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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.
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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
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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.]
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