we were so concerned about inflation that in 1971 we intentionally induced a recession, and we brought inflation down very markedly in 1972. Partly for political reasons, there was a con cern with the high level of unemployment. We stimulated the eco nomy again and lowered unemployment with the result that inflation accelerated again. We are familiar with the period from 1973 through 1974. All sorts of international developments accounted for a very marked stimula tion of the inflation problem. Again in 1975, a recession was inten tionally induced in order to deal with the inflation problem. The reason for discussing macroeconomic issues and the aggregate demand questions in the context of manpower problems—particularly when public service employment gets lumped in with manpower pro grams—is that we do not have enough jobs because we intentionally took actions through monetary and fiscal policy that decreased the number of jobs. We did that because of inflation. The basic problem is not one of creating jobs. There is a question, if you want jobs, of whether they should be PSE or WPA jobs or alternatively whether we 82 should cut taxes and increase private consumption expenditures. These are issues of how we want to spend our resources. But the key question that limits the amount of employment we can have is our concern—not only economists, but the concern that is expressed by the American public—with the inflation problem. Therefore, there is an intimate connection here between the amount of employment we can have and the inflation response. We can return to discuss the interaction between macroeconomic demand and inflation problem, if you like. Monetary, fiscal, and international exchange policies can certainly reduce the unemployment level, but the governing constraint is the dy namic link to inflation and the choice of the least painful mix of unemployment-inflat-ion outcomes, both currently and in the future. In my view, greater demand stimulus, if promptly applied, would lower unemployment without excess risk of inflation. Such actions are urgently needed. I would like to ally myself with what Professors Ginzberg, Levitan, and Mr. Meany and others have said about the need for stimulating ag gregate demand at the present time. Unfortunately, such macro demand policies can only deal with less than half of today’s unemployment problem. Macropolicies are limited, because using them to attain and hold unemployment at much less than 5 percent is likely to produce inflation that would be unacceptable to the American people. I f you look at this long-term Phillips curve and compare it with that of other countries, you find that it is much more adverse than most other countries suffer. Lower levels of unemployment have been attained temporarily with out undue inflation, especially when the reduction has been made very slowly. However, our recent experience of high rates o f inflation has undoubtedly made our economy more vulnerable to inflation because of the increased responsiveness of inflationary expectations. Hence, we must seek other policies to complement macro stabilization policies. T H E NEED FOR STRU CTU RAL REFORM I f we are to obtain a better Phillips tradeoff between unemployment and inflation, we must take actions that impinge on the processes that determine prices, the processes that determine wages, and the processes that determine unemployment. Two out of these three areas are in the labor market. These are not simple supply and demand relations, but are processes that intimately involve the institutions of industry, trade, finance, unions, and government and the economic, social, psychological, and political behavior of people and organizations. Earlier, John Dunlop, as Director of the Cost of Living Council, has made a number of eloquent speeches calling attention to the need for structural change. In his testimony before you recently, he did not stress that as much. Also, Prof. Hendrik Houthakker, formerly on the Council of Economic Advisers, and many other economists have urged structural reform. Reducing the structural contributions to inflation and unemploy ment is a systems problem whose solution will require changes in public 83 and private policies on many parallel fronts. No easy, simple, quick solutions exist. An active process of change is needed that will take years. In the face of the severe challenge which this problem poses to national leadership, it is encouraging to meet with a congressional committee that is willing to consider a horizon that extends beyond the next election. In the short run, little can be done about structural inflation and structural unemployment. Yet there is a critical interaction with macropolicies because structural reform is very difficult, if not im possible, under high levels of cyclical unemployment. But on the other hand, short-term economic stimulus, taken alone, will be inadequate to attain full employment-over half of current unemployment is struc tured and frictional in nature. Do we know which structural changes to make and how to make them ? The short answer is no, and we are not likely to unless the Fed eral Government addresses itself to the structural issues. Some reasons for the knowledge and program gap can be suggested. There are very few microeconomists who relate their research to macroproblems—■ and, I might add, very few manpower specialists that relate their concerns to macroproblems. Getting the integration of these two areas is not in good shape, in terms of the attention that it has received. Few social psychologists connect work satisfaction with the problem of unemployment. The Departments of Labor, and Health, Education, and Welfare have not related their programs to the Council of Eco nomic Advisers’ national income and inflation problem—if they would be willing to claim it as their problem. The Federal Government is fragmented by agency function; universities are fragmented by disci pline. Such specialization is helpful, but vital interactions between na tional inflation and unemployment, and the structure of industries and the labor market, have been largely ignored. This is partially due to the serious difficulties that are involved in researching complex socioeconomic systems, but it also results from the inept use of research by Government in solving practical problems. In my prepared statement, which has been submitted for the record, I try to spotlight some of the weaknesses in obtaining and applying knowledge about structural issues. I will skip a little here. An index of the inadequacy of the Government’s research effort on inflation and unemployment is the fact that it has had no coordinated research program directed at finding structural solutions. Aside from the knowledge issue, the needed structural changes will be politically and administratively difficult. The above overview is not intended to discourage the subcommittee from the structural approach to inflation and unemployment, but rather to supply a realistic assessment of the point of departure and the magnitude of the efforts that will be required. Legislation which is currently being proposed by some members of this committee should give serious attention to filling our knowledge gap. Now, turning to labor market programs and policies for full em ployment, I would like to examine briefly the present status of man power programs and then consider directions for development. The bulk of manpower programs have been transferred from the Federal level to the State and local levels through the CETA legisla 84 tion. Although this decentralization was not adequately tested for workability in advance of its implementation, it probably was a sound move to build more manpower capability at the State and local levels. However, it has left the Federal Government with few programs for organizing a national manpower effort in response to national eco nomic conditions. Because of the inclusion of public service employ ment in CETA and the transfer of funds between its titles, it would be possible through local decisions to have very small support of man power programs and instead have a revenue sharing type program which resulted primarily in State and local tax savings. I am drawing a distinction here between manpower programs and public service employment, which I really consider as primarily an aggregate demand measure, although there can be an interaction be tween these two areas, obviously. The employment service, which is a more integrated Federal-State activity, is under increasing pressure and its very role is being chal lenged. Indeed, it may not be inaccurate to characterize the Federal manpower thrust as being almost defeatist with respect to the difficult problems of improving our economic structure. To be sure, actions by the executive branch and the Congress have restricted manpower funds relative to that available in other coun tries, but much more could have been done to improve program im pacts. The points discussed above about research and its utilization are relevant here. I give in my prepared statement a few examples of areas where the research necessary to make programs really effective simply has not been done. While we need better knowledge, we cannot simply wait for the research to be completed. Manpower results achieved in Sweden, Japan, and West Germany suggest what can be done and lend en couragement, but they do not offer solid transferable knowledge to our society. Against this background, what manpower policy should we pursue to help achieve full employment ? Many people should con tribute to the answer. I propose the following recommendations for consideration. First, clear policy targets should be established through legisla tion directing that manpower programs be developed which would contribute both to lowering unemployment and reducing inflation. There is a tendency for people who are oriented to the manpower area to say that unemployment is a problem for aggregate demand. What I am saying, in distinction to that, is that unemployment is a problem for aggregate demand and manpower programs. We have not achieved the contribution that is possible in the manpower pro gram area. I am not thinking about public service employment and W PA kinds of activities, which are essentially aggregate demand measures. Attacking the two targets of unemployment and inflation would require concentrating attention on the one-third of the labor force that have the greatest employment problems—the disadvantaged and the groups that Ralph Smith was talking about who are going to suffer most from thexurrent recession, and concentrating attention on the one-third of the jobs that, at the particular time, are most difficult to fill and are contributing to inflationary pressures. In other words, I propose two clear objectives for manpower programs. 85 Second, plan and fund a process of gradually developing, testing, and implementing programs and policies that would be effective in attaining the above objectives. The reason I am proposing a process, rather than simply outlining now what needs to be done, is that we know enough about the labor market processes to know how very subtle they are. Whereas we know the general outlines of the kinds of manpower policies which we need, the detailed knowledge for de signing efficient operating programs has simply not been adequately developed. Third, build up the imaginative, experimentally oriented, adminis trative leadership necessary to get this job done on Federal, State, and local levels. Fourth, support the administrators with research staffs and a pro gram of basic, applied, and experimental research designed to achieve the necessary knowledge. Fifth, gradually reorganize existing CET A, Department of Labor, and HEW manpower programs and add new ones as needed in order to balance the contributions at the Federal, State, and local levels, each agency being funded and empowered to make its best contri bution. The sj'stem should be designed for both coordination and competition, including the participation of community and commer cial organizations. Resources should reward the most effective agencies. Sixth, discriminatory barriers in labor market should be attacked more forcefully, both through enforcement actions and supportive programs, which would absorb some of the costs of change. In order to be successful, this program would need to be supported with as high a level of aggregate demand including public service employment as is possible, consistent with reasonable restraint on inflation. Parallel structural reforms would need to be made in other areas including those designed to reduce disruptions resulting from inflation. Since sound programs and policies will more than pay for themselves in increased output and reduced inflation, they should be implemented and funded as quickly as their effectiveness is reasonably demonstrated. This puts a lot of stress, as both of the previous speak ers have noted, on getting away from unemployment compensation and trying to get people into productive jobs. However, unreasonably high program standards should not be set in view of the fact that structural problems and the recession which we induced to fight inflation, currently is wasting productive resources at the rate of over $100 billion annually, not to mention the inequity in the distribution of unemployment. Also, weight needs to be given to the improvement of the distribution of income, as well as of in creased economic efficiency. The strategy of structural reform will take years to implement, and improvements will come in undramatic increments, but there is prob ably no other way to achieve sound and continuing full employment without inflation. The structural problems will be there until we face up to them. Should we not accept the challenge now ? Leadership is needed to sharpen the awareness of the structural problems and to begin a systematic attack. Thank you. 59-082— 75------ 7 8 6 [The prepared statement of Mr. Holt follows:] P repared S t a t e m e n t of C harles C. H olt Senator Bentsen and members o f the JEC Subcommittee on Economic Growth, I want to express my pleasure at being asked to testify before you on manpower policies to restore fu ll employment. Ralph Smith and I are testifying as individuals and not as spokesmen for the Urban Institute or its sponsors. However, we w ill be drawing freely on the re search o f our colleagues Richard Toikka, W illiam Scanlon, and Jean Vanski. Our research has been supported by the Department o f Labor, the National Science Foundation, and the F ord Foundation. Ralph Smith w ill talk about near-term unemployment prospects, and I w ill consider the need fo r structural change and manpower policy. I. TH E ROLE AN D L IM IT A T IO N S OF M ACRO PO LICY Ralph Smith’s presentation, based on our econometric study o f the labor mar ket, shows vividly both the severity o f current and prospective unemployment and the uneveness of its impacts. It also suggests the existence o f severe structural problems in the labor market. I w ill return to those issues later. IIowTever, doing something about unemployment requires the recognition o f its intim ate connection with inflation. The Phillips diagram in Figure 1 shows the recent history o f unemployment and inflation in this country and a long-run Phil lips curve fitted to data from 1954 to 1969. The data from recent years, o f course, reflects extraordinary international impacts from wheat, oil, etc., but even before that the increasingly adverse unemployment-inflation tradeoff is evident. W e have also plotted the Adm inistration’s “ extrapolations” to 1980. One might ques tion whether their unemployment and inflation figures are mutually consistent, much less optimal, but they do need to be taken seriously as the best indication of the President’s intentions. 8 7 F ig u r e 1 I N FLATI ON-UNEMPLOYMENT 1954-1974 1975-1980 Il M E A SURED A D M I N I S T R A T I O N AS S U M P T I O N S (AS O F 5-30-75) PRICE INFLATION RATE 74 io- 9' 8 7 6' 5. 4- 2 1 U N E M P L O Y M E N T RATE (PERCENT) 8 8 Monetary, fiscal, and international exchange policies can certainly reduce the unemployment level, but the governing constraint is the dynamic link to inflation and the choice o f the least painful mix o f unemployment-inflation outcomes, both currently and in the future. In my view, greater demand stimulus, if promptly applied, would lower unemployment without excess risk o f inflation. Aggregate demand stimulus including public service employment is urgently needed and further action should be taken now. Unfortunately, macro demand policies can only deal with less than h alf of today’s unemployment. M acro policies are limited because using them to attain and hold unemployment at much less than five percent is likely to produce infla tion that would be unacceptable to the American people. Lower levels o f unem ployment have been attained tem porarily without undue inflation, especially when the reduction has been made very slowly. However, our recent experience o f high rates o f inflation has undoubtedly made our economy more vulnerable to inflation because o f the increased responsiveness of inflationary expectations. Hence, we must seek other policies to complement macro stabilization policies. II. TH E NEED FOB STRU CTURAL REFORM I f we are to obtain a better Phillips tradeoff between unemployment and infla tion, we must take actions that impinge on : (1 ) the processes that determine prices, (2) the processes that determine wages, (3 ) the processes that determine unemployment. These are not simple supply and demand relations, but are processes that inti mately involve the institutions o f industry, trade, finance, unions, and government and the economic, social, psychological, and political behavior o f people and organizations. John T. Dunlop, Secretary o f Labor, and Professor Hendrik S. Houthakker, form erly on the Council o f Economic Advisers, have attempted to spell out spe cific structural changes that governmental policies should pursue. Many other economists as well have urged structural reforms. Reducing the structural contributions to inflation and unemployment is a sys tems problem whose solution will require changes in public and private policies on many parallel fronts. No easy, simple, quick solutions exist. An active process o f change is needed that w ill take many years. In the fa ce o f the severe challenge to national leadership, which this problem poses, it is encouraging to meet with a Congressional Committee that is willing to consider a horizon that extends beyond the next election. In the short run, little can be done about structural inflation and structural unemployment. Yet there is a critical interaction with macro policies, because structural reform is very difficult, if not impossible, under high levels o f cyclical unemployment. But, on the other hand, short-term econom ic stimulus, taken alone, w ill be inadequate— over h alf o f the current unemployment is structural and fr ic tional in nature. I I I . DO W E K N O W W H IC H ST RU CT U R AL C H A N G E S TO M A K E AN D H O W TO M A K E T H E M ? The short answer is no, and w e’re not likely to, unless changes are made. Some reasons can be suggested. There are very few m icro economists who relate their research to macro problems. Few social psychologists connect work satisfaction with the problem of unemployment. The Departments o f Labor and Health, Edu cation and W elfare haven’t related their programs to the Council o f Economic Advisers’ national inflation-unemployment problem. The federal government is fragmented by agency functions and universities are fragmented by discipline. Such specialization is helpful, but vital interactions between national inflation and unemployment, and the structure o f industries and the labor market have been largely ignored. This is partially due to the serious diflftculties that are involved in researching complex socioeconom ic systems, but it also results from the inept use o f research by government in solving practical problems. Although there are a few notable exceptions, the federal governm ent’s socio economic research relating to structural issues can be roughly characterized as fo llo w s : 89 (1) A coordinated research strategy is missing for producing the essential basic knowledge and applying it to solve the government’s policy, program, and operating problems ; (2 ) Governmental staff often haven’t done research themselves, and, as a result, don’t administer outside research w e ll; (3) Governmental data collection is fragmented, slow, and inadequately tied to research needs ; (4 ) Much research doesn’t get used because administrators are not ana lytically orien ted; (5 ) Resources have been inadequate fo r research support. (6 ) Universities and research institutes have not adequately overcome fragmentation among disciplines. Consequently, the research often is low in quality, fragmented and little used. The resulting deficiencies in our knowledge base affect all the areas requiring structural reform ; manpower, antitrust, regulation, etc. An index o f the inadequacy o f the government’s research effort on inflation and unemployment is the fact that it has had no coordinated research program di rected at finding structural solutions. Aside from the knowiedge issue, the needed structural changes will be politically and administratively difficult. The above overview is not intended to discourage the Subcommittee from the structural approach to inflation and unemployment, but rather to supply a real istic assessment o f the point o f departure and the magnitude o f the efforts that w ill be required. Legislation which is currently being proposed by some members o f the Committee should give serious attention to filling our knowledge gap. Since two out of the three processes mentioned in Section II that account for the Phillips relation occur in the labor market, i.e., those that determine unemployment and those that determine wage changes, we turn to the issue of structural changes through manpower policies. IV . LABOR M ARKET PROGRAM S A N D PO LICIES FOR F U L L E M P L O Y M E N T I would like to examine briefly the present status o f m anpower program s1 and then consider directions fo r development. The bulk o f manpower programs have been transferred from the federal level to the state and local (SM SA ) levels through the CETA legislation. Although this decentralization was not adequately tested for w orkability in advance o f its implementation, it probably was a sound move to build more manpower capability at the state and local levels. However, it has left the federal government with few programs for orga nizing a national manpower effort in response to national econom ic conditions. P>ecause of the inclusion of public service employment in CETA and the transfer o f funds between its titles, it would be possible through local decisions to have very small support o f manpower programs and instead have a revenue-sharing type program which resulted primarily in state and local tax savings. The Employment Service, which is a more integrated federal-state activity, is under increasing budget pressure and its role is being challenged. Indeed, it might not be inaccurate to characterize the federal manpower thrust as being almost defeatist with respect to the difficult problems o f im proving our econom ic structure. To be sure, actions by the Executive branch and Congress have restricted manpower funds, but much more could have been done to im prove program impacts. The points discussed above about research and its utilization are relevant here. Let me give a few examples. The Employment Service is under pressure to increase placements and a drive is underway to im prove career education. Yet neither DOL, HEW , nor the National Institute o f Education have signifi cant research efforts to find out what basic factors account fo r the success o f a person in a job. Effective programs o f placement and counseling require this knowledge. The effect o f low job vacancies on placements is recognized by the Employment Service, but its potential to affect aggregate demand policies is not. Improving the quality o f work, which has important implications for the quality o f life, turnover, and unemployment, has been declared a high priority 1 Public service employment has been much more an aggregate demand measure than a manpower program in terms of developing human capital or dealing with structural problems. In this discussion I do not consider PSE a manpower program although it could and should also be so used. 90 objective by H EW , DOL, and the Productivity Commission, yet there is little basic research or carefully designed experimentation underway. Evaluations o f training programs have shown widely variable results, ranging from disappointing to spectacular, but little careful work has been done to find out what accounts for the differences. I do not want to sound overly critical o f what has been done, because all of these areas pose extremely difficult problems for both research and administra tion. But the efforts are utterly inadequate relative to the importance o f finding manpower policy approaches to improving the structure o f the economy. W hile we need better knowledge, we cannot simply w ait fo r the research to be completed. Manpower results achieved in Sweden, Japan, and W est Germany suggest what can be done and lend encouragement, but they do not offer solid transferrable knowledge. Against this background, wThat manpower policies should we pursue to help achieve fu ll employment? Many people should contribute to the answer. I propose the follow ing recommendations fo r consideration : (1) Clear policy targets should be established through legislation direct ing that manpower programs be developed which would contribut to loweringunemployment and reducing inflation. This means concentrating attention on the one-third o f the labor force that have the greatest employment problems and the one-third o f the jobs that, at the time, are most difficult to fill, and, hence, contribute to inflationary pressures. (2) Plan and fund a process o f gradually developing, testing, and imple menting programs and policies that would be effective in attaining the above objectives. (3 ) Build up the imaginative, experimentally-oriented, administrative leadership necessary to get this job done. (4) Support the administrators with research staff and a program of basic, applied, and experimental research. (5) Gradually reorganize existing CETA, DOL, and H EW manpower pro grams and add new ones as needed in order to balance contributions at the federal, state, and local levels, each agency funded and empowered to make its best contribution. The system should be designed fo r both coordi nation and competition including the participation o f community and com m ercial organizations. Resources should reward the most effective agencies. (6 ) Discrim inatory barriers in the labor market should be attacked m ore forcefully, both through enforcement actions and supportive programs which would absorb some o f the costs o f change. In order to be successful, this program wTould need to be supported with as high a level o f aggregate demand as possible consistent with reasonable restraint on inflation. Parallel structural reforms would need to be made in other areas including those designed to reduce disruptions resulting from inflation. Since sound programs and policies will more than pay for themselves in increased output, they should be implemented and funded as quickly as their effectiveness is reasonable demonstrated. However, unreasonably high standards should not be set in view o f the fact that structural problems and the recession which wTe induced to fight inflation currently are wasting productive resources at the rate o f over one hundred billion dollars annually, not to mention the inequity in the distribution o f unemployment. Also weight needs to be given to im proving the distribution o f income as well as improving economic efficiency. The strategy of structural reform w ill take years to implement, and im prove ments wTill come in undramatic increments, but there is probably no other way to achieve sound and continuing fu ll employment without inflation. The structural problems w ill be there until we face up to them. Shouldn’t we accept the chal lenge now ? Fortunately, there are some encouraging signs on the horizon, writh respect to structural reform. Secretary Dunlop is deeply knowledgeable about and interested in the issues that I have been discussing, and I understand, may be testifying again before this Subcommittee. Also, the National Commission on M anpower Policy, under the leadership o f Eli Ginzberg, has expressed keen interest in plans for expanding our manpower capabilities. His testimony today w ill indicate some directions fo r that development. Finally, President Ford has strongly urged structural reform s in the area o f government regulation. I hope the recession w ill spur a critical reexamination o f policies needed to deal with inflation and unemployment. Chairman B e n t s e n . Thank you very m u c h , Mr. Holt. I guess that was encouraging—in the long run* Mr. H o l t . In th e long ru n — b u t I o ffe r you no p a n a c e a s. Chairman B e n t s e n . Mr. Ginzberg, when you talked about mobility allowance, what were you talking about ? Mr. G in z b e r g . Weil, I had in view that if people start to be unem ployed, I raised it in terms of 65 weeks on unemployment insurance. I thought that was presumptive evidence that the individual was not going to get his or her old job back, and that is another way of saying that I think we have faced in the past, and we are likely to face again in the future, situations where there are plant closures. The economic base of a community erodes, and the only way to get people back into employment is in one of two ways. Either we have some kind of regional investment policy, which helps the local community recon struct itself and provides it a chance to get going again in a new direc tion, or we must pull the people, at least those of working age, out and help them relocate. There are European experiences, Sweden, in particular, in which a person who is willing to look for a job in a different community gets Government help. He leaves his family back home. He has to go to the new community. He tries it out there. There is some kind of support; that is a mobility allowance to see whether he can make it in the new place. We have had a few such experiments in the 1960’s under the Department of Labor, but they were experimental programs that were so modest that I do not think we ever reached a conclusion as to whether they made sense or not. But we have had some. Chairman B e n t s e n . I assumed that was what you had in mind. What do you say to people in Detroit? Politically, how would it work to say, all right, we are going to give autoworkers a mobility allowance because they live in a very high unemployment area, to go to Austin, Tex., where they have 2 percent unemployment? How' do you sell that to the mayor of Detroit ? Mr. G in z b e r g . My understanding is you cannot even sell it to the men; that is, as long as they had SUB. My understanding is that re cruiters out of Houston and some other places in Texas came up to try and recruit some skilled wrorkers, and the workers said come back and see us, after our SUB is out, or whether we are back at w o r k . Obviously, Adam Smith already said in 1776, the hardest thing in the world to move are human beings, so I do not think that one can move people easily. Mr. John H. Lyons, a member of the National Commission for Manpower Policy, and the head of the ironworkers union, has pointed out that there is a substantial shortage of labor, in his opinion, con struction labor, all through the Mountain States from the Mexican border all the way up to Canada, because of a substantial acceleration in the building of big utility plants and dams. You cannot get the workers from New York, New Jersey, and so on, to go out because their benefit systems are so tied into their local unions as is their seniority—and they own their houses—so it is really hard to get them to move. Now, I do believe that when Congress passed the new Pension Act a year or so ago, and provided for vesting—this was one move in the 92 right direction. I know that the local people are willing to help voluntary relocation by making some contribution—picking up a house of the person who finally moves from one community where there is no job to another community where there is work. Chairman B e n t s e n . Corporations often do that. Mr. G in z b e r g . They do that for their managers all the time. Chairman B e n t s e n . They do it for employees w^hen they move the whole plant; sometimes they do that. Mr. G i n z b e r g . What I t h in k the burden of this comment would be, Senator Bentsen, is to say that we ought to look at all of the different instruments that are around. It is really along Mr. Holt’s view, and wre ought to try to make sure that we use the instruments in the most constructive way that can contribute toward a matching of people and jobs, and we have a lot of hurdles in our own path at present. And, I really don’t want to sound too negative on public service em ployment because I am not negative on it, but I do want to indicate that a public service employment structure, which is geared to, let us say, a job of last resort, is quite different from a public service em ployment job, which is a basic countercyclical tool. In one case you are dealing with, maybe, a worker who made $14,000 and if he now gets $8,000, that is no great amount of money. On the other hand, for somebody that has never worked and is just entering the workforce, you really want a public service employment income, perhaps, just at the minimum wage level. So we have to think our way through some very complicated issues to avoid getting ourselves mixed up in a mass of different programs that cancel each other. Representative Martha Griffiths’ basic studies over 3 years for the Joint Economic Committee, on the relationship between income trans fers and manpower programs and other devices presents a mine of use ful materials. The Congress really has to sort out and decide which pieces of that complex set of programs it can begin to deal with. Mr. H o l t . Could I comment? Chairman B e n t s e n . G o ahead, Mr. Holt. Mr. H o l t . I would like to respond to your question about mobility as well. You cannot expect the prime sponsor in the Detroit area to buy one- way railroad tickets. The political constraints do not make that feasible. This illustrates the need for the Federal Government to have a mobility program since it can more readily administer it. I am not suggesting there will not be problems and conflicts with the local jurisdictions, but this is the kind of an area where the Fed eral Government, or the regional manpower offices, could act with greater political ease than the local mayor. In any 1 year, in American cities, somewhere between 5 percent and 20 percent of the labor force moves away. People are moving in and out of the cities all of the time. With such high turnover flows you can make rather rapid adjustments to local unemployment. But there are serious questions of administration that make manpower programs different from other Government programs. If we want a highway from here to there, we can write a technical specification for the con crete to be laid, and so forth, but in Detroit’s unemployment problems, who are the particular people that you ought to try to help move? It is a matter of getting the right medicine for the right family. There 93 is a lot of evidence that if you move the wrong people, within 6 months they will be back where they started from. It is a very subtle problem of getting the right manpower program support to each individual in response to his personal needs, and the same applies to the employers. That is what makes the problem so subtle. Chairman B e n t s e n . Mr. Levitan, you gave some support to the idea of public works, and you refuted to a degree the argument that there is too much of a time lag before you get implementation with public works to help 011 unemployment. Could you develop that a little more, because I am seeking aid and comfort on that point? I support that viewpoint, but I want to buttress my viewpoint. Mr. L e v i t a n . I am delighted to be in such good company. First, assuming Congress enacts $5 billion public w^orks program, I believe that the funds could be allocated for projects that cities and States have already planned, have done the engineering work, and are, there fore, ready to start right away. I would suggest that we ought to consider giving, as I think the legislation actually proposes, only a limited time for States and communities to come in with project pro posals. Unfortunately, I do not think we can distribute public works funds the way we do it with public service employment—divide it up proportionately, according to unemployment and poverty, because some areas may not have ready-made projects. I f Congress passes legislation in June and the money is distributed within, let us say, the next 30 days and if the projects are cleared for construction, then orders for the bricks and mortar would be made within a few months. Therefore, the stimulus to the economy would start in a very short period, months before onsite employment materializes. There is another misrepresentation, which I did not mention, but which is closely related. It is the assertion that public works costs on the magnitude of $40,000 per job. That is correct if you consider only onsite employment, but if you also consider the jobs being created in plants and the multiplier effect it would have even before actual con struction starts, then I do not think that the cost per man-year of a public works job is much higher than in public service employment. To the extent that hourly rates in construction are higher than in most other sectors of the economy, there would be differential in costs. But to compare an $8,000 or $10,000 a year public service job to a $40,000 a year onsite public works job is misleading. I think if we could have $5 billion, then the impact would be started, as I suggested, within a few months and, again, the time lag is not as great as some maintain. There has been a great deal of criticism of the accelerated public works program that Congress passed in 1962. For example, Ms. Teeters, while at the Brookings Institution, pointed out that some of these projects were not completed until fiscal 1966, in other words, 3 years later. First, I would submit that we are too deep in this recession-----Chairman B e n t s e n . Completed or started ? Mr. L e v i t a n . Completed, in the sense that the money was not e x pended. Much is made of her findings. The important consideration is that we are too deep in the recession to worry that we will not need 94 jobs a year or two from now to achieve a 4-percent unemployment. I clo believe that we can go down to a 4-percent unemployment level, and I do not think there is any evidence, except in simulations econ omists create in their computers, to support Mr. Holt’s assertion that anything less than 5-percent unemployment will create an unaccept able inflation. Chairman B e n t s e n . Y ou do not buy the numbers that Mr. Holt has on his Phillips curve ? Mr. L e v i t a n . No. I do not buy them. Definitely not. Mr. H o l t . They are right there. Mr. G in z b e r g . 1986 to 1969. Mr. L e v i t a n . Well, you see what happened from 1966 to 1969, Sena tor Bentsen, is that unemployment during each of those years was less than 4 percent, and the price deflator rose annually by 3 to 4 percent. I do not want to fight a Vietnam war again. If, at that time, President Johnson, w^hen the war. was accelerated, would have also recommended immediately an additional tax, then I think a great deal of the inflation that Mr. Holt laments could have been avoided. As it actually hap pened, we experienced a reasonable 3V2-percent unemployment rate with 31/2 4 percent inflation. Of course, the wisdom of hindsight is always very useful. The mistakes of the seventies are clear. What we have done in the last year or two was try to control inflation with tight money policies and by reducing1 employment. The result is a worse trade-off than we had in the 1960’s. We have both more inflation and more unemployment. I really do not see that there is any solid evidence that we have to accept more than 5-percent unemployment to prevent unacceptable inflation. Chairman B e n t s e n . I certainly agree with you that we should have had a tax increase at that time. I ’m not sure whether it was the Presi dent’s fault; it was the Congress fault as well. I understand that some of his people met with some Members of Congress who assured him it could not pass at that particular point. Mr. L e v i t a n . I should not have sa id it was only the President. It w a s a matter of public policy. Chairman B e n t s e n . Whosever fault it was, it should not have been done. Let me nsk you this. You strive for 4-percent unemployment. Mr. Holt, would you say that if we restructured the labor market, we might be able to have more productive jobs? I think that’s a point Mr. Ginz berg mode—you wonVI have a better chance of accomplishing 4-percent unemployment without inflation. Mr. H o l t . Absolutely. Chairman B e n t s e n . You did not rule out that with restructuring we might be able to get unemployment as low as 4 percent without sig nificant increase in prices ? Mr. H o l t . Precisely. I think there are two parts of the problem. First is to get aggregate demand up so we could get rid of the cyclical component of excess unemployment, and second is reducing the base level of unemployment which is somewhere in the region of 4 or 5 percent. I f you want to reduce that, a lot of tough things have to be done to make the labor market much more fluid, in terms of occupa tional and geographical mobility, and decreasing barriers with respect to youth and women and the disadvantaged—over half of the unem- 95 ployed are young people—and doing something that is really effective on the point that Eli Ginzberg made. One of the points I skipped over in my prepared statement is that the basic understanding is weak on what type of person is going to be successful in what type of a job—neither the Department of Labor, HEW, nor the National Institute of Education is doing basic research on the relationship between the man to his job. Unless we know more about that relationship, we are not in a good position to counsel young people as to what kind of education they should take or what kind of job they should take. The employment service needs this knowledge to do its job. It is not just a matter of dollars; we have to learn more about how to do the job. Chairman B e n t s e n . It seems to me, and Mr. Ginzberg touched on it, that when young people graduate from high school, I do not think they all need a college education. There is only about one out of four or five jobs that calls for a college education. They either ought to be qualified to go to college, those who want to go, or they ought to be qualified the day they step out of that high school, to be gainfully employed at something, and to have some kind of a skill. Would you agree with that, Mr. Ginzberg ? Mr. G i n z b e r g . Yes. Well, I would put it this way. I had the chair manship of that National Manpower Advisory Committee for many years before I got my present chairmanship; and at the time of the end of the first Nixon administration, the Committee wrote to the President and made this very simple point, saying that at a minimum one ought to think about a revision of the many different programs that the Congress had legislated, having to do with Neighborhood Youth Corps, in school, out of school, summer, and it was the begin ning of PEP at that time, public employment program. At a mini mum, we thought one ought to think about is now these young people, while they were still in school, could get some work experience and some skills, and perhaps carry them over a transitional period, let us say from 16 to 19. So that at least by 19, when many are finished with their formal schooling, they would have accumulated some real work experience, which would have been put together with their classroom work. We have a certain number of work-study programs, of course, around the country. But this is one of the areas that we thought public service employment could make a very considerable contribu tion to, if it was developed with an idea of providing initial work experience with some on-the-job training for a large number of these young people. I would to call your attention, if I may, as to what I think are the differences not only among this panel, but everybody who comes be fore the Congress to testify these days. We have proceeded in the United States, if you look at it broadly—the only advantage of being a professor is, you are supposed to look at these broad things—on the assumption that we could manage the economy through fiscal and monetary and related devices. All through the sixties, there was a fight between the Council of Economic Advisers and the Labor De partment on just that issue. The CEA said that one did not need any manpower programs; they were unnecessary. One could handle the economy through macropolicies. 9 6 Now, interestingly enough, you get a different split. You get a split between what I would call the liberals and the conservatives on the financial front. The liberals are arguing that all you have to do is to use the Federal spending power and everything will fall into place. It is a quite interesting paradox, having lived through this; and I would submit that we have to recognize that while the Federal Gov ernment’s economic policies are tremendously important, we still run a substantially private-sector economy, and that is why I earlier used the illustration of poor management in one or another industry. There is no way, I believe, for the Federal Government, no matter how adept it is, to guarantee the maintenance of a highly productive economy without any slippage. It would be nice but it is not possible. I think what the Federal Government has to aim at is to make sure that the innocent victims— the poor fellow who gets thrown out of his job, he is an innocent victim—that he does not have to carry the full burden of the recession. We have a very peculiar economy. The greatest percentage of the people go through a recession without any trouble; and we put the whole burden of the recession on innocent victims who have to carry it all by themselves. Now, that is not a good way to run any economy. But that is different from saying that if the Federal Government only was more effective, it could guarantee our economy to run at very high levels at all the times. I do not think it can do that, and I would argue that one of the things that your committee should pay close attention to would be how can we share the cost of a recession more equitably among all the people in this country ? Because the costs are surely not being shared equitably now. It was construction and auto mobile workers that have been most severely affected. Now, I do not want to argue that all the monetary and fiscal poli cies of this administration, or any other administration, are ideal. But no matter whether they were ideal or not, I think there are cycles in construction. Some fluctuations are more or less inevitable, though they need not be as severe as at present. Therefore, I think more atten tion should be paid to these recession problems, not only by integrat ing manpower and economic policies, but by figuring out how we can get a more equitable distribution of the costs of the recession, so that some people do not pay a very, very high cost. Chairman B e n t s e n . Some reference was made to Sweden and to West Germany, and to Japan, in utilization of manpower. Mr. Smith or Mr. Holt, could one of you comment on that ? Mr. H o l t . In the first place, their governments tend to be more unified, rather than decentralized, at the Federal, State, and local levels, than ours do, and their programs reflect that. For example, in Japan, the Government operates a system that brings the young people graduating from school together with employers in a very systematic way over a period of about a year before they leave the school system. In many other countries, youth unemployment as we know it simply does not exist. But the difficulty is that we cannot simoly grab what the Swedes did, and do it here, and be terribly confident that it will work. Our economy is much more diffuse geo graphically, and much more heterogeneous. Furthermore, we are much more mobile; recall the figures which I quoted about how much people move from one city to another. Also some actions have serious 97 side effects. For example, if we tried to improve the employment service so that it gets a person a job fast, it is possible that turnover will rise when people do not need to be inhibited by a long period of unemployment between jobs. So if we want to get people into jobs fast, we also need to get them into jobs better—so that the jobs will last longer. The problems come where you get down to the program level of exactly what you should do. I think it is reasonably clear what you want to do in broad outline—and I would very much agree with the general thrust of what the Eli Ginzberg commission is coming up with. But this is not a full-time Commission, and I think their contribu tion is going to be to tell the Government what it ought to do. I fear that it is not going to be able to tell the Government a great deal about how to do it. The sad fact is that, when it gets right down to the nitty-gritty, we simply do not know exactly how to do it effectively. We do have a great deal to learn from the practical operating expe rience of these other countries; and I am pleased to hear that the Manpower Commission is going to send people over to Europe to talk with them. However, the Swedes have talked to many people from all over the world, and they must be getting a little tired of it by now. Up until very recently, the Swedes have simply gone out and done a lot of reasonable things, and have not made a lot of .benefit-cost analyses that OMB wants on American programs. They simply have not collected a lot of numbers that prove that these programs are effective; that is a weakness that they recognize. They are now in the process of collecting more data, because their lack limits their ability to further improve the programs. But we have a long way to go to catch up with what they have done, in terms of putting together an integrated and balanced manpower structure. But our problems are larger and more complex. Mr. G in z b e r g . Senator Bentsen, I heard Secretary Dunlop give a speech in New York about 10 days ago, in which he made one point that Holt just mentioned; and that is that the question is not only jobs, but the question really hinges in part upon good jobs. A mem ber on my staff at Columbia, Marcia Freedman, is just finishing a major book entitled “Labor Markets: Segments and Structures,” in which she has analyzed all of the jobs in the 1970 Census by occupa tion and industry and comes up with a judgment that about 44 per cent of all the jobs that people hold in this economy leave something seriously to be desired—that is, by a simple income test, not to get very more refined, they hold poor jobs. I f we have a large number of poor jobs—which means, in other words, that people cannot be very productive and earn a decent wage—that does play into the unemploy ment story. Because if you have a lousy job—and I will use straight language—there is no reason why you should not throw it up, be cause you are likely to be able to get another lousy job 10 days later if you want to go back to work again. And living in New York, we have everything in New York; including Sy2 million jobs—many of which are not very good. I remember in 1968-69 going through some of the poorer neighborhoods of New York, and you would see signs up, “Help-Wanted,” but one could not get help; not because there was nobody left to go to work, but many of these people preferred to 9 8 work intermittently rather than regularly at what they considered were poor jobs. Chairman B extsen. Mr. Ginzberg, what do you do about the lousy jobs ? Who fills those ? Who washes the dishes ? Mr. G inzberg. Well,.I think there are ways of making lousy jobs less lousy. We did that and in the process we almost bankrupted New York—but the sanitation jobs in New York now pay about $14,000 or $15,000. At that figure, we have 30,000 people waiting to become sanita tion men; in short, garbage collectors. So there are ways of balancing out the good and bad aspects of a job. Jobs with real security are not usually considered to be lousy. Most of the lousy jobs pay little and the conditions of work are poor and there is little security. In New York City, the lousy jobs in the hospitals improved substantially as a result of actions by management, by the union, by management and union working together. The pay went from $55 a week to about $140 a week within a few years. It is difficult to say what happened to productivity but the workers are better off. Much of the gain reflects the sheer power of the union. I do want to identify with Mr. Holt, in part, by stressing, unsettling as the un employment figures are, there is no simple singular answer. We need to do many constructive things on a broad front. Chairman B extsen. Mr. Levitan, you referred in your statement to a 16-percent personnel cut in the Manpower Administration during the first year of CETA, and to a 30 percent reduction in research funds. Mr. Holt also discussed the serious inadequacy of Federal re search in this area. How large a budget do we need in this area ? How inadequate is the 1976 budget proposed by the administration? Mr. L evitan. Once CETA was passed, we certainly should have kept appropriations at least at the pre-CETA level so as not to cause communities to give up on initiatives which they would have under taken, if the money were available. And as far as research is concerned, I think that the Labor Department’s Manpower Administration has had a very modest and—although I sometimes make a living criticizing Government programs, I must say in this case—a very successful, pro ductive and imaginative program. I do not know, and do not under stand, why some official in the Labor Department last year decided that this is a place to save money. I think this is part of the general point that Charles Holt referred to before, that a negative approach to manpower programs exists somewhere in the Labor Department— not under Secretary Dunlop, of course, because I do not think Secre tary Dunlop w^ould ever be associated with that. As a result of the very sharp cut in research funds, they cannot start any new research. As I suggested before, one area that is really crying for research is the im pact of long-term joblessness on the skills the unemployed have or need, what kind of training can be offered, do they want training, and so on. But the Labor Department simply does not have the resources to study these problems. The first thing that we have to do is at least continue at the original level for titles I and III. These sections do not provide for public service employment, but for the general training programs as well as the Job Corps, programs for Indians, and programs for migrant labor. In money terms to maintain the level of these efforts requires an in- m crease to at least make up for the inflation of the last 2 or 3 years. There appears room for an increase immediately of 25 percent, so that they do not have to cut down on essential programs; but at the same time, I would like to see a 10-percent increase in the funds provided to com munities for innovation and for planning/training projects for the unemployed. If Congress really meant what it said when it wanted to turn greater responsibility for manpower programs, which were basi cally a Federal creation and under Federal control, to State and local governments, then it also should have provided them the wherewithal to some initiatives. What we have done is, on the one hand, said go ahead and do your o,wn thing, and then, on the other hand, denied them the money to try it. Chairman B entsen. The President now has vetoed the $5.3 billion emergency jobs bill, and we see a projection on unemployment by the administration through 1977 of between 7.2 percent and 8.7 percent, by their own projections. You are looking at at least 3 years of high, unacceptable unemployment. Do any of you agree with that veto? Mr. G inzberg. Well, could I say this, Senator? I surely am very dubious about projections. I remember that the summit took place in September of 1974, and w^hile I did not read all of the wisdom that was propounded at the summit, I think it is fair to say that among almost everybody who w^as there—had little perception of what was going to happen within the next 30 days to the American economy. Now, if that is the state of our projection capabilities, I would hope that it may work also a little bit on the other side of the equation. I do not say it will. We may be even worse off than the pessimists now project, but I hope not. I do not feel that we have a capability, even though we engage in making projections all the time—sound 3- or 4-year forecasts—in our kind of dynamic economy. We have some simple-minded notions about what x dollars on the money side are going do to y kinds of employ ment. One of the things that bothers me—and I am not really expert in this arena—is the structural changes in employment in an increas ingly service economy. We have been transforming our economy quite rapidly, and the implications of the drift to services remains obsecure. You have these big, overhanging groups that Messrs. Holt and Smith mentioned. I believe that the long-term interest of women to work more or less regularly is greater than their figures suggest. So I believe that a better formulation would be to say that we should move as rapidly as wTe can to find that mix of policies that will push for the more rapid expansion of the economy. Chairman B entsen. Let me ask you, Mr. Ginzberg; with all that, if you were President of the United States, would you have vetoed that bill or not? Mr. G inzberg. Well, frankly, I have not studied the employment effects in detail. I am not as sure as Mr. Levitan is of the employment consequences of that particular bill. Let me put it to you this" way; we have had some money in EDA—but it is moving slowly. Chairman B entsen. Mr. Ginzberg, if you are President, you just cannot say, on the other hand. Mr. G inzberg. I am not—fortunately. Chairman B entsen. Y ou have to choose. What would you do, Mr. Levitan ? 100 Mr. L e v i t a n . I would not have vetoed the bill for the simple reason that although I share Mr. Ginzberg’s healthy skepticism of the projec tions, I think we can learn something from the five recessions we have had since World War II. Mr. Ginzberg suggested there would be some new people entering into the labor force even if birth rates are declining, but lower birth rates are not going to be reflected in the labor force for a few years. Based on the five recessions we have had since World War II, unemployment is going to continue for a long period. The economy must grow at the rate of 7 percent for 3 years consecutively to reduce unemployment to 5 percent, and that is still a very long period of high unemployment. As long as all the President is doing right now is drawing the line at a $60 billion deficit, I just do not see how we can avoid high unemployment for several years. I would suggest for people who are in public life that it is no way to celebrate the Bicentennial of this country with mass unemployment, to use a term Secretary of Labor John Dunlop coined only 15 years ago, and I wish he wTould have told us how to prevent mass unemploy ment when he testified before your subcommittee. Chairman B e n t s e n . Mr. Levitan, you have just given me a good line. May I have the Texas rights to that one ? Let me ask you, Mr. Holt and Mr. Smith. Would you have vetoed that bill or not ? Mr. H o l t . N o . I unequivocally would not. I think that George Meany was closer to the right target when he was talking about a deficit of $100 billion, rather than $60 billion. The question is what is enough ? I think that in the short run with the very slack economy we have now, we can afford, without inflation risks, to stimulate it rather drastically. But the risk is that actions will be taken that will last too long. The point of whether public service employment or public works are going to lead to an inflationary problem depends on the response 2 years from now. That is something you need to pay real attention to. We are looking for a sharp stimulus at the present time. One of the best ways would be sharp jump in the money supply. Chairman B e n t s e n . Mr. Smith, would you have vetoed it or not ? Mr. S m i t h . I h a v e o n ly rea d th e n e w sp a p e r a cco u n ts o f th e b i ll, b u t I t h in k it is r a th e r fo o lis h t o w o r r y a b o u t th e in fla tio n a r y im p a c ts o f a b ill, n o w , w it h u n e m p lo y m e n t a n d jo b lessn ess t h is h ig h . I d o n o t see h o w I w o u ld h a v e v e to e d it. Chairman B e n t s e n . Gentlemen, i t is 12 noon. Thank you very much. It has been productive and helpful. The subcommittee stands adjourned. [Whereupon, at 12 noon, the subcommittee adjourned, subject to the call of the Chair.]