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Full text of "Unemployment compensation reform and the president's reemployment assistance proposal : hearings before the Subcommittee on Human Resources and the Subcommittee on Trade of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, second session, March 8; and July 12, 1994"

NEMPLOYMENT COMPENSATION REFORM AND 
THE PRESIDENT'S REEMPLOYMENT ASSISTANCE 
PROPOSAL 

Y 4. W 36: 103-95 

Unenploynent Conpensation Reforn an... 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE ON HUMAN RESOURCES 

AND THE 

SUBCOMMITTEE ON TRADE 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



MARCH 8; AND JULY 12, 1994 



Serial 103-95 



Printed for the use of the Committee on Ways and Means 




FBB ' 5 1995 



U.S. GOVERNMENT PRINTING 

WASHINGTON : 1994 ^^/f||ca ^^NflftV 



For sale by the U.S. Government Printing Office 
Superintendent of Documents. Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-046417-X 




INEMPLOYMENT COMPENSATION REFORM AND 
THE PRESIDENT'S REEMPLOYMENT ASSISTANCE 
PROPOSAL ===== _ = ^ = 

! 4. W 36: 103-95 

Jaenploynent Conpensation Reforn an... 

HEARINGS 

BEFORE THE 

SUBCOMMITTEE ON HUMAN RESOURCES 

AND THE 

SUBCOMMITTEE ON TRADE 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



MARCH 8; AND JULY 12, 1994 



Serial 103-95 



Printed for the use of the Committee on Ways and Means 




oM*^ 



U.S. GOVERNMENT PRINTIN 
84-377 CC WASHINGTON : 



FEB ' 5 1995 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office. Washington. DC 20402 
ISBN 0-16-046417-X 



COMMITTEE ON WAYS AND MEANS 

DAN ROSTENKOWSKI, Illinois, Chairman 



SAM M. GIBBONS, Acting Chairman, » 

Florida 
J.J. PICKLE, Texas 
CHARLES B. RANGEL, New York 
FORTNEY PETE STARK, California 
ANDY JACOBS, Jr., Indiana 
HAROLD E. FORD, Tennessee 
ROBERT T. MATSUI, California 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE, Pennsylvania 
MICHAEL A. ANDREWS, Texas 
SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
JIM McDERMOTT, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS, Georgia 
L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. McNULTY, New York 
MIKE KOPETSKI, Oregon 
WILLIAM J. JEFFERSON, Louisiana 
BILL K. BREWSTER, Oklahoma 
MEL REYNOLDS, Illinois 



BILL ARCHER, Texas 
PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, Jr., Florida 
DON SUNDQUIST, Tennessee 
NANCY L. JOHNSON, Connecticut 
JIM BUNNING, Kentucky 
FRED GRANDY, Iowa 
AMO HOUGHTON, New York 
WALLY HERGER, California 
JIM McCRERY, Louisiana 
MEL HANCOCK, Missouri 
RICK SANTORUM, Pennsylvania 
DAVE CAMP, Michigan 



JANICE MAYS, Chief Counsel and Staff Director 

DEBORAH G. COLTON, Deputy Staff Director 

FRANKLIN C Phifer, Jr., Counsel to the Acting Chairman 

PHILLIP D. MoSELEY, Minority Chief of Staff 



Subcommittee on Human Resources 

HAROLD E. FORD, Tennessee, Chairman 



ROBERT T. MATSUI, California 
JIM MCDERMOTT, Washington 
SANDER M. LEVIN, Michigan 
MIKE KOPETSKI, Oregon 
MEL REYNOLDS, Illinois 
BENJAMIN L. CARDIN, Maryland 



RICK SANTORUM, Pennsylvania 
E. CLAY SHAW, Jr., Florida 
FRED GRANDY, Iowa 
DAVE CAMP, Michigan 



Subcommittee on Trade 



SAM M. GIBBONS, 
DAN ROSTENKOWSKI, Illinois 
ROBERT T. MATSUI, California, Acting 

Chairman 2 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE, Pennsylvania 
L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. MCNULTY, New York 



Florida, Chairman 
PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, Jr., Florida 
DON SUNDQUIST, Tennessee 
NANCY L. JOHNSON, Connecticut 



1 Sam M. Gibbons became acting chairman on May 31. 
2 Robert T. Matsui became acting chairman on May 31. 



CONTENTS 



Page 

Press releases announcing the hearings 2 

WITNESSES 

U.S. Department of Labor, Hon. Robert B. Reich, Secretary of Labor 77 

Advisory Council on Unemployment Compensation, Janet L. Norwood 10 

American Federation of Labor and Congress of Industrial Organizations: 

Markley Roberts 27 

Rudolph Oswald 224 

American Federation of State, County and Municipal Employees, AFL— CIO, 

Ed Jayne, presenting the statement of Charles M. Loveless 238 

Association of Outplacement Consulting Firms International, James C. 

Cabrera 210 

Baiter, Jay H., VocAid, California Association of Rehabilitation Professionals, 

and California Association of Independent Rehabilitation Employers 217 

Bernstein, Fran, National Employment Law Project, Inc 180 

Brown, Hon. George E., Jr., a Representative in Congress from the State 

of California 123 

Brown, William R., Employers' Task Force on Unemployment Compensation 

of the Council of State Chambers of Commerce 37 

Cabrera, James C, Association of Outplacement Consulting Firms Inter- 
national, and Drake Beam Morin, Inc 210 

California Association of Rehabilitation Professionals and California Associa- 
tion of Independent Rehabilitation Employers, Jay H. Baiter 217 

Carnevale, Anthony, National Commission for Employment Policy 192 

Connexion, Peggy, Service Employees International Union, AFL-CIO 234 

D.H. Lloyd & Associates, Denise Lloyd 151 

Doyle, Frank P., General Electric Co 140 

Drake Beam Morin, Inc.: 

James C. Cabrera 210 

William J. Morin 127 

Employers' Task Force on Unemployment Compensation of the Council of 

State Chambers of Commerce, William R. Brown 37 

General Electric Co., Frank P. Doyle 140 

International Union, United Automobile, Aerospace and Agricultural Imple- 
ment Workers of America, Richard W. McHugh 47 

Interstate Conference of Employment Security Agencies, Inc., Andrew N. 

Richardson 200 

Jacobson, Louis S., Westat, Inc 168 

Jayne, Ed, American Federation of State, County and Municipal Employees, 

AFL-CIO, presenting the statement of Charles M. Loveless 238 

Lloyd, Denise, National Small Business United, and D.H. Lloyd & Associates . 151 

Lodico, Paul A., Mon Valley Unemployed Committee 188 

Louchheim, Frank, Right Associates, and Association of Outplacement Con- 
sulting Firms International 210 

McHugh, Richard W., International Union, United Automobile, Aerospace 

and Agricultural Implement Workers of America 47 

MCI Communications Corp., John H. Zimmerman 146 

Mon Valley Unemployed Committee, Paul A. Lodico 188 

Morin, William J., Drake Beam Morin, Inc 127 

National Alliance of Business, John H. Zimmerman 146 

(in) 



IV 

Page 

National Commission for Employment Policy, Anthony Carnevale 192 

National Employment Law Project, Inc., Fran Bernstein 180 

National Small Business United, Denise Lloyd . 151 

Norwood, Janet L., Advisory Council on Unemployment Compensation, and 

the Urban Institute 10 

Novell, Inc., Rick Romine 133 

Oswald, Rudolph, American Federation of Labor and Congress of Industrial 

Organizations 224 

Richardson, Andrew N., Interstate Conference of Employment Security Agen- 
cies, Inc 200 

Right Associates, Frank Louchheim 2J.0 

Roberts, Markley, American Federation of Labor and Congress of Industrial 

Organizations 27 

Romine, Rick, Novell, Inc 133 

Service Employees International Union, AFL-CIO, Peggy Connerton 234 

VocAid, Jay H. Baiter 217 

Woolsey, Hon. Lynn C, a Representative in Congress from the State of 

California 119 

Zimmerman, John H., MCI Communications Corp., and National Alliance 

of Business 146 

SUBMISSIONS FOR THE RECORD 

American Payroll Association, Carolyn M. Kelley, statement 248 

Associated Builders and Contractors, Julia L. Renjilian, statement 252 

At Cost Services, Inc., New York, N.Y., Matthew M. Fondel, statement 253 

Chicago Jobs Council, Spruiell D. Weber White, statement 254 

Coalition on Human Needs, Jennifer A. Vasiloff, statement 257 

Computer Training Coalition for a High Performance Workforce, statement .... 261 
Council of State Chambers of Commerce, Employer's Task Force on Unem- 
ployment Compensation, statement 268 

Employers' National Job Service Council, statement 270 

Interstate Conference of Employment Security Agencies, Inc.; and West Vir- 
ginia Department of Employment Programs, Andrew N. Richardson, joint 

statement 274 

Kennedy, John S., Cincinnati, Ohio, statement 276 

McDermott, Hon. Jim, a Representative in Congress from the State of Wash- 
ington, statement 277 

National Association of Personnel Services, statement and attachment 278 

National Tooling and Machining Association, Matthew B. Coffey, statement ... 280 



THE CURRENT UNEMPLOYMENT SITUATION 
AND THE RECOMMENDATIONS OF THE 
ADVISORY COUNCIL ON UNEMPLOYMENT 
COMPENSATION 



TUESDAY, MARCH 8, 1994 

House of Representatives, 
Committee on Ways and Means, 
Subcommittee on Human Resources, 

Washington, D.C. 
The subcommittee met, pursuant to notice, at 11:25 a.m., in room 
B-318, Rayburn House Office Building, Hon. Michael J. Kopetski 
presiding. 

[The press releases announcing the hearings follow:] 



(l) 



FOR IMMEDIATE RELEASE PRESS RELEASE #14 

FRIDAY, FEBRUARY 25, 1994 SUBCOMMITTEE ON HUMAN RESOURCES 

COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-1721 

THE HONORABLE HAROLD E. FORD (D., TENN. ) , 

CHAIRMAN, SUBCOMMITTEE ON HUMAN RESOURCES, AND 

THE HONORABLE SAM M. GIBBONS (D., FLA.), CHAIRMAN, 

SUBCOMMITTEE ON TRADE, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCE A JOINT HEARING ON 

THE ADMINISTRATION'S REEMPLOYMENT ACT OF 1994 

The Honorable Harold E. Ford (D., Tenn.), Chairman, 
Subcommittee on Human Resources, and the Honorable Sam M. Gibbons 
(D., Fla.), Chairman, Subcommittee on Trade, Committee on Ways and 
Means, U.S. House of Representatives, today announced that the 
Subcommittees will hold a joint public hearing to discuss our 
nation's current response to unemployment and proposed reforms to 
the system, including the Administration's Reemployment Act of 1994 
and the recommendations of the Advisory Council on Unemployment 
Compensation. The hearing will be held on Tuesday, March 8, 1994, 
beginning at 10:00 a.m. in room B-318 of the Rayburn House Office 
Building. 

THE REEMPLOYMENT ACT OF 1994 : 

The Administration has concluded that the unemployment system 
is inadequate because: it assumes that most workers will get their 
old jobs back, workers lack quality job information, long-term 
training needs are not addressed, and services are difficult to 
access. The Administration has developed a proposal, the 
Reemployment Act of 1994, that places greater emphasis on 
reemployment assistance, including income support during long-term 
training. 

The main components of the Administration's reemployment 
proposal are: (1) early intervention with dislocated workers; 

(2) a comprehensive system of long-term training assistance for 
dislocated workers, regardless of the cause of dislocation; 

(3) income support to dislocated workers enrolled in long-term 
training programs; (4) career centers to provide dislocated workers 
with a single point of entry for information, transition assistance, 
and job search and training services; (5) increased flexibility of 
the unemployment insurance (UI) program, including employment 
bonuses and allowance for part-time work while an individual 
searches for full-time work; (6) a national labor-market information 
system; (7) access to basic reemployment services for all workers; 
and (8) seed money for some States to establish a network of one- 
stop career centers that serve all citizens. 

The Reemployment Act of 1994 would consolidate the six 
Department of Labor programs which currently serve dislocated 
workers. These programs are: (1) the Economic Dislocation and 
Worker Adjustment Assistance Act, (2) Trade Adjustment Assistance, 
(3) the NAFTA Transitional Adjustment Assistance Program, (4) the 
Clean Air Employment Transition Program, (5) the Defense Conversion 
Act, and (6) the Defense Diversification Program. 

Members are particularly interested in hearing from witnesses 
on the following questions: (1) Is the Administration's diagnosis 
of the problem correct? (2) Is the Administration's proposal the 
right response? (3) Are there any other options that should be 
considered? 

THE RECOMMENDATIONS OF THE ADVISORY COUNCIL ON UNEMPLOYMENT 
COMPENSATION : 

The Advisory Council on Unemployment Compensation (the Council) 
was established under Public Law 102-164, the Emergency Unemployment 
Compensation Act of 1991, for four years beginning January 24, 1992. 



The Council's mandate is to evaluate the overall unemployment 
insurance program and to make recommendations for improvement. 
Specifically, the Council is required to evaluate the purpose, 
goals, counter-cyclical effectiveness, coverage, benefit adequacy, 
trust fund solvency, funding of State administrative costs, 
administrative efficiency, and other aspects of the UI program. 

The Council also has been directed to focus on specific 
subjects such as reform of the Extended Benefits (EB) program. The 
EB program was designed to automatically provide UI benefits for 
extended durations during periods of particularly high unemployment 
in a State. Despite the existence of the EB program, Congress has 
continued to enact Emergency Unemployment Compensation programs 
during recessions because the EB program failed to serve its 
intended role. 

The Council transmitted its first Report and Recommendations to 
the President and Congress on February 1, 1994. The Council's 
recommendations regarding the EB program include the following: 
(1) individuals who are long-term unemployed should be eligible for 
extended UI benefits if they participate in job search, education, 
or training activities, where available and suitable, that enhance 
their re-employment prospects; (2) the EB program should trigger 
when a State's seasonally adjusted total unemployment rate exceeds 
6.5 percent as measured before the Current Population Survey 
redesign; (3) neither substate nor regional data should be used for 
the purpose of determining whether or not EB is available within a 
given area; (4) if additional revenue is required to implement the 
Council's recommendations, the revenue should be generated through a 
modest increase in the FUTA taxable wage base, to $8,500; and 
(5) Congress should extend the existing Emergency Unemployment 
Compensation for a six month period to provide a bridge program 
until the Council's recommended EB reforms are implemented. 

DETAILS FOR SUBMISSION OF REQUESTS TO BE HEARD: 

Individuals and organizations interested in presenting oral 
testimony before the Subcommittees must submit their requests to be 
heard by telephone to Harriett Lawler, Diane Kirkland, or 
Karen Ponzurick [(202) 225-1721] no later than noon Thursday, 
March 3, 1994. The telephone request should be followed by a formal 
written request to Janice Mays, Chief Counsel and Staff Director, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. 
Subcommittee staff will notify by telephone all persons requesting 
to be heard, whether they are scheduled for oral testimony or not, 
as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Human Resources office [(202) 225-1025], 

In view of the limited time available to hear witnesses, 
persons and organizations having a common position are 
urged to designate one spokesperson. The Subcommittees may not be 
able to accommodate all requests to be heard. Those persons and 
organizations not scheduled for an oral appearance are encouraged to 
submit written statements for the record of the hearing. Witnesses 
scheduled to present oral testimony are requested to briefly 
summarize their written statements. The full statement will be 
included in the printed record. 

In order to assure the most productive use of the limited 
amount of time available to question hearing witnesses, all 
witnesses scheduled to appear before the Subcommittees are required 
to submit 200 copies of their prepared statements to the 
Subcommittee on Human Resources office, room B-317 Rayburn House 
Office Building, by close of business Monday, March 7, 1994. 
Failure to comply with this requirement may result in the witness 
being denied the opportunity to testify in person. 



WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE: 

Persons submitting written statements for the printed 
record of the hearing should submit at least six (6) copies of their 
statements by close of business, Tuesday, March 22, 1994, to Janice 
Mays, Chief Counsel and Staff Director, Committee on Ways and 
Means , U . S . House of Representatives , 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written 
statements for the record of the printed hearing wish to have their 
statements distributed to the press and the interested public, they 
may provide 100 additional copies for this purpose to the 
Subcommittee office, room B-317 of the Rayburn House Office 
Building, before the hearing begins. 

FORMATTING REQUIREMENTS : 

Each statement prevented for printing to the Committee by a witness, any written statement or exhibit 
submitted for the printed record or any written comments in response to a request for written comments must 
conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not 
be printed, but will be maintained in the Committee files for review and use by the Committee. 

1. All statements and any accompanying exhibits for printing must be typed in single space on 
legal-size paper and may not exceed a total of 10 pages. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, 
exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for review and use by the Committee. 

3. Statements must contain the name and capacity in which the witness will appear or. for written 
comments, the name and capacity of the person submitting the statement, as well as any clients or 
persons, or any organization for whom the witness appears or for whom the statement is submitted. 

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone 
number where the witness or the designated representative may be reached and a topical outline or 
summary of the comments and recommendations in the full statement. This supplemental sheet will 
not be included in the printed record. 

The above restrictions and limitations apply only to material being submitted for printing. Statements and 
exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during 
the course of a public hearing may be submitted in other forms. 



*** REVISED SCHEDULE *** 



FOR IMMEDIATE RELEASE PRESS RELEASE #14-REVISED 

WEDNESDAY, MARCH 2, 1994 SUBCOMMITTEE ON HUMAN RESOURCES 

COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-1025 

THE HONORABLE HAROLD E. FORD (D., TENN.), CHAIRMAN, 

SUBCOMMITTEE ON HUMAN RESOURCES, AND 

THE HONORABLE SAM M. GIBBONS (D., FLA.), CHAIRMAN, 

SUBCOMMITTEE ON TRADE, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCE REVISED PLANS FOR THE JOINT HEARING ON 

THE ADMINISTRATION'S REEMPLOYMENT ACT OF 1994 



The Honorable Harold E. Ford (D. , Tenn.)/ Chairman, 
Subcommittee on Human Resources, and the Honorable Sam M. Gibbons 

(D., Fla.), Chairman, Subcommittee on Trade, Committee on Ways 
and Means, U.S. House of Representatives, today announced revised 
plans for the March 8, 1994, hearing on our nation's current 
response to unemployment, and proposed reforms to the system. 

(See Subcommittee on Human Resources Press Release #14, dated 
February 25, 1994.) 

Under the revised plans, the hearing on Tuesday, 
March 8, 1994, will be held by the Subcommittee on Human 
Resources and will focus exclusively on the current unemployment 
situation and the recommendations of the Advisory Council on 
Unemployment Compensation. 

The Subcommittee on Human Resources and the Subcommittee on 
Trade also will hold a joint public hearing on the 
Administration's Reemployment Act of 1994, which will be 
announced in the near future. 

As indicated in Press Release #14, the final date for 
submitting requests to be heard at the March 8 hearing is 
Thursday, March 3, 1994. All other details for the March 8 
hearing remain as previously announced. 



FOR IMMEDIATE RELEASE 
FRIDAY, JULY 1, 1994 



PRESS RELEASE #18 

SUBCOMMITTEE ON HUMAN RESOURCES 
COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-1721 

THE HONORABLE HAROLD E. FORD (D., TENN. ) , 

CHAIRMAN, SUBCOMMITTEE ON HUMAN RESOURCES, AND 

THE HONORABLE ROBERT T. MATSUI (D., CALIF.), ACTING CHAIRMAN, 

SUBCOMMITTEE ON TRADE, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCE A JOINT HEARING ON 

H.R. 4040, THE REEMPLOYMENT ACT OF 1994 



The Honorable Harold E. Ford (D. , Tenn.), Chairman, 
Subcommittee on Human Resources, and the Honorable Robert T. Matsui 
(D., Calif.), Acting Chairman, Subcommittee on Trade, Committee on 
Ways and Means, U.S. House of Representatives, today announced the 
Subcommittees will hold a joint public hearing on H.R. 4040, the 
Reemployment Act of 1994 . The hearing will be held on Tuesday, 
July 12, 1994, beginning at 1:00 p.m. in the main Committee hearing 
room, 1100 Longworth House Office Building. 

A joint hearing on the Reemployment Act of 1994 was originally 
scheduled to be held on March 8, 1994, but was postponed. (See 
Subcommittee on Human Resources Press Release #14.) 



H.R. 4040. THE REEMPLOYMENT ACT OF 1994 : 

In his message to the Congress of March 16, 1994, transmitting 
the proposed Reemployment Act, the President noted that his 
Administration's review of the current unemployment system leads to 
the conclusion that the unemployment system is inadequate because it 
assumes that most workers will get their old jobs back', workers lack 
quality job information, long-term training needs are not addressed, 
and services are difficult to access. The Administration has 
developed a proposal, the Reemployment Act of 1994, that places 
greater emphasis on reemployment assistance, including income 
support during long-term training. 

The main components of the Administration's reemployment 
proposal are: (1) early intervention with dislocated workers; 

(2) a comprehensive system of long-term training assistance for 
dislocated workers, regardless of the cause of dislocation; 

(3) income support to dislocated workers enrolled in long-term 
training programs; (4) career centers to provide dislocated workers 
with a single point of entry for information, transition assistance, 
and job search and training services; (5) increased flexibility of 
the unemployment insurance (UI) program, including employment 
bonuses and allowance for part-time work while an individual 
searches for full-time work; (6) a national labor-market information 
system; (7) access to basic reemployment services for all workers; 
and (8) seed money for some States to establish a network of one- 
stop career centers that serve all citizens. 

H.R. 4 04 would consolidate the six Department of Labor 
programs which currently serve dislocated workers. These programs 
are: (1) the Economic Dislocation and Worker Adjustment Assistance 
Act, (2) Trade Adjustment Assistance, (3) the NAFTA Transitional 
Adjustment Assistance Program, (4) the Clean Air Employment 
Transition Program, (5) the Defense Conversion Act, anH (fi) t-bp 
Defense Diversification Program. 

Members are particularly interested in hearing from witnesses 
on the following questions: (1) Do you agree with the 
Administration's critique of the unemployment system? (2) Is the 
Administration's proposal the right response to the problem it has 
identified? (3) Are there any other issues or options that should 
be considered? 



DETAILS POR SUBMISSION OP REQUESTS TO B * TTCARD; 

Individuals and organizations interested in presenting oral 
testimony before the Subcommittees must submit their requests to be 
heard by telephone to Harriett Lawler, Diane Kirkland, or 
Karen Ponzurick [(202) 225-1721] no later than noon, Thursday, 
July 7, 1994. The telephone request should be followed by a formal 
written request to Janice Mays, Chief Counsel and Staff Director, 
Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515. 
Subcommittee staff will notify by telephone all persons requesting 
to be heard, whether they are scheduled for oral testimony or not, 
as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Human Resources office [(202) 225-1025]. 

In view of the limited time available to hear witnesses, 
persons and organizations having a common position are 
urged to designate one spokesperson. The Subcommittees may not be 
able to accommodate all requests to be heard. Those persons and 
organizations not scheduled for an oral appearance are encouraged to 
submit written statements for the record of the hearing. Witnesses 
scheduled to present oral testimony are requested to briefly 
summarize their written statements. The full statement will be 
included in the printed record. 

In order to assure the most productive use of the limited 
amount of time available to question hearing witnesses, all 
witnesses scheduled to appear before the Subcommittees are required 
to submit 200 copies of their prepared statements to the 
Subcommittee on Human Resources office, room B-317 Rayburn House 
Office Building, by close of business Monday, July 11, 1994. 
Failure to comply with this requirement may result in the witness 
being denied the opportunity to testify in person. 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE: 

Persons submitting written statements for the printed record of 
the hearing should submit at least six (6) copies of their 
statements by close of business, Tuesday, July 26, 1994, to 
Janice Mays, Chief Counsel and Staff Director, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written 
statements for the record of the printed hearing wish to have their 
statements distributed to the press and the interested public, they 
may provide 100 additional copies for this purpose to the 
Subcommittee office, room B-317 of the Rayburn House Office 
Building, before the hearing begins. 

FORMATTING REQUIREMENTS : 

Each statement presented for printing to the Committee by a witness, any writtan rtetement or exhibit 
submitted for the printed record or any writtan comments in response to a request for wrfttan comments mult 
conform to the guidelines listed below Any statement or exhibit not in compliance with these guidelines will not 
ba printed, but will be maintained in the Committee files for review and use by the Committee. 

1 . All statements and any accompanying exhibits for printing must ba Typed in single space on 
legal sue paper and may not exceed ■ total of 10 pages. 

2. Copies of whole documents submitted as exhibit material will not ba accepted for printing. Instead, 
exhibit malarial should ba rafarancad and quoted or paraphrased All exhibit matsrial not meeting 
these specifications will ba maintained in the Committee files for review and use by the CommittM 

3. Statements must contain the nam* and capacity In which the witness wM appear or. for writtan 
comments, the name and capacity of the person submitting the slat amaii l . as wail as any clients or 
parsons, or any organization for whom the witness appears or for whom the rtetement Is submitted. 

4. A supplemental ahaat must accompany each s l al ema m listing the nam*, fuD address, a telephone 
number where the witness or the designated representative may ba rae ch ed and a topical outline or 
summary of the c omment s and recommendations In the U atat a sis a nt . This supplemental sheet wtt 

The above restrictions and limitations apply only to material being submitted for printing. Statements and 
exhibits or supplementary material submitted aoMy for distribution to the Members, the press and the public during 
the course of a public hearing may ba submitted In other forms. 



8 

Mr. Kopetski [presiding]. The subcommittee will come to order. 

This morning, we have a discussion of the unemployment re- 
forms that come to us from the Advisory Council on Unemployment 
Compensation, which was formed out of the recognition of the need 
for permanent reforms. 

We have with us today Janet Norwood, who chairs the Advisory 
Council, and a panel from labor and the employer sector as well 
that are going to comment on these reforms. 

I will have Mr. Ford's statement submitted as part of the record 
at this point. 

[The prepared statement follows:] 



OPENING STATEMENT 

THE HONORABLE HAROLD E. FORD, CHAIRMAN, 

SUBCOMMITTEE ON HUMAN RESOURCES, 

COMMITTEE ON WAYS AND MEANS, 

HEARING ON THE RECOMMENDATIONS OF THE 

ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 

March 8, 1994 



In the heat of the recent recession, when then- President 
Bush finally joined Congress to enact temporary legislation to 
ameliorate the plight of the unemployed, the Advisory Council on 
Unemployment Compensation also was formed. By establishing the 
Council, Congress explicitly recognized the need for permanent 
reforms to our Nation's unemployment programs, and for ongoing 
oversight and recommendations from a panel of experts. 

The mandate of the Council is broad, as is the set of issues 
currently challenging our unemployment system. For example, 
during the recent recession, Congress recognized the failures of 
the permanent Extended Benefits (EB) program by enacting costly, 
temporary legislation providing additional benefits to the long- 
term unemployed. Despite recent reforms allowing States to adopt 
an optional trigger mechanism under the EB program, other trigger 
requirements and the status of State unemployment trust funds 
will limit the effectiveness of the EB program during the next 
recession. For its first report, the Council has focused on the 
obvious need for additional reforms of the EB program. This is 
advice we should heed now before the next recession arrives. 

During the past decade and a half, there has been a marked 
decline in the percent of unemployed Americans eligible to 
receive unemployment compensation benefits. For example, the 
number of individuals receiving regular unemployment compensation 
benefits relative to the number of job losers was fairly stable 
between 1968 and 1979, fluctuating slightly with the business 
cycle between 90 and 110 recipients for every 100 job losers. 
However, the "coverage ratio" reached an all-time low of 60 
recipients for every 100 job losers by 1983, and today stands at 
roughly 74 for every 100 job losers. Clearly, these data beg 
the question: "As we begin to emphasize "reemployment" in 
ourunemployment programs, is there also a need to shore up the 
basic goal of the unemployment compensation program -- to provide 
short-term income support to workers during a spell of 
unemployment? " 

The fairness and adequacy of the current financing scheme is 
another serious issue confronting the unemployment compensation 
program. Since 1940, the Federal taxable wage base has eroded 
considerably relative to wage growth. The Federal unemployment 
tax is applied against the first $7,000 paid annually to each 
employee. If the taxable wage base had kept pace with wage 
growth, instead of $7,000 it would be over $50,000 today. With a 
higher tax rate applied against a declining wage base, the 
effective Federal unemployment tax rate has remained fairly 
stable between 0.2 and 0.3 percent of total wages over the past 
few decades. The effect of these trends in the taxable wage base 
and the tax rate on both individual workers and the status of the 
trust fund accounts is another area where the Council's expertise 
will be needed. 

Ms. Janet Norwood, Chair of the Advisory Council on 
Unemployment Compensation, will testify first this morning. I 
look forward to a discussion that places the recommendations from 
the Council's first report in the context of the Administration's 
forthcoming Reemployment Act, and to understanding the Council's 
agenda for the future. 



10 

Mr. Kopetski. And I welcome Dr. Norwood and thank her for 
her efforts on this very important work that has gone on with the 
new administration and Secretary Reich's interest in reemployment 
programs. This is very timely, and we welcome Dr. Norwood. 

We will have your testimony made a part of the record and we 
ask that you summarize it in about 6 or 8 minutes. 

STATEMENT OF JANET L. NORWOOD, PH.D., CHAIR, ADVISORY 
COUNCIL ON UNEMPLOYMENT COMPENSATION, AND 
SENIOR FELLOW, THE URBAN INSTITUTE 

Ms. Norwood. Thank you very much, Mr. Chairman. 

It is a great pleasure to be here again before the Congress, talk- 
ing about issues of employment and unemployment. 

The Advisory Council began in May 1993. It was constituted at 
that point, and we have had a series of meetings and several public 
hearings, and I am sure you are aware that we have issued, in ac- 
cordance with the law, an interim report. 

We meet today at a time when the economy is expanding; the 
number of jobs is increasing; and unemployment is declining. Busi- 
ness activity is picking up. The labor market is improving, and we 
have really made a great deal of progress since the end of the re- 
cession. 

In spite of these improvements, however, serious labor market 
problems still confront us. About 8.5 million people who want jobs 
cannot find them. Another 4.5 million who want to find full-time 
jobs are in part-time jobs. The number of long-term unemployed, 
those out of work for 6 months or longer, remains extremely high, 
amounting to nearly 20 percent of the total unemployed. 

Although the number of payroll jobs is continuing to increase, 
the rate of job growth remains quite slow. Indeed, in the nearly 3 
years since the end of the recession in March 1991, payroll jobs 
have increased at just about one-fourth the percentage of increase 
experienced in a similar period after the 1981-82 recession. 

Important changes have occurred in the manner in which Amer- 
ican companies use their workers. Employers intent on improving 
their competitiveness in this country and abroad have downsized 
their workforces, expanded working hours, and used new tech- 
nology to raise worker productivity. 

At the same time, part-time and temporary employment has in- 
creased, and many who have lost their jobs have found themselves 
permanently displaced. Only about one in every seven of the unem- 
ployed in February was on temporary layoff. 

In addition, unemployment is no longer so concentrated among 
blue-collar workers. Joblessness among white-collar workers has 
also increased. 

While this has been going on, other forces have also been at 
work. Labor market shifts have resulted in growing wage inequal- 
ity. Real incomes at the top of the income scale have increased 
even as those at the bottom have fallen. 

The increased disparity in wage and employment opportunities 
have affected especially those with the least educational attain- 
ment, work experience, and job training. Workers who in the past 
were able to hold jobs that required little particular knowledge, 



11 



cognitive ability, or special skill have found the supply of those jobs 
reduced considerably. 

Greater opportunities for educated workers have been accom- 
panied by increased wage differentials between those with higher 
education and those without it. 

Unemployed workers need help on several fronts. First, we must 
keep the economic expansion on course, so that jobs will continue 
to be created. 

Second, we must improve the Nation's reemployment assistance 
programs. 

And third, we must, over the course of the next few years, reform 
the unemployment insurance system. 

The budget proposed by the administration addresses some of the 
difficult issues that unnecessarily complicate Government-provided 
assistance to unemployed workers, and I understand that the De- 
partment of Labor is working on proposed legislation to assist dis- 
placed workers in reestablishing themselves in the labor market. 

I believe that when a worker has been out of work for a long 
time, the actual circumstances of job loss are less important than 
the steps that need to be taken to help that worker to become re- 
employed. We should not waste resources to determine what 
caused the job loss; it is the unemployment itself that is the prob- 
lem, and it is the worker's reemployment that needs to be ad- 
dressed. 

Unemployed workers whose skills have become outdated must be 
given the training they need to cope in today's business environ- 
ment. They must receive assistance in finding new jobs and train- 
ing and new skills when needed. 

But we must also remember that the purpose of such training 
must be reemployment. Research has shown that the most effective 
training is that which is associated with employer needs or which 
takes place in cooperation with employers or in the workplace it- 
self. 

Workers who participate in long-term training must have reason- 
able assurance of a job at the end of successful completion of the 
training program. 

At the same time, steps need to be taken to begin the long-term 
modernization of our unemployment insurance system. Let me re- 
mind you that fundamental elements of the Nation's UI system 
have changed very little since the program was begun almost 60 
years ago, even though the labor market in which it operates has 
undergone enormous change. 

Our Council has found that the extent of the income mainte- 
nance function of UI and its countercyclical effectiveness has di- 
minished considerably. The percentage of unemployed workers re- 
ceiving UI benefits has declined steadily over the last half-century 
with an especially steep decline during the early 1980s, just as the 
country entered the 1981-82 recession. 

The reasons for this decline in UI benefit recipients are outlined 
more fully in the Council's report. 

In 1992, the percentage of the unemployed who claimed UI bene- 
fits varied greatly across States, ranging from just over 20 percent 
in Virginia to 60 percent in Alaska. 



12 

I am also concerned about the wide variation among the States 
and the adequacy of benefits. In 1992, the proportion of wages re- 
placed by UI benefits ranged from 28 percent in California to 50 
percent in Hawaii. 

We believe that issues of this kind are extremely important, and 
we shall consider policy options to reverse the program's declining 
capacity to provide income maintenance for unemployment work- 
ers. 

Another fundamental issue in the UI program involves the need 
to adapt the program to the changing realities of today's labor mar- 
ket. 

Eligibility standards, for example, were not designed for today's 
labor market with two-earner households and part-time and tem- 
porary workers in mind, nor was the program designed to protect 
the increasing number of multiple jobholders. 

The Council is concerned that a significant and growing propor- 
tion of the labor force may be systematically excluded from eligi- 
bility to receive payments under the system. 

Moreover, the current UI program does not deal effectively with 
long-term unemployment. The program was originally designed to 
serve workers who were waiting to be recalled from temporary lay- 
offs. Today, as economic activity continues to shift from the manu- 
facturing to the service sector, and as the service sector itself also 
undergoes wrenching downsizing, many jobs are being permanently 
lost. 

Currently most of those losing their jobs have no prospect of 
being recalled. They find themselves unemployment for long peri- 
ods of time. Many must seek jobs in a new field, which may require 
acquisition of new skills. 

Although the UI system cannot be the only program to meet this 
need, it must do its part more effectively than it has in the past. 
The Council is unanimous in the belief that the UI program must 
be adapted to meet the income maintenance and reemployment 
needs of long-term unemployed workers more effectively. 

Reform of the existing extended benefits program is an essential 
step in this modernization. The Council unanimously recommends 
expanding the scope of extended benefits (EB) to provide assistance 
to the long-term, as well as the short-term, unemployed. We believe 
that the long-term unemployed should be eligible for long-term 
benefits, provided that they are participating in job search activi- 
ties or are participating in education and training activities that 
enhance their reemployment prospects. 

We believe that a working extended benefits program would re- 
duce the need for emergency legislation that is expensive and often 
inefficient. In large part, the need for emergency legislation has oc- 
curred because few of the high unemployment States have been eli- 
gible for benefits under the EB program during critical periods over 
the last decade. As a result, EB's effectiveness as a countercyclical 
device has been weakened. 

Federal law raised the level of the required trigger for EB at the 
same time that the proportion of the unemployed qualifying for UI 
benefits declined. This reduced the State uninsured employment 
rates and made it impossible for EB to function effectively when 
needed. As a result, the use of EB declined dramatically. 



13 

During the 1991 recession, EB was activated in only eight States 
and then only briefly. Because of the failure of EB, Congress 
passed emergency extensions of UI benefits. 

The Council believes that emergency legislation is extremely in- 
efficient, since it often comes after the worst of the recession has 
passed and frequently does not target scarce resources to the areas 
most in need of help. 

Estimates by the Advisory Council staff suggest that an EB pro- 
gram operating under any reasonable trigger would have cost sub- 
stantially less than the emergency unemployment compensation 
program that was actually passed and would have begun paying 
benefits earlier when they were most needed. 

The Council recommends redesign of the mechanism for trigger- 
ing EB benefits. After considering a variety of possible measures, 
the Council, recognizing that no perfect measure exists, rec- 
ommends use of the State total unemployment rate (TUR) as the 
best indicator of the condition of the overall labor market in which 
an unemployed worker must search for work. 

The majority of the Council recommends that EB be triggered 
with the State's seasonally adjusted total unemployment rate of 6.5 
percent as measured before the Labor Force Survey redesign, 
which, as you know, has had an effect on the measured unemploy- 
ment rate. 

Incidentally, I would urge the committee to use a 3-month or per- 
haps even a 6-month moving average of the seasonally adjusted 
State unemployment rate to compensate for its variability, al- 
though this detail was not discussed by the Council. 

The majority of the Council also recommends that the threshold 
requirements be eliminated; that is, the requirements that require 
that the unemployment be a particular percentage above the 2-year 
previous period. 

Although the threshold requirements do not significantly affect 
the number of States in which EB triggers on in a recession, the 
requirement delays EB triggering on in some States with the high- 
est unemployment and hastens the point at which EB triggers off. 

The Council ran simulations of what would have happened dur- 
ing the last recession if an EB program with various triggers had 
been in place instead of the emergency unemployment program, 
which largely replaced EB. 

We found that the threshold requirement, with a 6.5 percent 
TUR trigger, would have caused West Virginia to trigger onto EB 
25 months later than without the threshold, and the State would 
have triggered off for a few months, even though it still had a TUR 
of 11.7 percent. 

Similarly, Michigan would have triggered on 25 months later 
with the threshold requirement and would have triggered off 9 
months earlier. 

My testimony is focused especially on EB reform, because I be- 
lieve it is important to act now, so as to avoid the need for future 
emergency legislation. 

In addition, of course, the law establishing the Council asked us 
to consider EB before we undertook a more comprehensive review 
of the program. 



14 

As we begin our deliberations over this year and the next, I know 
that the Advisory Council has a great deal to cover. We will sys- 
tematically review a series of important issues, including experi- 
ence rating, State UI trust fund solvency, incentives, and other 
techniques to bring about reemployment, eligibility requirements, 
and appeals procedures and costs. 

We also will review the administrative efficiency, Federal fund- 
ing, Federal/State interactions and responsibilities, and the rela- 
tionship between the UI system and other elements of the employ- 
ment security system. 

These are all important issues, and we have a lot of work to do. 
I look forward to discussing many of the solutions with the commit- 
tee as our work progresses, and I dc appreciate the opportunity to 
share these observations with you. 

I would be happy to answer any questions. 

[The prepared statement and attachments follow:] 



15 



Statement of 

Janet L. Norwood 

Senior Fellow, The Urban Institute 

and 

Chair, Advisory Council on Unemployment Compensation 

before the 

Subcommittee on Human Resources 

Committee on Ways and Means 

U.S. House of Representatives 

March 8, 1994 



Mr. Chairman and Members of the Subcommittee: 

It is a great pleasure for me to appear once more before the Congress to discuss 
employment and unemployment issues. I am especially pleased to be here today as the Chair 
of the Advisory Council on Unemployment Compensation. The Council became operational in 
May 1993, has held four meetings, and has sponsored two public hearings. The Council issued 
its first report with interim recommendations on the first of February. I have attached to my 
statement a copy of the recommendations of the Council as well as a list of my fellow Council 
members. 

We meet today at a time when the economy is expanding, the number of jobs is increasing, 
and unemployment is declining. Business activity is picking up in this country and in many of 
the countries with whom we trade. The labor market is improving; we have made considerable 
progress since the end of the recession. In spite of these improvements, however, serious labor 
market problems still confront us. Approximately 8.5 million people who want jobs cannot find 
them, and another 4.6 million who want to work full time are in part-time jobs. The number 
of long-term unemployed— those out of work for 6 months or longer— remains extremely high, 
amounting to nearly 20 percent of the total unemployed. Although the number of payroll jobs 
is continuing to increase, the rate of job growth remains quite slow. Indeed, in the nearly 3 
years since the end of the recession in March 1991, payroll jobs have increased at only a 2.7 
percent rate, just about one-fourth the 10.4 percent rate experienced in a similar period after the 
1981-82 recession. 

Important changes have occurred in the manner in which American companies use their 
workers. Employers, intent on improving their competitiveness in this country and abroad, have 
downsized their work forces, expanded working hours, and used new technology to raise worker 
productivity. At the same time, part-time and temporary employment has increased. And many 
who have lost their jobs have found themselves permanently displaced. Only about one in every 
seven of the unemployed in February was on temporary layoff. In addition, unemployment is 
no longer so concentrated among blue collar workers; joblessness among white collar workers 
has also increased. 

While this has been going on, other forces have also been at work. Labor market shifts 
have resulted in growing wage inequality. Real incomes at the top of the income scale have 
increased even as those at the bottom have fallen. The increased disparity in wage and 
employment opportunities have affected especially those with the least educational attainment, 
work experience, and job training. Workers who in the past were able to hold jobs that required 
little knowledge, cognitive ability, or special skill have found the supply of those jobs reduced 
considerably. The greater opportunities for educated workers have been accompanied by 
increased wage differentials between those with higher education and those without it. 

Unemployed workers need help on several fronts. First, we must keep the economic 
expansion on course so that jobs will continue to be created. Second, we must improve the 
nation's reemployment assistance programs and third, we must, over the course of the next few 
years, reform the Unemployment Insurance system. 

The budget proposed by the Administration addresses some of the difficult issues that 
unnecessarily complicate government-provided assistance to unemployed workers, and I 
understand that the Department of Labor is working on proposed legislation to assist displaced 
workers in reestablishing themselves in the labor market. I believe that when a worker has been 
out of work for long time, the actual circumstances of job loss are less important than the steps 
that need to be taken to help that worker to become reemployed. We should not waste resources 



16 



to determine what caused the job loss; it is the unemployment itself that is the problem, and it 
is the worker's reemployment that needs to be addressed. Unemployed workers whose skills 
have become outdated must be given the training they need to cope in today's business 
environment. They must receive assistance in finding new jobs and training in new skills when 
needed. But we must always remember that the purpose of such training must be reemployment. 
Research has shown that the most effective training is that which is associated with employer 
needs or which takes place in cooperation with employers or in the workplace itself. Workers 
who participate in long-term training must have reasonable assurance of a job at the end of 
successful completion of the training program. 

At the same time, steps need to be taken to begin the long-term modernization of our 
Unemployment Insurance system. Let me remind you that fundamental elements of the nation's 
UI system have changed very little since the program was I^egun almost 60 years ago even 
though, as I discussed earlier, the labor market in which it ooerates has undergone enormous 
change. Our Council has found that the extent of the income maintenance function of UI and 
its counter-cyclical effectiveness has diminished considerably. The percentage of unemployed 
workers receiving UI benefits has declined steadily over the last half century, with an especially 
steep decline during the early 1980's, just as the country entered the 1981-82 recession. The 
reasons for this decline in UI benefit recipiency are outlined more fully in the Council's report. 
In 1992, the percentage of the unemployed who claimed UI benefits varied greatly across states, 
ranging from just over 20 percent in Virginia to 60 percent in Alaska. (I have attached to my 
testimony a graph of the long-term decline in UI recipiency, as well as a table on the proportion 
of the unemployed who claim benefits in eo;h state.) 

I am also concerned about the wide variation among the states in the adequacy of benefits. 
In 1992, the proportion of wages replaced by UI benefits ranged from 28 percent in California 
to 50 percent in Hawaii. (See the attached table.) We believe that issues of this kind are 
extremely important, and we shall consider policy options to reverse the program's declining 
capacity to provide income maintenance for unemployed workers. 

Another fundamental issue in the UI program involves the need to adapt the program to the 
changing realities of today's labor market. Eligibility standards, for example, were not designed 
for today's labor market with two-earner households and part-time, and temporary workers in 
mind. Nor was the program designed to protect the increasing number of multiple jobholders. 
The Council is concerned that a significant and growing proportion of the labor force may be 
systematically excluded from eligibility to receive payments under the system. 

Moreover, the current UI program does not deal effectively with long-term unemployment. 
The program was originally designed to serve workers who were waiting to be recalled from 
temporary layoff. Today, as economic activity continues to shift from the manufacturing sector 
to the service sector, and as the service sector itself also undergoes wrenching downsizing, many 
jobs are being permanently lost. Currently, most of those losing their jobs have no prospect of 
being recalled; they find themselves unemployed for long periods of time. Many must seek jobs 
in a new field which may require acquisition of new skills. 

Although the UI system cannot be the only program to meet this need, it must do its part 
more effectively than it has in the past. The Council is unanimous in the belief that the UI 
program must be adapted to meet the income maintenance and reemployment needs of long-term 
unemployed workers more effectively. Reform of the existing Extended Benefits (EB) program 
is an essential step in this modernization. The Council unanimously recommends expanding the 
scope of EB to provide assistance to the long-term as well as the short-term unemployed. We 
believe that the long-term unemployed should be eligible for long-term benefits, provided that 
they are participating in job search activities or are participating in education and training 
activities that enhance their reemployment prospects. 

We believe that a working Extended Benefits program would reduce the need for 
emergency legislation that is expensive and often inefficient. In large part, the need for 
emergency legislation has occurred because few of the high unemployment states have been 
eligible for benefits under the EB program during critical periods over the last decade. As a 
result, EB's effectiveness as a countercyclical device has been weakened. Federal law raised 
the level of the required trigger for EB (from a state insured unemployment rate (IUR) of four 
percent to five percent) at the same time that the proportion of the unemployed qualifying for 
UI benefits declined. This reduced state IUR's and made it impossible for EB to function 
effectively when needed. As a result, the use of EB declined dramatically. During the 1991 
recession, EB was activated in only eight states, and then, only briefly. Because of the failure 
of EB, Congress passed emergency extensions of UI benefits. The Council believes that 
emergency legislation is extremely inefficient, since it often comes after the worst of the 



17 



recession has passed and frequently does not target scarce resources to the areas most in need 
of help. Estimates by the Advisory Council staff suggest that an EB program operating under 
any reasonable trigger would have cost substantially less than the Emergency Unemployment 
Compensation program that was actually passed and would have begun paying benefits earlier 
when they were most needed. (I have attached a table containing these cost estimates to my 
testimony.) 

The Council recommends redesign of the mechanism for triggering EB benefits. After 
considering a variety of possible measures, the Council, recognizing that no perfect measure 
exists, recommends use of the state total unemployment rate (TUR) as the best indicator of the 
condition of the overall labor market in which an unemployed worker must search for work. 
The majority of the Council recommends that EB be triggered with a state seasonally adjusted 
total unemployment rate of 6.5 percent as measured before the labor force survey redesign 
(which, as you know, has had an effect upon the measured unemployment rate for states and the 
nation as a whole). Incidentally, I would urge the Committee to use a 3-month or perhaps even 
a 6-month moving average of the state unemployment rate to compensate for its variability, 
although this detail was not discussed by the Council. 

The majority of the Council also recommends that threshold requirements (which require 
that a state's unemployment rate exceed the level that prevailed over the previous 2-year period 
by a given percent in order to be eligible for EB) be eliminated. Although the threshold 
requirements do not significantly affect the number of states in which EB triggers on in a 
recession, the requirement delays EB triggering on in some states with the highest unemployment 
and hastens the point at which EB triggers off. The Council ran simulations of what would 
have happened during the last recession if an EB program with various triggers had been in 
place instead of the Emergency Unemployment program which largely replaced EB. We found 
that the threshold requirement with a 6.5 percent TUR trigger would have caused West Virginia 
to trigger onto EB 25 months later than without the threshold, and the state would have triggered 
off for a few months even though it still had a TUR of 1 1 .7 percent. Similarly, Michigan would 
have triggered on 25 months later with the threshold requirement and would have triggered off 
9 months earlier. 

My testimony today has focused especially on EB reform because I believe it is important 
to act now so as to avoid the need for future emergency legislation. In addition, of course, the 
law establishing the Council asked it to consider EB before it undertook a more comprehensive 
review of the entire Unemployment Compensation program. 

As we begin our deliberations over this year and the next, I know that the Advisory 
Council has a great deal to cover. We will systematically review a series of important issues, 
including experience rating, state UI trust fund solvency, incentives and other techniques to bring 
about reemployment, eligibility requirements, and appeals procedures and costs. We also will 
review the administrative efficiency, federal funding, federal-state interactions and 
responsibilities, and the relationship between the UI system and other elements of the 
Employment Security system. 

These are all important issues, and we have a lot of work to do. I look forward to 
discussing many of the solutions with you as our work progresses. I do appreciate the 
opportunity to share these observations with you and would be happy to answer any questions 
you may have. 



18 



APPENDIX A 



FEBRUARY 1994 RECOMMENDATIONS OF THE 
ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 



Purpose of the Extended Benefits Program 

The scope of the Extended Benefits program should be expanded to enhance the capacity of the 
Unemployment Insurance system to provide assistance for long-term unemployed workers as well as 
short-term unemployed workers. Those individuals who are long-term unemployed should be eligible for 
extended Unemployment Insurance benefits, provided they are participating in job search activities or in 
education and training activities, where available and suitable, that enhance their re-employment prospects. 
To maintain the integrity of the Unemployment Insurance income support system, a separate funding source 
should be used to finance job search and education and training activities for long-term unemployed workers. 



The Trigger for Extended Benefits 

The Council is unanimous in the view that there is a pressing need to reform the Extended Benefits 
program. 

The majority of the Council recommends that the Extended Benefits program should trigger on when 
a state's seasonally adjusted total unemployment rate (STUR) exceeds 6.5 percent as measured before the 
Current Population Survey redesign. Two members of the Council recommend that each state should have 
the choice of using either the STUR trigger of 6.5 percent with a threshold requirement of 1 10 percent above 
either of the two previous years, or an IUR or AIUR trigger set at 4 percent with a threshold requirement 
of 120 percent over the previous two year period. 

The Council hopes Congress can implement these reforms promptly. Although the Council has 
reservations about the inefficient targeting of emergency benefits, Congress should extend the existing 
Emergency Unemployment Compensation for a six month period to provide a bridge program until these 
Extended Benefits reforms can be implemented. 

Neither substate nor regional data should be used for the purpose of determining whether or not 
Extended Benefits are available within a given area. 



Financing Extended Benefits Reform 

If additional revenue is required to implement the Council's recommendations, a majority of the 
Council recommends that such revenue should be generated by a modest increase in the FUTA taxable wage 
base, to $8,500. 



Work Search Test under Extended Benefits 

The federal requirement that individuals who are receiving Extended Benefits must accept a minimum 
wage job if one is offered, or become ineligible for benefits, should be eliminated. Each state should be 
allowed to determine an appropriate work search test, based on the conditions of its labor market. 



FUTA Taxation of Alien Agricultural Workers 

As of January 1, 1995, the wages of alien agricultural workers (H2-A workers) should be subject to 
FUTA taxes. 



19 



MEMBERS OF THE 
ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 

Janet L. Norwood (Chair) 

Senior Fellow, The Urban Institute 

Washington, D.C. 

Owen Bieber 

President, United Auto Workers 

Detroit, Michigan 

Thomas R. Donahue 

Secretary-Treasurer, AFL-CIO 

Washington, D.C. 

William D. Grossenbacher 

Administrator, Texas Employment Commission 

Austin, Texas 

Robert C. Mitchell 

Retired Manager, Payroll Taxes, Sears, Roebuck & Co. 

Naperville, Illinois 

John J. Stephens 

Retired President and CEO, Roseburg Forest Products 

Bandon, Oregon 

Tommy G. Thompson 

Governor, State of Wisconsin 

Madison, Wisconsin 



STAFF OF THE 
ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 

Laurie J. Bassi, Executive Director 

Stephen A. Woodbury, Deputy Director 

Ellen S. Calhoun 

Amy B. Chasanov 

Janice C. Davis 

Daniel P. McMurrer 

Robert Pavosevich 



APPENDIX B 



20 



APPENDIX C 



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u 
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21 



APPENDIX D 



RATIO OF UI CLAIMANTS TO TOTAL UNEMPLOYED, BY STATE IN 1992 

Virginia 20.7 

New Hampshire 23.6 

Florida 24.5 

Texas 24.6 

Indiana 24.7 

West Virginia 24.9 

Soulh Dakota 25.0 

Oklahoma 26.4 

Colorado 27.3 

Arizona 27.9 

New Mexico 28.4 

Louisiana 28.6 

Georgia 28.9 

Alabama 29.0 

Utah 29.4 

Mississippi 29.6 

Puerto Rico 29.7 

North Carolina 30.6 

Kentucky 30.8 

Ohio 33.1 

North Dakota 33.1 

Wyoming 33.9 

Michigan 33.9 

South Carolina 34.4 

Montana 34.6 

Illinois 34.7 

Maryland 35.0 

Tennessee 37.2 

Minnesota 37.3 

Iowa 37.4 

Nebraska 37.6 

Massachusetts 38.9 

Arkansas 39.2 

Missouri 39.4 

New York 39.7 

New Jersey 39.9 

California 40.7 

Delaware 40.7 

Maine 43.0 

Pennsylvania 44.6 

Kansas 44.9 

Connecticut 45.2 

Rhode Island 46.2 

Idaho 46.7 

Oregon 46.9 

Nevada 46.9 

Washington 47.1 

Wisconsin 47.4 

Vermont 48.3 

Hawaii 50.0 

District of Columbia 51.2 

Alaska 60.0 

Source: Bureau of Labor Statistics and Unemployment Insurance Service. 
Note: Data for the Virgin Islands are not available. 



22 

APPENDIX E 



RATIO OF AVERAGE WEEKLY BENEFITS 
TO AVERSE TOTAL COVERED WAGES, BY STATE IN 1992 

^ ■•<■ • 27 - 5 
California 

Louisiana ' . 

Indiana *. 

Alaska ' 

New Hampshire - ? 

Tennessee _ ' 

Alabama ' 

Puerto Rico ' 

New York 'rj 

Georgia 32 ' 6 

Missouri ' 

Arizona .,'_ 

Connecticut ' 

Mississippi ' 

District of Columbia • 

Nebraska " 

Illinois _ 4 ' 7 

Kentucky 35 ' 2 

South Carolina ' 



New Mexico 



Idaho 



Utah 
Iowa 



Hawaii 
Source: Unemployment Insurance Service 



35.4 



Virginia 3J $ 

Maryland ' 6 

Delaware ' 

Nevada '_ 

Florida ,, . 

Washington ' 

Vermont '. 

New Jersey J6 ' 9 

Texas ... . 

Virgin Islands ' 

Montana ,_'. 

Colorado ,_', 

North Carolina " 

South Dakota ' 4 

Ohio 3g ' 5 

Oregon 3g ' 7 

West Virginia ^ 

Oklahoma ' 

Arkansas ' 

Massachusetts * 

Wisconsin ' 



40.2 



Michigan 4Q ' 6 

Maine 4Q g 

Wyoming 4Q g 

Pennsylvania Q9 

North Dakota ' 

Minnesota ' 



42.7 
42.9 



Kansas ..\ 

Rhode Island ' 



23 



APPENDIX F 



ESTIMATED IMPACTS OF ALTERNATIVE EB TRIGGERS 
IN THE ABSENCE OF EMERGENCY LEGISLATION, JANUARY 1990 TO AUGUST 1993 



Trigger 



Estimated Cost Number of States Average Total Months 
(in billions) Triggering On in States Triggering On 

at Least Once 





Total Unemployment Rate' 




6 5% without threshold 


$14.0 


43 


24.4 


6.5% with 110% threshold 


118 


43 


18.4 


6.5% with 120% threshold 


9.7 


42 


147 


7 5% without threshold 


8.5 


32 


16.5 


7.5% with 110% threshold 


7.8 


32 


13.7 


7.5% with 120% threshold 


67 


30 


11.5 


8.5% without threshold 


4.2 


17 


13.7 


8.5% with 110% threshold 


4.0 


17 


11.8 


8.5% with 120% threshold 


3.4 


15 


10.3 


9.5% without threshold 


1.1 


8 


13.3 


9.5% with 110% threshold 


0.9 


8 


99 


9.5% with 120% threshold 


0.8 


8 


7.4 




Insured Unemployment Rate 2 




1.5% without threshold 


$20.8 


51 


39.7 


1.5% with 110% threshold 


12.9 


51 


21.3 


1.5% with 120% threshold 


9.9 


48 


15.7 


3% without threshold 


116 


37 


21.5 


3% with 110% threshold 


8.0 


37 


13.6 


3% with 120% threshold 


6.3 


34 


109 


4% without threshold 


5.0 


21 


15.7 


4% with 110% threshold 


3.9 


21 


10.8 


4% with 120% threshold 


3.2 


19 


8.8 


5% without threshold 


1.3 


11 


11.6 


5% with 110% threshold 


11 


11 


8.4 


5% with 120% threshold 1 


0.9 


10 


6.2 


Emergency Unemployment Compensation 




(Actual impact) 


$23.0 


52 


22.0 



The cost figures should be considered upper-bound estimates, as they assume a uniform benefit cost of 
$1 .810 for each exhaustee of regular UI benefits. The estimates assume that an EB program with a given 
trigger would have operated in the absence of EUC or any other emergency program The estimates 
include the District of Columbia and Puerto Rico, but exclude the Virgin Islands. 

Three-month moving average of the nonseasonally adjusted state TUR. 

Thirteen-week moving average of die state 1UR [Calculations in this table were made on a 
monthly basis, using monthly averages of weekly moving averages.] 
1 Indicates the current mandatory EB trigger. 

Source: Advisory Council on Unemployment Compensation staff calculations using data from the Bureau 
of Labor Statistics and the U.S. Department of Labor, Unemployment Insurance Service. 



24 

Mr. Kopetski. Thank you, and thank you for your effort in this 
area. 

I want to focus a little bit on the trigger and changing the trig- 
ger, because it's been such a controversial issue for the subcommit- 
tee and on the floor as well. 

Could you discuss some of the pros and cons of eliminating the 
requirement that a States's unemployment rate be higher than it 
was in previous years, and what are we getting into, I mean, if we 
were to take the Council's recommendation? Are there pitfalls to it 
that you considered, and what are they, and what is good about it, 
and what is bad about it? 

Ms. Norwood. I think there are two principal points that I 
would make. The first is a conceptual one, and that is that if we 
have a situation — and we are in it right now, as a matter of fact — 
where some States have had very high unemployment — New Eng- 
land and California, for example, and others as well — that goes on 
for some time, it seems to me conceptually wrong to say that they 
should be excluded merely because a bad situation has not gotten 
much worse. So that is the first point that I would make. 

The second point is that the Council staffs research-and I would 
like to take this opportunity, by the way, to tell you that we have 
a really remarkable staff, and the executive director of the staff is 
sitting here behind me, Dr. Laurie Bassey — the Council staff has 
found, as I indicated partially in my statement, that what happens 
with the threshold requirement is that it makes the targeting 
much less efficient. 

We found that many States with high unemployment did not 
meet the requirements of the Emergency Act because of the thresh- 
old requirement, and so they triggered on very late, and they trig- 
gered off earlier than they probably should have. 

Other States with perhaps not such severe unemployment, on 
the other hand, have had the opposite experience. 

So I think it makes for a much less efficient targeting. If what 
we want to do — and it seems to me that we do — is to provide ex- 
tended benefits in those areas and only those areas where it is 
really needed, then it seems to me that it is wiser to eliminate the 
threshold. 

Now I should emphasize that this was a majority recommenda- 
tion. There were some on the Council who wanted to retain both 
the insured unemployment rate as the trigger and the threshold re- 
quirement, although they were willing to change the level. 

Mr. Kopetski. What is the justification of going to TUR versus 
looking only at the insured? 

Ms. Norwood. I was hoping that you would ask me that ques- 
tion. 

Mr. Kopetski. Well, my staff does a good job. 

Ms. Norwood. I think there are several reasons. The most im- 
portant is that any worker who loses a job has to go out and find 
one. The labor market in which he or she is operating is the whole 
broad labor market, not just the small group which is covered, the 
39 percent or so which is covered by unemployment insurance. 

And therefore, the TUR is much more representative of the total 
labor market than is the insured unemployment rate. The person 
who is unemployed is not competing just against somebody who is 



25 

covered by unemployment insurance, but rather against all the 
other people who are looking for work. The TUR is therefore much 
more representative. 

In addition, the TUR comes from a survey that is — especially 
now after the redesign — one of the best surveys in the world. We 
know what the levels of reliability are. 

Any administrative data set, although representing the number 
of claimants who are there, nevertheless don't have that kind of 
statistical review — because it is too large a database and because 
the purpose is very different. It is to pay benefits; that is what 
those people do out there, and that is just what they should be 
doing. And so I feel a lot more comfortable with the TUR. 

Mr. Kopetski. In your analyses of this — let me see if I can ex- 
plain it clearly — by broadening the universe of who is unemployed 
in terms of developing the trigger, does that make it easier for a 
State to trigger on or more difficult, or does it differ with State or 
region? 

Ms. Norwood. It would vary State by State, because it would 
make it easier for States with high unemployment rates to trigger 
on, and that is exactly what we want to do. 

Those States which have relatively lower unemployment rates 
would not trigger on. 

Mr. Kopetski. Let me ask it a different way. Are there some 
States where the economies are such that there are more covered 
jobs than not covered? 

Ms. Norwood. I would not think so. What generally happens 
with unemployment is that — in good times as well as in bad — it 
starts out somewhere. You have spots of unemployment. It usually 
begins that way in a State, and then it spreads out from that area. 

So you have many areas, many kinds of industries or States with 
particularly different sorts of experience but basically unemploy- 
ment just grows. And the TUR is much more representative of 
what is happening there. 

Mr. Kopetski. Did you see in your studies that the States do not 
adopt reforms? Oregon did adopt reforms, and so we triggered on 
through our own State devices — but a great debate up here has 
been that a lot of States are not adopting reforms because — they 
assume, if we will just wait, the Federal Government will bail us 
out, and they will pay 100 percent of the benefits versus 50 percent 
of the benefits. 

Is that real life? 

Ms. Norwood. Well, I cannot testify to the psychology of State 
politicians. I think you know that much better than I. 

Mr. Kopetski. They are all very sane people. 

Ms. Norwood. I am sure you are. I am certain you are. 

My observation has been that there are serious problems with 
the funding, and some States with the highest unemployment be- 
come very concerned about the solvency of their trust funds. It has 
become much harder in recent years during the 1980s to borrow — 
more expensive, at least, to borrow from the Federal trust funds, 
and the result is that States frequently either raise eligibility re- 
quirements or reduce the level of benefits or in some way try to 
come out even. And I think that is the bigger problem. 



26 

Mr. Kopetski. Let me move to a different area, and that is the 
recommendation to increase the FUTA base from $7,000 to $8,500. 

If you were designing — creating, I should say — a new unemploy- 
ment insurance system, at what level would we want to see this 
taxable wage base? 

Ms. Norwood. I cannot answer that question yet. We want to do 
a good deal more work before we do that. 

But let me remind you that the recommendation really says, If 
additional revenue is required to implement these recommenda- 
tions, that it should be generated by a modest increase in the tax- 
able wage. 

We felt, many of us, that it was somewhat irresponsible to make 
a recommendation without taking account of the fact that there 
was a possibility that it might cost more. 

There are sufficient funds in the trust funds. The question, of 
course, is whether they can be used. And therefore we thought that 
a modest increase in the taxable wage would compensate for any 
possible changes here, although we are not sure that anything is — 
for this recommendation — is needed. 

I believe very strongly that the Council is going to have to exam- 
ine the whole question of solvency and its effect on the numbers 
of people who are eligible for unemployment insurance, as well as 
the adequacy of the wage replacement in the benefits. 

Mr. Kopetski. Well, let me ask, when you talk about the sol- 
vency, are you talking about FUTA, or are you talking about the 
individual States' aspect of the trust funds? 

Ms. Norwood. Well, basically I am talking about the way the 
program works, which is the individual States. And what has been 
happening is first that the labor market has changed a great deal. 
We have a lot of different kinds of workers, and we have people 
who are unemployed much longer than they used to be. This is 
really one of the highest percentages of long-term unemployed that 
we have had that I am aware of, and I have studied labor market 
data for a very long time. 

So I think that that is a serious kind of problem. But in addition, 
there has been a steady decline in the coverage, in the numbers of 
people who are receiving UI benefits, and that is, in part — not en- 
tirely, but it is in part—due to changes in eligibility requirements. 
And then the other way of adjusting is through the amount of the 
benefit. 

Mr. Kopetski. We did some significant reforms in the late 1980s 
dealing with voluntary quits issues, for example, and people kept 
coming in saying: We are an independent contractor; from news- 
paper carriers to real estate agents, et cetera. 

And we have been — actually I think just a few months ago, our 
State — we have a tax system where we have eight different sched- 
ules, and depending on the health of the trust fund and the unem- 
ployment picture, et cetera, we have moved down the schedule; 
that is, our employers got a reduction in their tax. 

So, I mean, Oregon, I think, is a model State in many respects, 
and we paid two-tnirds, 65 or 67 percent, of the average weekly 
wage up to $12,000, which gets actually to my other question. 

The wage base for States for the benefit side varies all across the 
country. For the employer in Oregon, I think, they pay the $7,000, 



27 

but then I think the benefit program is calculated around $12,000. 
So it is not as if this is something new, a suggestion to increase 
the FUTA is new or even above that which tney are paying in 
terms of the State regular benefit program. 

Ms. Norwood. No. Many States — many States — already have a 
higher than $7,000 base wage for tax purposes. So this would not 
affect all of the States. 

Mr. Kopetski. Do you have a dollar figure for your whole pack- 
age of reforms, the cost? 

Ms. Norwood. No, we have not calculated that yet. 

Mr. Kopetski. But you will have that in the near future? 

Ms. Norwood. We will try to provide whatever information we 
can. I would not want to commit us to a specific on that. 

Part of it, by the way, depends upon the models we used. 

Mr. Kopetski. Of course. 

Ms. Norwood. I am sure you are well aware of that. 

Mr. Kopetski. Yes, those computers are something else. 

Ms. Norwood. It is what you put in the computers. 

Mr. Kopetski. Yes. Well, I guess, can you stay with us for a little 
while as we take testimony from the members of the panel? 

Ms. Norwood. Surely, of course. 

Mr. Kopetski. I really want to thank you 

Ms. Norwood. You are quite welcome. 

Mr. Kopetski [continuing]. For your help, and we will go to the 
panel of witnesses, which includes Markley Roberts from the AFL- 
CIO, the assistant director in the Department of Economic Re- 
search; from the Employers' Task Force on Unemployment Com- 
pensation of the Council of State Chambers of Commerce, we have 
William R. Brown; and from the UAW, we have Richard McHugh, 
the associate general counsel. 

STATEMENT OF MARKLEY ROBERTS, ASSISTANT DIRECTOR, 
DEPARTMENT OF ECONOMIC RESEARCH, AMERICAN 
FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL 
ORGANIZATIONS 

Mr. Roberts. Thank you, Mr. Chairman. 

Mr. Kopetski. Thank you. Good morning. And your entire state- 
ment will be part of the record, and we ask you to summarize it 
in about 5 minutes. 

Mr. Roberts. Very good. 

Mr. Kopetski. Great. 

Mr. Roberts. I appreciate this opportunity to present to your 
subcommittee some key concerns of the AFL-CIO as you consider 
various proposed changes in the Nation's system of income mainte- 
nance for unemployed workers. 

It is important to recognize that the unemployment compensa- 
tion system is broken and needs fixing. This is true of the entire 
system, and it is particularly true of the extended benefits pro- 
gram. Only one out of three jobless workers gets regular State UI 
benefits. The benefits they get are only one-third of their State's 
average weekly wage. And one out of three recipients of regular 
State UI benefits exhausts those benefits before finding a job. 

The emergency unemployment compensation program has helped 
raise the number and percentage of jobless workers getting income 



28 

support, but the EUC program has expired, and remaining EUC 
benefits will soon run out. 

To protect State UI trust funds, Federal and State policymakers 
have for years tightened eligibility restrictions and cut benefits, 
leaving millions of workers with no UI compensation. Too often, the 
UI system has been underfunded in relation to the human needs 
of jobless workers and their families, and that underfunding has 
been used as a rationale for restricting benefits and keeping wage 
replacement rates unconscionably low. 

The AFL-CIO is calling on Congress to move quickly to continue 
the expired, but still operating, EUC program for 6 months or until 
Congress revises the Federal/State extended benefits program. 

This is a basic issue of continuing unmet human needs for long- 
term jobless workers and their families. One out of every five job- 
less workers has been unemployed for 6 months or more. The 100 
percent federally financed EUC program was necessary and is still 
necessary because the present extended benefits system is almost 
totally ineffective in helping long-term unemployed workers. 

The current EB program is so ineffective that only three States — 
Alaska, Oregon, and Washington State and Puerto Rico — are eligi- 
ble, although the national unemployment rate in January was 6.7 
percent, and 20 States had 3-month average unemployment over 
6.5 percent as of the middle of February. 

The EUC program expired February 5, but EUC benefits may 
continue up to 13 weeks for those who were eligible at the time the 
EUC law expired. About 650,000 long-term unemployed workers 
are now receiving EUC payments, but more than 1.7 million jobless 
workers have been unemployed for 27 weeks or more. In other 
words, less than 40 percent of the long-term unemployed are get- 
ting EUC benefits. 

Every week since EUC expired, about 70,000 jobless workers 
have been exhausting their State UI benefits. This underscores the 
need for prompt action by Congress to continue the EUC program. 

The AFL-CIO strongly endorses the Advisory Council rec- 
ommendation on continuing the EUC program. We also strongly 
support other Council recommendations. 

One recommendation calls on Congress to revise the Federal/ 
State EB program to pay 13 weeks of additional UI benefits in any 
State that suffers a total unemployment rate (TUR) of 6.5 percent, 
a rate which should be the only trigger for EB or EUC. The Council 
rejected the insured unemployment rate and the threshold tests as 
triggers for EB. 

Another Council recommendation calls for raising the covered 
payroll for UI purposes from $7,000 to $8,500, if necessary. This 
very modest increase in the taxable wage base is still far below the 
$19,300 average annual gross earnings of workers in all private, 
nonfarm industries. 

A third Council recommendation would remove the requirement 
that job seekers/workers take a proffered minimum wage job to 
stay eligible for extended benefits. All States have a suitability test 
for job offers. The present Federal minimum wage requirement is 
excessively onerous, the Council pointed out. The States are better 
able than the Federal Government to make determinations of suit- 



29 

ability. This is one area where I think you will find the employers 
and trie union folks on the same wavelength. 

We support all these recommendations and urge you to incor- 
porate them in any legislation dealing with the unemployment 
compensation system. 

One other important UI issue I want to raise, under new worker 
profiling procedures aimed at identifying potential long-term unem- 
ployed workers, dislocated workers will be required to participate 
in appropriate reemployment services in order to remain eligible 
for UI benefits. 

We support the effort to identify workers who need special assist- 
ance, but we are very much concerned that worker profiling should 
not be used punitively to deny workers their UI benefits. 

We are concerned about this, because already the Unemployment 
Insurance Service, in a January 28, 1994 directive to State employ- 
ment security agencies, is asking States to amend their UI laws to 
provide for disqualification — disqualification of workers claiming UI 
benefits, if they fail to participate in reemployment services. 

If the States do not amend their UI laws, they must notify the 
Labor Department that they can make such disqualifications with- 
out a change in the law. 

This is a harsh, drastic, unnecessary and wrong approach. It 
wrongly confuses eligibility and disqualification. We urge you to 
clarify this issue, to make it clear, as Congress has done, that UI 
claimants must participate in reemployment services as a condition 
of eligibility for regular unemployment for any week, but that 
nonparticipation does not disqualify a UI claimant for any longer 
period. 

Mr. Chairman, I will stop there. Thank you. 

[The prepared statement follows:] 



84-377 0-95-2 



30 



STATEMENT BY MARKLEY ROBERTS, ASSISTANT DIRECTOR OF ECONOMIC RESEARCH, 

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, 

BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES, 

OF THE HOUSE WAYS AND MEANS COMMITTEE 

ON UNEMPLOYMENT COMPENSATION 

March 8, 1994 



Mr. Chairman, my name is Markley Roberts. I am Assistant Director of the 
AFL-CIO Department of Economic Research. I appreciate this opportunity to present to your 
Subcommittee some key concerns of the AFL-CIO as you consider various proposed changes 
in the nation's system of income support for unemployed workers. 

It's important to recognize that the unemployment compensation system is broken and 
needs fixing. This is true of the entire system and it is particularly true of the Extended Benefits 
program. 

Only one out of three jobless workers gets regular state UI benefits. The benefits they 
get are only a third of their states' average weekly wage. And one out of three recipients of 
regular state UI benefits exhausts those benefits before finding a job. 

The Emergency Unemployment Compensation program has helped raise the number and 
percentage of jobless workers getting income support, but the EUC program has expired and 
remaining EUC benefits will soon run out. 

To protect state UI trust funds, federal and state policy-makers have for years tightened 
eligibility restrictions and cut benefits, leaving millions of workers with no UI compensation. 

Too often the UI system has been underfunded in relation to the human needs of jobless 
workers and their families, and that underfunding has been used as a rationale for restricting 
benefits and keeping wage replacement rate unconscionably low. 

First, I want to urge you and the Congress to move quickly to continue the expired but 
still operating Emergency Unemployment Compensation (EUC) program for six months, or until 
Congress revises the federal state Extended Benefits (EB) program. 

The Advisory Council on Unemployment Compensation, on which I serve, has already 
taken this position. It made a recommendation that "Congress should extend the existing 
Emergency Unemployment Compensation for a six month period to provide a bridge program 
until these Extended Benefit reforms can be implemented." (ACUC February 1994 Report, page 
11) 



31 



This is a basic issue of continuing unmet human needs for long-term jobless workers and 
their families. One out of every five jobless workers has been unemployed for six months or 
more. 

As you know, the temporary EUC program was enacted in 1991 and continued by 
Congress to provide income support for long-term jobless workers who exhausted their regular 
state unemployment insurance benefits. The 100 percent federally financed EUC program was 
necessary-and is still necessary-because the present Extended Benefit system is almost totally 
ineffective in helping long-term unemployed workers. 

The current Extended Benefits program is so ineffective that only three states-Alaska, 
Oregon, and Washington State-and Puerto Rico are eligible, although the national 
unemployment rate in January was 6.7 percent and 20 states had three-month average 
unemployment over 6.5 percent as of the middle of February. 

The EUC program expired on February 5, 1994, but EUC benefits may continue up to 
13 weeks for those who were eligible at the time the EUC law expired. About 650,000 long- 
term unemployed workers are now receiving EUC payments, but the Bureau of Labor Statistics 
reports more than 1.7 million jobless workers have been unemployed 27 weeks or more. 

Every week since EUC expired about 70,000 jobless workers have been exhausting their 
state UI benefits. This underscores the need for prompt action by Congress to continue the EUC 
program. 

The AFL-CIO strongly endorses the Advisory Council recommendation on continuing 
the EUC program. We also strongly support other Council recommendations: 

One calls on Congress to revise the federal-state Extended Benefit program to pay 13 
weeks of additional UI benefits in any state that suffers a total unemployment rate (TUR) of 6.5 
percent, a rate which should be the only trigger for EB or EUC. The Council rejected the 
insured unemployment rate (IUR) and the threshold tests as triggers for EB. 

Another Council recommendation calls for paying for EB improvements by raising the 
covered payroll for UI purposes from $7,000 to $8,500, if necessary. This modest increase in 
the taxable wage base is still far below the $19,300 average annual gross earnings of workers 
in all private non-farm industries. 

A third Council recommendation would remove the requirement that workers take a 
proffered minimum-wage job to stay eligible for extended benefits. All states have a 
"suitability" test for job offers, so the present federal minimum wage requirement is "excessively 
onerous," the Council declared. The states are better able than the federal government to make 
determinations of "suitability." 

We support all of these recommendations and urge you to incorporate them in any 
legislation dealing with the unemployment compensation system. 



32 



Under new "worker profiling" procedures aimed at identifying potential long-term 
unemployed workers, dislocated workers will be required to participate in appropriate re- 
employment services in order to remain eligible for UI benefits. We support the effort to 
identify workers who need special assistance, but we are very much concerned that "worker 
profiling" should not be used punitively to deny workers their UI benefits. 

We are concerned about this because already the Unemployment Insurance Service, in 
a January 28, 1994 directive to state employment security agencies, is asking states to amend 
their UI laws to provide for disqualification of workers claiming UI benefits if they fail to 
participate in re-employment services. If the states do not amend their UI laws, they must notify 
the Labor Department that they can make such disqualifications without a change in the law. 

This is a harsh, drastic, unnecessary, and wrong approach. It wrongly confuses 
"eligibility" and "disqualification." We urge you to clarify this issue, to make it clear, as 
Congress did in Public Law 103-152, Section 4(b), that UI claimants must participate in re- 
employment services "as a condition of eligibility for regular unemployment for any week", but 
that non-participation does not disqualify a UI claimant for any longer period. 

Re-Employment Proposal 

While I recognize that these hearings are limited to unemployment insurance, I would 
be remiss if I did not alert you to some AFL-CIO concerns about early drafts of the 
Administration's proposed "Re-Employment Act" and its companion proposal the "Retraining 
Income Support Act. " 

We commend the Administration for its recognition of the need for more retraining funds 
and income support during training for displaced workers. 

Overall, the Administration's comprehensive retraining program represents progress. 
However, we have a number of principles which we believe should be incorporated in this 
legislation. 

1. The Employment Service should be the center for job opportunities. The proposed 
Worker Adjustment Career Centers and One-Stop Career Centers should be part of the 
Employment Service, enabling it to serve as a focal point for providing career information, 
counseling, testing and assessment of skills, and information on training opportunities. 

2. Since the Employment Service suffered staff and budget cuts of 18 percent in real 
terms from 1984 to 1992, its funding should be restored to a level that enables it to function 
properly. Proposals to privatize the service or charge fees to users should be rejected. 

3. We believe all employers should be required to list their job openings with the 
Employment Service. Labor market information from the state systems is important and should 
be better integrated into a national job network. 



33 



4. In addition to adequate funds for the Employment Service, we ask Congress to restore 
cuts in funding for state administration of unemployment insurance. 

5. UI should be administered only by public agencies. We urge you to include a proviso 
to this effect because the Administration proposal relating to career centers and drafts of relating 
to one-stop career centers open the door to private, for-profit organizations and other private 
entities to take and process UI claims. We are concerned that such action will invade the 
privacy of workers and allow unwarranted pressures from employers seeking to protect their 
experience ratings to prevent workers from getting UI benefits to which they are entitled. 

6. We are concerned that earlier drafts of the "re-employment" bill have no requirement 
for a written plan for career centers seeking funding. Congress should require career centers 
to submit written plans to the general public, including state and local central labor bodies, for 
review and comment. This is essential to assure public accountability. 

7. Eligibility rules for retraining should be inclusionary rather than exclusionary and 
punitive. As noted earlier, we are also concerned about the possible misuse of worker profiling 
to deny training and income support, and displaced workers should have ample freedom and 
opportunity to select from a range of job-related services and training programs. 

8. Special attention should be directed to workers who are displaced by new government 
policies, including any health care workers who may be displaced as a result of health care 
reform. 

9. We urge that language be included in this legislation to require greater participation 
by workers and their unions in design and development of programs that serve workers. Greater 
labor participation in proposed governing boards (like the Workforce Investment Boards) and 
strengthened labor standards should be included in this bill. 

10. The 30-year-old promise of special attention to the needs of workers displaced by 
government trade policies should be continued. When other programs are combined, Trade 
Adjustment Assistance and NAFTA-TAA should retain their separate status and should be 
improved. 

The promise of TAA is a matter of special concern to the AFL-CIO. The promise 
remains. The JTPA Title IH dislocated worker program was not a substitute and the new 
Administration program for dislocated workers is not a substitute for TAA or for the NAFTA- 
TAA. 

The rationale for NAFTA is stronger today than when President Kennedy first proposed 
the program more than 30 years ago. At a time when the nation's trade deficit remains massive 
and is again rising, and the Administration is pursuing trade agreements that will cause the loss 
of even more jobs, it would be a serious mistake to end TAA. 



• 34 



The U.S. industrial base has shrunk by nearly 3 million jobs since 1979, a loss of one 
out of every seven manufacturing jobs. For workers, their families, and their communities 
across the nation the loss has been far more devastating than mere numbers or statistics can tell. 

With respect to NAFTA-TAA, the AFL-CIO strongly urges that this too should remain 
a distinct entitlement program. In spite of its serious inadequacies, NAFTA-TAA does constitute 
at least a limited commitment to assist some of the workers who will be the most direct victims 
of the North American Free Trade Agreement. To eliminate this modest program so soon after 
the ink has dried on NAFTA would be a breech of faith with America's working people. It 
would also deprive the nation of vital information on NAFTA-related job loss. 

The nation and the Congress went through three months of discussion and debate and 
review of NAFTA. One reason for passage was the Administration's promise of a special TAA 
funding at $90 million for 18 months. The Administration also made promises on sugar, citrus, 
and other items to make sure it would have enough votes. We don't see proposals to change 
any of the promises on those items, but already we are seeing proposals in early drafts of the 
legislation to be unveiled tomorrow, proposals to do away with the last vestiges of the only real 
promises made to workers in TAA and NAFTA-TAA. 

Retraining Income Support 

Let me turn now to the Administration's proposed "Retraining Income Support Act." 
We have a number of concerns. 

1. First, let me make it clear that the AFL-CIO specifically opposes any effort to attach 
retraining income support and unemployment compensation changes to legislation implementing 
the agreement reached last December in the Uruguay Round of multilateral trade talks under 
GATT. We believe such a procedure would essentially eliminate TAA and NAFTA-TAA. This 
is the wrong way to approach the important issues of income support and UI reform. 

2. Another major concern relates to the adequacy of the funds in the "Retraining Income 
Support Account. " It is clear to us that the cap on the funds transferred to this account will not 
be sufficient to take care of all, or even a substantial portion of the displaced workers who will 
be eligible. As a result, there will be frustration and cynicism about the entire program. We 
urge that the caps be eliminated. 

3. Funding for the overall program should be increased to provide for up to two years 
of training and income support — rather than the 78 weeks proposed in various drafts. This 
would enable workers to complete two-year training programs. Currently under TAA, many 
workers exhaust their income support before their training program has been completed and they 
are forced to drop out of training. 

4. The level of income support should be raised above what unemployment insurance 
pays to what was previously provided by Trade Adjustment Assistance — 70 percent of lost 
earnings up to a reasonable cap. The UI benefit level is woefully inadequate, averaging less 
than $150 a week in nearly 20 states. This is far below the poverty line for a family of three. 



35 



Many dislocated workers will not be able to take advantage of training opportunities without a 
higher level of income support. 

5. We believe there should be clear discretionary authority for the Secretary of Labor 
to grant waivers to the requirement that a worker must be in an education or training program 
to be eligible for income support. 

The much maligned waiver provision of the Trade Adjustment Assistance program is, 
in fact, essential for that program to operate effectively. The absence of any similar provision 
from the new NAFTA-TAA program and from the proposed "re-employment" bill is a serious 
deficiency. 

Mathmatica's recent evaluation of TAA found that training should be voluntary, not 
mandatory, for TAA recipients. Even for workers who are interested in retraining, waivers are 
essential to allow for real-world scheduling problems. There can be a substantial time gap 
between a worker's job loss and the starting date of an appropriate training program. This 
problem is often compounded by oversubscribed enrollments in training programs for demand 
occupations. Toward year-end, states can have difficulty in getting federal training funds and 
must grant waivers to tide unemployed workers over to the next program year. 

6. In regard to the proposed Retraining Income Support Account, to be financed by a 
0.2 percent FUTA federal surtax, the AFL-CIO has long insisted that FUTA funds should be 
used only for income support and should not be diverted to other purposes, however worthy. 
In this case we find the 0.2 percent surtax funds would be used only for income support and 
therefore we support this proposal. However, we object to capping income support at this 
funding level. To achieve its purpose this "re-employment" bill should be an uncapped 
entitlement for all dislocated workers. 

7. Various drafts of the proposed Retraining Income Support bill would (1) permit states 
to pay short-term compensation to workers on reduced work hours, (2) permit states to pay re- 
employment bonuses to unemployed UI recipients who find full-time jobs within 12 months of 
their filing for unemployment compensation, and (3) make permanent self-employment 
allowances to help unemployed workers start a business and become self-employed. 

We have no objection to these proposals. However, in regard to short-term 
compensation, we urge this Committee to add the following protections to-be included in the 
state UI laws: 

(1) Require adequate funding for the state unemployment insurance trust fund to protect 
the rights of all who are unemployed. 

(2) Where workers are represented by a union, require agreement with the union on 
short-term compensation. The decision to go on reduced hours and short-term compensation 
should not be a unilateral employer decision when workers are represented by a union. 



36 



(3) Require wage replacement of at least two-thirds of each worker's lost pay for up to 
40 percent of the workweek. 

(4) Require full retention of pension, insurance, or other fringe benefits; and 

(5) Protection against manipulation of short-term compensation that would discriminate 
against recently hired workers, particularly minorities and women. 

We welcome elimination of Extended Benefit work search tests and disqualification 
requirements. This is in line with a recommendation by the Advisory Council on Unemployment 
Compensation. 

Mr. Chairman, these are some of the key concerns of the AFL-CIO in regard to the 
Administration's "Re-employment" and its "Retraining Income Support." We will be offering 
additional views at a later time, but we will, of course, be happy at all times to work with you 
and your Subcommittee to shape this legislation in a constructive manner. Thank you. 



37 

Mr. KOPETSKI. Thank you for your summary. We will have some 
questions. 

We will move to Mr. Brown. 

STATEMENT OF WILLIAM R. BROWN, CONSULTANT, EMPLOY- 
ERS' TASK FORCE ON UNEMPLOYMENT COMPENSATION OF 
THE COUNCIL OF STATE CHAMBERS OF COMMERCE 

Mr. Brown. Thank you, Mr. Chairman. 

We appreciate this opportunity to comment on the first report of 
the Advisory Council. While we do not agree entirely with all of the 
recommendations, we do feel that they have done a very good work- 
manship job in factually analyzing the issues that they have ad- 
dressed thus far. 

The one area where we find weakness in their factual analysis 
thus far — and, of course, they will have an opportunity to correct 
it, as they make further analyses — is that we do not feel that they 
have adequately considered the extent of the employer financial re- 
sponsibility as opposed to society as a whole. I will deal with that 
issue further. 

As to the specific recommendations, on expanding the scope of 
extended benefits to include long-term unemployment, we find our- 
selves unfortunately more in agreement with the footnote to the 
first recommendation than we do to the entire recommendation it- 
self, and we are especially in agreement with the Council member 
in the footnote who emphasizes that an increase in employers' pay- 
roll taxes should not be used as a funding source to expand the EB 
program. 

The findings of the Advisory Council correctly note that the un- 
employment insurance system was designed primarily as a means 
of dealing with short-term unemployment and was never intended 
to combat long-term unemployment. 

In that regard, I would just like to briefly comment on the state- 
ment in Chairman Ford's opening statement. We frankly feel that 
the UI system has been doing a pretty good job of doing what it 
was designed to do, of dealing with short-term unemployment of 
those persons who have demonstrated a regular attachment to the 
labor force. 

It does not do a good job of dealing with the people who do not 
have attachment to the labor force, and that, of course, is much of 
what Janet Norwood was talking about. And we continue to feel 
that the insured unemployment rate is the best and most appro- 
priate trigger, because the benefits are going only to the people 
who are insured unemployed, not the total unemployed, many of 
whom have not demonstrated an attachment to the labor force. 

So we are in a disagreement on that point. But the background 
section of the report recommends that there are many practical dif- 
ficulties in expanding EB to include the long-term unemployed and 
dislocated. 

However, our concern primarily is not with the practical difficul- 
ties, but rather with the equity of expecting the employer to bear 
the entire financial burden. Therefore, we strongly agree with the 
final sentence of the Advisory Council's recommendation in this re- 
gard, which unfortunately Dr. Norwood did not have time to get 
into. That is to maintain the integrity of the unemployment insur- 



38 

ance income support system a separate funding source should be 
used to finance job search and education and training activities for 
the long-term unemployed. 

Now this is an area where labor and management have been in 
agreement in the past and have testified here at this table, and we 
note — and we are not as well prepared to testify on the administra- 
tion's reemployment bill as Markley was, because we have not seen 
all the details yet, but we understand that they are considering 
using some FUTA funds to help finance some of the reemployment 
program, and obviously that will cause us a great deal of problem. 
We hope we will be back later to testify more specifically on the 
proposal after we see exactly what it is, rather than trying to say 
at this point what our position is precisely. 

We have, however, and did in 1970, support the enactment of the 
extended benefits program. We continue to support the extended 
benefits program and believe that it is appropriate for employers 
to be expected to finance 26 weeks of regular benefits and 13 weeks 
of extended benefits. 

But we have consistently taken the position that anything be- 
yond the 26 weeks of regular benefits and 13 weeks of extended 
benefits should be the responsibility of society as a whole and not 
the employer. 

The Advisory Council recognized that to some extent in the re- 
port when discussing experience rating, in that they pointed out 
that one rationale for not experience rating the extended benefits 
was that extended benefits should be paid by society as a whole 
that there may be little justification to continue to charge EB bene- 
fits to the previous employer. 

However, we continue to support the right of the States to expe- 
rience rate extended benefits, if they choose to do so. 

As to the trigger, I mentioned that we believe that the insured 
unemployed continues to be the most appropriate, and as long as 
that is trie group that is going to receive the benefits, I recognize 
that Dr. Norwood makes a valid point that the total unemployment 
identifies what is going on in the total labor market better, but 
that is not the group to which benefits are being provided under 
the EB program. 

I think it is important to note that we did not support the 1981 
Federal legislation raising the IUR triggers from 4 to 5 percent. 
The Advisory Council's analysis indicates that if Congress had not 
made this change, the EB program would have operated much 
more as was originally intended. And we feel the best way to rec- 
tify this mistake that was made in 1981 is simply to go back to the 
previous 4 percent trigger. 

We agree with the Council recommendation that regional or sub- 
state data should not be used. We do have problems with raising 
the taxable wage base, and we note that this recommendation says 
only if additional revenue is required to implement the Council's 
recommendation. 

We believe that if the administration's Reemployment Act rec- 
ommendation is to consolidate various training and worker disloca- 
tion programs are adopted by the Congress, additional revenue for 
actual training and job placement will not be required. At least 
that is our hope. 



39 

There are indications that sufficient money is available in exist- 
ing programs if they were used efficiently. 

We agree with the Advisory Council's recommendation that each 
State should be allowed to determine an appropriate work search 
test. 

And we thank you for the opportunity to appear, since I see that 
the red light is up there. 

[The prepared statement and attachment follow:] 



40 



STATEMENT OF WILLIAM R. BROWN 

TO 

HOUSE WAYS & MEANS SUBCOMMITTEE 

ON HUMAN RESOURCES 

In behalf of the Employers' Task Force on Unemployment Compensation 

of 

The Council of State Chambers of Commerce 

Re: February 1994 Report and Recommendations of the Advisory Council 

on Unemployment Compensation 

March 8, 1994 

I am William R. Brown and I appear here today in behalf of the Employers' Task Force on 
Unemployment Compensation of the Council of State Chambers of Commerce Presently I 
am a consultant to the Task Force. Prior to my retirement several years ago as President 
of the Council of State Chambers of Commerce I spent some 40 years representing State 
Chambers on unemployment compensation issues at the State and Federal levels. 

We appreciate this opportunity to testify on the February 1994 Report and 
Recommendations of the Advisory Council on Unemployment Compensation. Although 
we do not agree with all of the Advisory Council's recommendations we feel on the whole 
it is a good factual analysis that should prove very useful. The one major weakness we find 
in the factual analysis is that it does not adequately consider the extent of the employer 
financial responsibility as opposed to society as a whole We will deal with that issue in 
this statement and. of course, the Advisory Council will have an opportunity to consider 
this matter further in later reports. 

Since this statement was prepared on very short notice we will supplement the statement 
which was made on January 11, 1994 in behalf of the Employer's Task Force by Charles 
Howarth to the Advisory Council at a hearing it held in San Francisco Mr. Howarth 
had not had an opportunity to see the proposed report of the Advisory Council when he 
testified since the Council was considering the draft of the report at that time. A copy of 
Mr. Howarth statement is appended to this statement. 

Advisory Council Recommendations on Extended Benefits 
Expand the Scope of EB to Include Long Term Unemployed 

The Task Force is more in agreement with the footnote to the recommendation to expand 
the scope of the Extended Benefit program to include the long-term unemployed than we 
are the recommendation itself. We are especially in agreement with the Council member 
that the footnote says " emphasizes that an increase in employers' payroll taxes should not 
be used as a funding source" to expand the EB program. 

The findings of the Advisory Council correctly note that the Unemployment Insurance 
system was designed primarily as a means of dealing with short-term unemployment and 
was never intended to combat long-term unemployment The background section of the 
Report also recognizes that there are many practical difficulties in expanding EB to include 
the long-term unemployed and the dislocated. Our concern, however, is primarily with the 
equity of expecting the employer to bear the entire financial burden. We strongly agree 
with the final sentence of the Advisory Council's recommendation that: 

To maintain the integrity of the Unemployment Insurance 
income support system, a separate funding source should be 
used to finance job search and education and training 
activities for the long-term-unemployed workers. 

We supported the enactment of Extended Benefit law in 1970 and agreed that 26 weeks of 
regular benefits and 1 3 weeks of extended benefits were properly financed by employer 
Federal-State payroll taxes. We have consistently taken the position that anything beyond 
those periods should be the responsibility of society as whole and not just the employer. 



41 



Although we believe that this initial Advisory Council Report does not deal adequately 
with this financing issue we would note that the background section (p 77) in summarizing 
the argument against experiencing rating states that: 

...While an individual employer may be deemed partially 
responsible for the initial consequences arising from the 
layoff of an employee, an individual's eligibility for 
countercylical extended benefits may be viewed as an 
indication that the unemployment spell is no longer the 
responsibility of the previous employer Under such a 
perspective, extended benefits should be paid by society as a 
whole and there may be little justification for continuing to 
charge EB payments to the previous employer. 

We have recognized the responsibility of the previous emplyers to pay for the regular 26 
weeks plus 13 weeks of extended benefits and support the right of the States to experience 
rate EB Beyond those periods it not only should not be the responsibility of the previous 
employers, but it should not be the exclusive responsibility of the employer community. 
Thus employer payroll taxes are not an appropriate source to finance an expanded EB 
program 

The Trigger for Extended Benefits 

Mr. Howarth in his testimony to the Advisory Council said that, "If a change is deemed 
necessary we believe a return to the 4% IUR 120 threshold would be more appropriate 
than any measure that uses TUR." He goes on to spell out our reasons for considering an 
AIUR a more suitable trigger than TUR 

It should be noted that we did not support the 1981 federal legislation raising the State 
IUR triggers from four to five percent. The Advisory Council's analysis indicates that if 
Congress had not made this change the EB program would have operated much more as 
was originally intended. The best way to rectify this mistake in our view would be simply 
restore the previous four percent trigger 

We agree with the Advisory Council's recommendation that neither regional or substate 
data should be used to determine whether or not Extended Benefits are available in a given 
area. 

Financing Extended Benefits Reform 

Much of our discussion has dealt with financing; therefore it will come as no surprise that 
we are opposed to the Advisory Council's recommendation for increasing the FUTA 
taxable wage base "If additional revenue is required to implement the Council's 
recommendations ..." Again Mr. Howarth dealt with this matter in his testimony to the 
Advisory Council. It must be kept in mind that liberialization of the trigger will 
automatically cause tax increases of substantial proportions. 

We believe that if the Administration's recommendations to consolidate various training 
and worker dislocation programs are adopted by the Congress additional revenue for 
actual training and job placement will not be required. There are indications that sufficient 
money is available in existing programs if they were used efficiently. 

Work Search Test Under Extended Benefits 

We agree with the Advisory Council recommendation that each State should be allowed to 
determine an appropriate work search test, based on conditions of its labor market The 
present Federal requirements are in effect Federal Benefit Standards As a matter of basic 
principle we are strongly opposed to any Federal Benefit Standards even if they are 
otherwise desirable 

Conclusion 

Thank you for this opportunity to testify We look forward to continuing to work with the 
Advisory Council and this Subcommittee as these and other related issues develop. 



42 



STATEMENT OF CHARLES O. HOWARTH 
TO THE ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 



January 11. 1994 



I am Charles O. Howarth. I am Senior Vice President, Unemployment Insurance Division, 
California Association of Hospitals & Health Systems. However, I appear here today in behalf 
of the Employers' Task Force on Unemployment Compensation of the Council of State 
Chambers of Commerce. 



Employer Support of UI as a "Social Insurance" Program 



We view the Federal-State Unemployment Compensation System as a successful Social Insurance 
program which has done a good job of carrying out its basic purpose. This purpose is to 
provide short-term income maintenance to persons who have demonstrated an attachment to the 
labor force and who become unemployed through no fault of their own. 

An essential element of employer willingness to fully fund the UI program is a viable Experience 
Rating Tax system. As long as the employer's UI taxes are used to pay short-term benefits to 
his employees and they have some relationship to the unemployment to which he may be 
considered to have contributed, the business community will support its continued full financing 
by employers. However, if either of these elements is seriously weakened, the employer's 
support for the UI Social Insurance Program will be undermined. 

Two potential developments would seriously weaken the "Social Insurance" principles of the UI 
system: 

■ Expansion of the coverage to include the large number of the "total" unemployed who 
have not demonstrated an attachment to the labor force and the structurally or other 
unemployed individuals who have exhausted State regular and extended benefits. This 
would move the UI "Social Insurance" program in the direction of welfare! While 
financing a "Social Insurance" program for its employees is properly an obligation of the 
employer, welfare benefits should be an obligation of society as a whole. 

■ Use of UI taxes to finance extensive training, retraining, relocation, new business 
ventures, etc. Business and labor have a common interest in protecting the UI trust funds 
for their intended use of providing adequate benefits. There are provisions now in State 
laws to pay benefits to claimants in approved training programs. Use of a payroll tax 
would be counterproductive and is not needed. 



43 



Extended Benefits 



Failure of EB to Operate as Anticipated 

While we feel that the regular UI program has been doing a good job, we must admit that the 
Extended Benefit program has not, in recent years, been operating as we had anticipated when 
we supported its enactment in 1970. In the early years of the program EB operated pretty much 
as we had anticipated. But then in 1982, in order to reduce Federal spending the trigger was 
increased from 4% of Insured Unemployment to 5% which greatly reduced the number of times 
EB triggered on. Continuation of the 120% threshold was and continues to be appropriate. If 
a change is deemed necessary we believe a return to the 4% IUR 120% threshold would be more 
appropriate than any measure that uses TUR. 

Our experience since the EB program was enacted in 1970 with Congress enacting special 
emergency benefit programs every time there is a serious economic downturn has led us to 
conclude that we were rather naive to think that a permanent EB program would remove the 
Congressional desire to enact special legislation that will provide benefits in every Congressional 
district regardless of relative need. 



AIUR More Suitable Trigger than TUR 

We believe that the Adjusted Insured Unemployment Rate (AIUR) is a more suitable measure 
for triggering EB than is the Total Unemployment Rate (TUR). We have a great deal of 
difficulty believing that a survey can produce a better figure than actual UI claims. We 
recognize, of course, that the Insured Unemployment Rate does not measure "total" 
unemployment and that the BLS survey serves an extremely important purpose in measuring 
"total" unemployment. However the EB program does not apply to the "total" unemployed 
population - it applies only to the "insured" unemployed. 

We view EB primarily as an income maintenance program which hopefully operates in a 
countercylical fashion. We are very doubtful that EB would be the best vehicle to deal with the 
dislocated worker program in any very extensive manner. 



Substate Tri22ering Not Desirable or Practical 

Triggering EB on a substate basis is neither desirable nor practical. It is not desirable because 
it would create great inequities. Next door neighbors with similar jobs and earnings could be 
treated very differently depending on their place of employment even though they were 
employed in the same State. It is not practical because reliable figures are not available without 
very substantial increased costs. 



44 



Work Search Requirements 

We strongly support State work search requirement, but we did not support the Federal work 
search requirement when it was enacted and we do not favor it now. We view the Federal work 
search requirement as a form of Federal benefit standard and we are strongly opposed to any 
Federal benefit standard. 



Favor Experience Rating EB. But Not by Federal Mandate 

We favor the States experience rating EB, but we do not believe the Federal government should 
require them to do so. We recognize that it might be contended by some that by the time an 
employee qualifies for EB his unemployment should no longer be considered the obligation of 
the employer. However, this is more of an argument for using general revenues for Extended 
Benefits than not using experience rating. Our position is that the States should use experience 
rating to the maximum extent feasible. Indeed the studies by the DOL Inspector General 
indicate that there is considerable room for improvement in this regard. 



Favor Continued 50/50 Federal-State Sharin2 of EB Costs 

The UI system has been a Federal-State partnership. If it is to continue as an equal partnership, 
it is important that EB costs continue to be shared on a 50/50 basis. 



EB Duration Should Continue at 13 Weeks 

The duration of EB should continue at 13 weeks. Certainly the financing of any program 
beyond these 13 weeks should be considered the obligation of society as a whole and not the 
individual employer. 

Financing 

Employer Obligation Should Be Limited to Regular and EB Benefits 

We took the position when the Extended Benefit program was enacted that it was appropriate 
for the employer to fully finance, as a proper cost of doing business, up to 26 weeks of regular 
benefits and 13 weeks of extended benefits and no more ! Any benefits beyond these periods 
should properly be considered the responsibility of society as a whole. Over the years as 
Congress has enacted one special emergency unemployment benefit program after another we 
have fought to see that these programs were financed from general revenues and not from UI 
taxes or trust funds. Most of the time this view has prevailed. 



45 



Trust Fund Solvency Should be Left to the States 

Generally the States have done a good job in addressing their solvency problems of recent years. 
We believe that each State should be tree to make its own decisions as to what is an adequate 
reserve for its particular economy and circumstances. If in a time of a severe economic 
downturn a State has to borrow from the Federal loan fund, that is preferable to building up such 
a big reserve that it is a drag on the State's economy. Absent a Federal benefit standard, which 
we vehemently oppose, a Federal solvency standard may result in undesirable benefit reductions. 

Increasing the Federal taxable Wage Base is not an appropriate means of addressing the State 
solvency problem. If a State wants to increase its Taxable Wage Base above the Federal level 
it is free to do so and most States have raised their base above the Federal level. 

One proposal for encouraging State solvency that might have merit is to reward States that 
maintain adequate reserves with additional interest on their reserve funds. The difficulty is to 
determine what would be an "adequate" reserve. We do not believe that the 1.5 high cost 
multiple is a proper test for most States. 



Increasine the Federal Taxable Wage Base Would Increase Competitive Wage Disadvantage 
of American Companies 

Consideration is being given to increasing the Federal Taxable Wage Base as a means of 
financing retraining, relocation, etc. for workers that find themselves unemployed due to Trade 
Agreements such as NAFTA. This would be a very strange approach indeed since economists 
generally agree that payroll taxes are a wage cost. Increasing the taxable wage base particularly 
hits those higher paying companies that are attempting to manufacture in this country and export 
in the World market. It would appear that a more rational approach would be to try to avoid 
increasing taxes that aggravate the already existing competitive wage disadvantage of American 
companies in many parts of the World. 



Indexing the Federal Wage Base Not Desirable 

The worst way to increase the Federal Taxable Wage Base is to index it. We feel that this is 
a matter that is best dealt with legislatively based on the needs and circumstances at the time. 
There is not the same rationale for indexing the UI Taxable Wage Base at either the Federal or 
State level as there is the Social Security base because neither UI base has any direct connection 
with benefits as does the Social Security base. This is also the reason that it really is immaterial 
whether or not the Federal UI Taxable Wage Base constitutes as high a percentage of covered 
wages as it once did. The correct questions are - is there a need to increase the base? And is 
the price that would be paid in increased wage costs worth using that approach? 



46 



Anv Increase in the Federal Base Should Be Decoupled from the State Bases 

If it is decided that the Federal Taxable Wage Base should be increased for whatever reason, 
the State bases should be decoupled from the Federal base. If a State wants to provide that its 
base will be whatever the Federal base is that should be its privilege although we are not certain 
that would be particularly rational if the bases were decoupled. To us it makes the most sense 
for a State to decide on its taxable wage base in terms of its economic and other pertinent 
circumstances, correlating any changes with its experience rating system. For the Federal 
government to arbitrarily require changes in the State bases plays havoc with experience rating 
tax schedules and frequently would upset carefully negotiated agreements between labor and 
management. 

Conclusion 

This briefly summarizes our views on the major issues which we understand the Advisory 
Council has been considering. We appreciate your giving us this opportunity. The Task Force 
stands ready to assist you in any way we can. 

We feel that the UI system faces a very challenging time. We hope that it can meet these 
challenges without undermining the basic Social Insurance concepts that have made it a very 
successful program. We believe that the UI program should continue to focus on providing 
adequate benefits for those who are unemployed through no fault of their own and have 
demonstrated an attachment to the labor force. To do otherwise will not be in the best interests 
of labor, business or the public. 



47 

Mr. KOPETSKI. You do not get ejected out of the room or any- 
thing, but I do appreciate your summary. 

Mr. McHugh, we will hear from you, and then we will have some 
questions. 

STATEMENT OF RICHARD W. McHUGH, ASSOCIATE GENERAL 
COUNSEL, INTERNATIONAL UNION, UNITED AUTOMOBILE, 
AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF 
AMERICA 

Mr. McHugh. Thank you, Mr. Chairman. 

My name is Richard McHugh, and I am an associate general 
counsel with the International Union-UAW in Detroit. 

I will eliminate some of the niceties and try to stay with the 
Chair's guidelines about staying within the time limit. 

The history of EB since the early 1980s should teach us some les- 
sons which should be applied to the current EB reform debate. 

First, the EB program failed to work during the last three reces- 
sions. 

Second, while cuts in EB enacted in 1980 and 1981 initially pro- 
duced "savings," ultimately the cuts cost more in the recent reces- 
sion than an effective EB program would have cost. 

Third, the EB reform recommendations of the Advisory Council 
on Unemployment Compensation are prudent and worthy of sup- 
port by the Clinton administration and adoption by the Congress. 

The time for EB reform is now. Both the economy and workers 
who will lose their jobs in the next recession demand a reform of 
the EB program. As Dr. Norwood testified, EB reform now will be 
cheaper than a temporary emergency program during the next re- 
cession. 

How can I say this? The Advisory Council report finds a very sig- 
nificant negative budgetary impact during the recent recession as 
a result of the effective elimination of EB in the early 1980s. This 
classic unintended consequence resulted in Congress spending at 
least 40 percent more on EUC benefits during the last year than 
a restored EB program, set up along the lines advocated by the Ad- 
visory Council, would have cost. 

This finding should be seriously noted by the Congress and the 
administration. Let me repeat: If a reformed EB program had been 
in place between January 1990 and August 1993, the Advisory 
Council estimates its cost, at most, at $14 billion. With no effective 
EB program in place, Congress was forced to adopt a less-targeted 
and mostly Federal-funded EUC program to assist the long-term 
unemployed. This program cost over $23 billion over the January 
1990 to August 1993 time period and $30 billion, overall. 

On this basis, a convincing case can be made that the restrictions 
of the early 1980s backfired and that a similar backfire can be ex- 
pected if Congress fails to get a reformed EB program in place be- 
fore the next recession. This is why the UAW urges Congress to 
begin moving forward now on EB reform. 

The Advisory Council has made five recommendations concerning 
extended benefits reform. The UAW fully supports these Advisory 
Council recommendations. 

I am going to try to focus, rather than on things that have al- 
ready been covered in the earlier testimony — there are some advan- 



48 

tages to being the last witness — on things that have not been men- 
tioned in quite as much detail. 

As noted, the EB triggers have been too high since 1981, and EB 
has not worked as a result. In addition to the debate over whether 
there should be an IUR or a TUR trigger, it is very important that 
Congress focus on the second significant restriction in our EB trig- 
gers over this period of time, and that is the provision that requires 
a State unemployment rate to be a percentage of a prior unemploy- 
ment rate. 

These percentage requirements were added based upon budg- 
etary considerations rather than any programmatic or policy 
grounds. The percentage restrictions on triggers cuts off EB in a 
state which has relatively constant, but high, levels of unemploy- 
ment during an economic downturn. 

For that reason, any EB reform package, regardless of whether 
it is eventually determined that we should use IUR or TUR trig- 
gers, should adopt EB triggers which operate without a percentage 
requirement as recommended by the Advisory Council. 

On the question of the Federal taxable wage base, I want to ad- 
dress that somewhat beyond the issue of whether an increase is 
needed to finance any possible additional cost of the Advisory 
Council's recommendations. 

Beyond the question of financing EB reform, the Federal taxable 
wage base should be substantially increased with a corresponding 
reduction in the FUTA tax rates. Certainly there is no question 
that the Federal taxable wage base level is sadly out of date. Thir- 
ty-nine States now have taxable wage bases above the Federal level 
of $7,000. The proportion of covered wages included in the Federal 
taxable wage base has fallen from 93 percent in 1940 to 36 percent 
in 1992, the lowest level in history. 

The failure to raise and index the Federal taxable wage base 
translates into an effective employer tax cut each and every year 
and the narrowing of the financial base of Federal/State UI system. 
And on this, I have to say that the employers really take a kind 
of a "hear no evil, see no evil" approach. They come before the sub- 
committee continuously — and since I have been the last witness 
several times, I can tell you that they always say that things seem 
to be working pretty well, and I think that it is really evident that 
that approach is no longer an appropriate approach. 

The final Advisory Council recommendation on EB reform which 
I will try to deal with is the recommended repeal of the Federal 
extended benefit work search requirements. These require that ba- 
sically, in layperson's language rather than lawyer's language, that 
a person that is on extended benefits accept any minimum wage 
job which will not kill him right away. 

The Advisory Council has unanimously recommended that these 
work search requirements be repealed. The requirements again 
were imposed for budgetary reasons and the attempt to impose se- 
vere work search efforts at a time when, by definition, the labor 
market has to be in great distress for the State to be triggered onto 
EB. This requires State agencies to enforce futile work search re- 
quirements and disqualifies claimants unnecessarily for technical 
good-faith work search violations. 



49 

State agencies are in the best positions to assess their labor mar- 
kets and to monitor work search efforts. The Advisory Council's 
recommendation does not leave EB claimants without a work 
search requirement; it simply advocates the repeal of wooden, in- 
flexible Federal requirements which do not take local labor market 
conditions into account. 

For this reason, we would strongly urge the subcommittee to re- 
peal the Federal EB work search requirements, as unanimously ad- 
vocated by the Advisory Council. 

In conclusion, Mr. Chairman, many say that the strongest factor 
in consumer confidence is how people perceive the job market, par- 
ticularly their own job security. The continuous ongoing shedding 
of jobs in the economy is a threat to consumer confidence and to 
stronger economic recovery. 

We believe one significant factor in the widespread anxiety about 
job loss is the lack of an effective jobless safety net in most States 
and, with the expiration of EUC, the absence of any meaningful 
program to assist the long-term unemployed. 

To fill the gap in protection of the long-term unemployed, we 
urge the subcommittee to take prompt action to ensure that the 
recommendations of the Advisory Council on EB reform are en- 
acted into law, so that they can be in place prior to the next reces- 
sion. 

Thank you. 

[The prepared statement follows:] 



50 



Statement Of 

Richard W. McHugh 

On Behalf Of The 

International Union, OAW 

Mr. Chairman, my name is Richard McHugh. I am an Associate 
General Counsel with the International Union, United Automobile, 
Aerospace and Agricultural Implement Workers of America (UAW) . 
On behalf of its 1.4 million active and retired members, the UAW 
thanks the Subcommittee on Human Resources for the opportunity to 
testify on the subject of the recommendations of the Advisory 
Council on Unemployment Compensation and related questions of 
unemployment compensation reform. 

This Subcommittee had a great deal to do with the decision 
to set up the Advisory Council on Unemployment Compensation and 
we congratulate the Subcommittee for its leadership in 
establishing the Advisory Council. This hearing today is 
important because it calls attention to the Advisory Council's 
first report. After more than a decade of neglect and abuse, our 
unemployment insurance system deserves a careful examination. 

At the outset, let me say that the UAW is strongly 
supportive of the Advisory Council's report and recommendations, 
and they are largely consistent with the positions we have 
advocated before the Congress over the last several years. A 
reader of the report will find that the positions of the Advisory 
Council are well documented and well reasoned. In addition, UAW 
President Owen Bieber's membership on the Advisory Council gives 
the UAW an added reason to support the Council's work and added 
determination to see its recommendations adopted. 

The Need For Unemployment Insurance Reform 

The Subcommittee on Human Resources has held- a number of 
hearings over the last several years in which an impressive and 
convincing record has been made on the shortcomings of our 
nation's unemployment compensation system. In addition, a number 
of other observers have supported the record made before this 
Subcommittee -- most importantly -- the General Accounting Office 
in its September 1993 report and the Advisory Council on 
Unemployment Compensation in its recently released first report. 

Let me highlight some of the revealing facts concerning the 
shortcomings of our UI system which are contained in the public 
record : 

The national average weekly benefit of about $175 replaces 
only 36 percent of average wages. This level is much lower 
for higher wage workers and much lower in some states. In 
short, current benefit levels are far below recommended wage 
replacement rates as well as federal poverty levels. 

The proportion of the unemployed getting regular UI benefits 
has fallen significantly during the last 15 years, with 
regular benefits reaching only 36 percent of the unemployed 
nationally, and less than 25 percent of the unemployed in 
seven states in 1992. In January, 1994, just over one third 
of the unemployed received a regular state UI benefit. 

Employer UI payroll taxes are at or below their historic low 
levels, whether measured as a percent of total payrolls or 
measured in real dollars, as adjusted for inflation. The 
federal taxable wage base has fallen to its lowest level 
ever, in terms of its coverage of total wages. 

In our view, the day has now passed in which a fair-minded 
person can defend the unemployment insurance status quo. This 
includes the regular federal-state UI programs as well as the 
Extended Benefits program. For that reason, the UAW urges the 
Subcommittee to begin the process of restoring the effectiveness 



51 



of our nation's unemployment compensation programs by- 
implementing a reform of our Extended Benefits (EB) program along 
the lines advocated by the Advisory Council's recent report. EB 
reform is an important first step toward meaningful, 
comprehensive reform of our nation's entire UI system. 



The Current Economic Situation 

It is important to remember that one of the central goals of 
unemployment compensation is to boost the economy during an 
economic downturn. In the past. Congress, the White House, and 
the states have ignored unemployment compensation reform issues 
during economic recoveries and passed quick, sometimes ill- 
considered changes during recessions. We hope that this Congress 
and the Clinton Administration will break from this pattern and 
we believe that the Advisory Council's report is an excellent 
starting point. 

While there are growing signs of economic hope, the reality 
is quite stark. In short, the economy is not "fixed," and the 
need for action to assist the long-term unemployed remains. 

Unemployment rates declined substantially during 1993. By 
year's end, it was down to 6.4 percent, as compared with 7.3 
percent 12 months earlier. While this clearly represents 
improvement in the "official" unemployment situation, joblessness 
and underemployment still persist at unacceptably high levels. 

February's job report found 8.5 million Americans unable to 
find work. Another 5.1 million want a job but are too 
discouraged to continue looking or they are working part time 
because they are unable to find full time work. This translates 
to close to 14 million unemployed or underemployed Americans. 

Despite the official end of the recession more than two 
years ago, long-term unemployment continues at an unusually high 
level. Nearly 2 million workers -- one out of every five of the 
unemployed -- have been jobless for more than 6 months. This is 
little changed from a year ago. And the average duration of 
unemployment, which stands at over 4 1/2 months, is up by half a 
week. In the last year, 2.5 million workers exhausted their 
unemployment insurance benefits. 

On the employment front, the U.S. added nearly 2 million 
jobs last year, about twice the number created during 1992. The 
Bureau of Labor Statistics characterizes this rate of job growth 
as "still not as high as in some previous years" and notes that 
many of the newly created jobs are temporary placements. In 
fact, from the low point of the recession to the end of 1993, 
employment in the personnel supply industry--largely temporary 
workers--accounted for more than one-fourth of the overall growth 
in employment. Other employment statistics confirm that the 
economy is not yet on track. Most importantly, manufacturing 
jobs remain 1.38 million lower than their level at the start of 
the last recession in July 1990. 

Although factories have begun recalling or adding workers, 
car and truck sales are up, and new homes are again in demand, a 
downturn in consumer confidence could stop the economy in its 
tracks, as has already happened several times during the course 
of this recovery. 

The strongest factor in consumer confidence is how people 
perceive the job market, particularly their own job security. On 
a daily basis, major corporations continue to announce so-called 
"downsizings" in a misguided effort by companies to play up to 
Wall Street's demand for short-term results. This "lean and 
mean" job slashing has started to elicit criticism even from 
within the business sector. A consultant on competitiveness 
issues, quoted in Fortune earlier this year, termed continuous 
downsizing "corporate anorexia." He warned, "You can get thin, 



52 



but it's no way to get healthy." Surveys of downsized firms have 
confirmed that in most cases firms failed to increase profits as 
expected and layoffs have left remaining employees demoralized 
and dispirited. 

Most importantly, the continuous shedding of jobs is a 
threat to consumer confidence and a stronger economic recovery. 
We believe one significant factor in the widespread anxiety about 
job loss is the lack of an effective jobless safety net in most 
states, and with the expiration of the Emergency Unemployment 
Compensation program (EUC) , the absence of any meaningful program 
to assist the long-term unemployed. 

Given the uneven nature of the economic recovery and the 
continuing concern about joblessness, Congress is well advised to 
act now to restore the effectiveness of EB. The resulting 
stronger unemployment compensation safety net would increase 
economic security now, while rebuilding the EB program prior to 
the next recession. 

The Need For Extended Benefits Reform 

The history of the Extended Benefits (EB) program during the 
1980s should teach us some lessons which apply to the current EB 
reform debate. First, the EB program failed to work during the 
recessions of the 1980s. Second, while the cuts in EB enacted in 
1980 and 1981 initially produced "savings, " ultimately, the cuts 
proved to be shortsighted and more costly in the recent recession 
than an effective EB program. Third, the EB reform 
recommendations of the Advisory Council on Unemployment 
Compensation are prudent and worthy of support by the Clinton 
Administration and adoption by the Congress. 

Since 1981, the long-term unemployed have been without an 
effective extended benefits program. Under the EB program, a 
jobless worker who has exhausted all regular state benefits may 
receive up to 13 additional weeks of benefits. EB is- intended to 
ease the additional hardships which fall on unemployed workers 
during a serious downturn in the economy. When hard times are 
widespread, the length of unemployment spells increases as jobs 
become more scarce. EB helps fill the gaps which occur when 
regular state UI benefits are exhausted. 

In order to offer extended benefits, a state's unemployment 
level must exceed a threshold, or trigger. The 1981 Omnibus 
Budget Reconciliation Act raised the EB trigger, making it nearly 
impossible for states to qualify for extended benefits. As a 
result, EB has not been available during periods of serious 
economic slowdowns in many states over the last decade. 

Before the changes in 1981, a state could trigger on 
extended benefits in two ways if its insured unemployment rate 
(IUR) was above 4 percent for 13 weeks and its IUR was 120 
percent higher than the state rate for the same 13-week period 
two years earlier, or if the state insured unemployment rate was 
above 5 percent. The 1981 changes raised both of these threshold 
rates by a full percentage point and eliminated a national 
trigger by which all states would qualify for extended benefits 
when the national IUR was above 4.5 percent. 

The effective elimination of EB has also undoubtedly made a 
contribution to the overall decline in the proportion of the 
unemployed receiving unemployment insurance benefits of any kind 
observed during the 1980s. This resulted in significant 
hardships for the unemployed and reduced the countercyclical 
impact of EB. One step which would reverse the declining trend 
in the proportion of the unemployed receiving unemployment 
insurance would be the restoration of an effective EB program. 

The impact of these changes in EB was dramatic. The 
Advisory Council's report notes that EB first payments declined 
by as much as 55 percent from their expected levels during 



53 



recession years of 1982 and 1983. More recently, EB triggered on 

briefly in only eight states during the 1991 recession. In 

short, EB has not worked as it should since the changes adopted 
in 1981. 

The Advisory Council also discovered a very significant, 
negative budgetary impact during the recent recession as a result 
of the effective elimination of EB. This classic "unintended 
consequence" resulted in Congress spending at least 40 percent 
more on EUC benefits in the last three years than a restored EB 
program, set up along the lines advocated by the Advisory 
Council, would have cost. 

While in its understated way, the Advisory Council doesn't 
trumpet this finding, it should be seriously noted by the 
Congress and the Administration. Let me repeat. If a reformed 
EB program had been in place between January 1990 and August 
1993, the Advisory Council estimates its cost at most $14 
billion. With no effective EB program in place. Congress adopted 
a less-targeted and mostly federally-funded EDC program to assist 
the long-term unemployed which cost over $23 billion over this 
time period. Overall, EDC outlays for the life of the program 
will reach $30 billion. 

The Advisory Council report concisely summarizes the current 
situation regarding EB reform. 

EB was enacted in 1970 as an attempt to create a 
permanent program that would automatically provide UI 
benefits for extended durations during periods of 
particularly high employment in a state. Such a 
program, when functioning effectively, would make 
additional benefits available to many regular UI 
exhaustees and would provide an added countercyclical 
stimulus for the macroeconomy in periods of recession. 
As designed, therefore, EB would eliminate the need for 
the emergency supplemental UI benefits programs that 
have been enacted by Congress on an ad hoc basis during 
every economic downturn since 1958. 

In other words, having a pre-existing, workable EB program is 
better policy and cheaper than our current ad hoc system. 

The Advisory Council's EB Reform Recommendations 

The Advisory Council has made five recommendations 
concerning Extended Benefits reform. First, the Council 
advocates an extension of EB for long-term unemployed workers who 
need reemployment assistance, while enhancing the capacity of EB 
to assist workers who exhaust benefits during economic downturns. 
Second, the Advisory Council recommends the adoption of a revised 
EB trigger based upon the Total Unemployment Rate, without the 
added requirement that current unemployment exceed a percentage 
of unemployment in a prior year. Third, the Advisory Council 
does not support the use of substate or regional EB triggers. 
Fourth, the Advisory Council recommends an increase in the 
taxable wage base in order to finance any increased costs of its 
proposals. Fifth, the Council urges the repeal of restrictive EB 
work search measures adopted in the early 1980s. 

The UAW fully supports these Advisory Council 
recommendations on EB reform. EB is not working as it is 
currently structured and it should be reformed prior to the onset 
of the next economic downturn. While, in certain instances, the 
UAW urges this Subcommittee to take stronger steps than those 
urged by the Council to improve EB, the measures recommended by 
the Council would represent a strong program of EB reform and go 
a long way toward restoring EB as a meaningful protection for the 
long-term unemployed and a more valuable countercyclical tool. 
We also recommend other steps not considered by the Council to 
restore an effective EB program. 



54 



With respect to the Advisory Council's first recommendation; 
namely, the expansion of EB to assist long-term unemployed 
workers with reemployment assistance, we believe that this step 
is necessary and overdue. The UAW supports positive measures to 
assist the long-term unemployed with job search, counseling, 
training, and reemployment. Certainly, income support is a key 
for worker participation in these activities. For this reason, 
an extension of EB to assist dislocated workers is a worthy 
proposal . 

We believe that the forthcoming dislocated worker proposal 
by the Clinton Administration will mark the start of a dialogue 
concerning the best way to provide these reemployment services to 
dislocated workers and the UAW intends to participate fully in 
this dialogue. Regardless of what EB enhancements are eventually 
developed to assist dislocated workers utilizing reemployment 
services, the basic EB program must still be restored in order to 
provide an extension of benefits to workers in states 
experiencing high unemployment rates. While re-training programs 
serve a useful purpose to prepare unemployed workers for new jobs 
during a recession and until a worker finds employment, an 
important role remains for EB in assisting those workers who 
exhaust regular state UI benefits. 

The Advisory Council's second recommendation calls for the 
adoption of an EB trigger based upon the Total Unemployment Rate 
(TUR) . The majority of the Advisory Council supports the TUR 
trigger as the best measure of unemployment and the best 
indicator of the number of unemployed workers competing for 
scarce jobs in a recessionary economy. Any effective reform of 
the EB program should set more realistic trigger levels in order 
to assure the availability of EB during recessions. 

We also believe a TUR trigger of 6.5 percent is a fair 
compromise between budgetary considerations and adequate 
protection of the long-term unemployed. The UAW fully supports 
the Advisory Council's recommendation for the adoption of an EB 
trigger based upon the TUR. 

In addition to the enactment of realistic EB triggers, the 
Advisory Council finds that a further restriction in EB triggers 
should be abandoned. This restriction is the trigger provision 
which requires a state's unemployment rate to be 120 percent of 
the IUR rate for the comparable period two years earlier, or 110 
percent of the rate if the state has adopted the TUR trigger 
option permitted under current law. In our view, these 
percentage requirements are based largely upon budgetary 
considerations, rather than programmatic or policy grounds. 

This percentage restriction on triggers cuts off EB in a 
state which has relatively constant, but high, levels of 
unemployment during an economic downturn. As a result, two 
similarly situated workers in a state will get EB based upon 
whether they are laid off early in a recession, when their 
state's unemployment rate exceeds the percentage requirement, or 
late in a recession, when a continuing high unemployment rate no 
longer meets the percentage element in the EB trigger. This 
makes no sense in terms of fairness or economic policy. 

A few examples from the 1980' s illustrate the harsh results 
of the percentage requirement. In June 1983, Michigan triggered 
off the EB program despite a total unemployment rate of 14.6 
percent. Ohio triggered off EB in May 1983 when unemployment was 
12.9 percent. Later in the decade, during the downturn in the 
oil industry, Louisiana triggered off EB in March 1987 despite an 
unemployment rate of 12.7 percent. While unemployment in 
Louisiana remained over 10 percent for two more years, extended 
benefits were never available to assist the long term unemployed. 
Rather than using the blunt instrument of the 120 percent 
provision, a more precise EB cutoff would require a tangible 
improvement of a state's current unemployment rate. For that 



55 



reason, any EB reform package should adopt EB triggers without a 
percentage requirement. 

The idea of adoptive substate or regional EB triggers was 
examined by the Advisory Council. While the idea has 
considerable initial appeal, there are serious data and 
administrative obstacles to this proposal and we agree with the 
Advisory Council's negative assessment of substate or regional 
triggers . 

The Advisory Council's fourth recommendation is a modest 
$1,500 increase in the federal taxable wage base to $8,500 as a 
means to finance any additional costs of its EB reform. This 
amounts to an effective increase of $12 per covered employee. We 
agree that raising the taxable wage base is a fair and 
inexpensive way to finance EB reform, and, in fact, the UAW would 
go much farther in this regard. 

Beyond the question of financing EB reform, the federal 
taxable wage base should be substantially increased. Certainly, 
there is no question that the federal taxable wage base level is 
sadly out-of-date. Thirty-nine states now have taxable wage 
bases above the federal level of $7,000. The proportion of 
covered wage included in the taxable wage base has fallen from 93 
percent in 1940 to 36 percent in 1992, the lowest level in 
history. 

As a result of the freeze in the wage base since 1983, 
employers gain an effective tax reduction each year. The erosion 
of the taxable wage base narrows the financial base of the 
federal-state system. It also impacts disproportionately on low 
wage employers and reduces the effectiveness of payroll tax 
experience rating. The UAW advocates a substantial increase in 
the federal taxable wage base with a corresponding decrease in 
the FUTA tax rate as a step toward more equitable financing of 
our UI programs . 

Many observers, including the UAW, have also advocated 
indexing the federal taxable wage base. Eighteen states 
currently have indexed taxable wage bases. We support a federal 
taxable wage base indexed at the average wage level (currently 
around $25,000 a year) . 

The final Advisory Council recommendation on EB reform is to 
repeal the federal EB work search requirement. This is a 
unanimous recommendation. These requirements were imposed for 
budgetary reasons and attempt to impose severe work search 
efforts at a time of great labor market distress. This requires 
state agencies to enforce futile work search requirements and 
disqualifies claimants unnecessarily for technical, good-faith 
work search violations. State agencies are in the best position 
to assess their labor markets and to monitor work search efforts. 
The Advisory Council's recommendation does not relieve EB 
claimants of a work search obligation, it simply advocates the 
repeal of wooden, inflexible federal requirements which do not 
take local conditions into account. For this reason, the UAW 
strongly urges the Subcommittee to repeal the federal EB work 
search requirements as unanimously advocated by the Advisory 
Council . 

In addition, the UAW once again urges this Subcommittee to 
re-examine other related 1980 and 1981 amendments to the EB 
program which act as an incentive for the states to adopt 
restrictive legislation for their regular state unemployment 
insurance programs. These restrictions encourage state action by 
requiring states to pay for the federal share of EB or requiring 
certain features in the regular UI program before workers can 
receive EB. For example, current EB provisions encourage states 
to require at least 20 credit weeks for basic eligibility and 
impose a waiting week for state unemployment benefits. The 
existence of these restrictions furnish a significant rationale 
for states to adopt restrictions in their regular unemployment 



56 



programs in our experience. The federal partner is not supposed 
to impose restrictions upon regular state UI programs. These 
restrictions should be repealed. 

The UAW believes the Committee should consider making the EB 
program completely federally funded, or raising the federal share 
of EB from 50 percent to 75 percent. This would relieve the 
added pressure on state trust funds caused by paying its EB share 
when the state is experiencing high unemployment. 

Conclusion 

Mr. Chairman, the decade of the 1980s was a decade of 
decline for our nation's unemployment insurance system. The 
adoption of an EB reform program, along the lines urged by the 
Advisory Council, would be a significant step. In addition, the 
time has come for the enactment of a comprehensive program of 
unemployment insurance reform which will reverse the decline and 
restore the effectiveness of our unemployment insurance system as 
an income maintenance and countercyclical program. 

The UAW appreciates the opportunity to present our views on 
the report of the Advisory Council on Unemployment Compensation 
and EB reform. We look forward to working with the members of 
this Subcommittee as you consider these important issues. Thank 
you . 

opeiu494 
KM:mgb 



57 

Mr. Kopetski. Well, on that optimistic note, Dr. Norwood, would 
you join us up here at the table? I have a couple of questions here. 

Mr. Roberts, you talked about — you mentioned the need to ex- 
tend the EUC program for another 6 months or until EB reforms 
are enacted. How do you suggest we finance this? 

Mr. Roberts. Well, the Advisory Council suggests raising the 
taxable wage base, and we see that as one part of the immediate 
solution. As a longer-run solution, we are concerned about raising 
the taxable wage base to a more realistic level. 

But I do not have any qualms about looking to general fund reve- 
nue, if necessary, as an interim step on the way to paying for the 
continuation of the EUC. 

Mr. Kopetski. That would require cutting somebody else's fund- 
ing. 

Mr. Roberts. Well, I am prepared to work with whoever wants 
to join in a cutting spree. I think this is a straightjacket that Con- 
gress has imposed on itself, and I think Congress does not have to 
Follow mindlessly a straightjacket that it has imposed on itself. It 
can make decisions as to what is appropriate to cut. And I do not 
feel that this is an insurmountable problem. 

Mr. Brown. Could I comment further from the employer view- 
point? 

Mr. Kopetski. Mr. Brown. 

Mr. Brown. I find myself largely in agreement with Markley, be- 
cause obviously from my statement, you can see that we view the 
present emergency programs as long past the point where the em- 
ployer has the obligation to pay the people that have been unem- 
ployed this long. It should be considered the responsibility of soci- 
ety; therefore, I will have to join Markley in looking for the general 
revenue. 

Mr. Kopetski. Dr. Norwood. 

Mr. Brown. If you choose to extend it. 

Ms. Norwood. My hope would be, Mr. Chairman, that the com- 
mittee and the Congress would work very rapidly to reform EB — 
so that emergency legislation, even if temporarily passed, would be 
for a very short time. 

Mr. Kopetski. Well, Mr. Brown, I want to get at something that 
you alluded to here, and that is who is really paying for this, 
whether it is FUTA tax or regular benefits tax. 

I thought the concept in the 1930s when we adopted this was 
that, in reality, the worker is paying, in lieu of getting a higher 
wage, the employer is going to pay to the Federal Government into 
an insurance program, and that in reality this is — they did not use 
the term then, I am sure — but FDR would have said "a win/win sit- 
uation," because you get the employee and his or her family 
through some tough times. 

They still have to have groceries. I mean, they are not buying 
new cars when they are on unemployment; they are going down to 
the grocery store; they are paying their mortgage, and so you do 
not have foreclosures on the house and all of those tough things 
that happen to people when they do become unemployed. But the 
fact is, they have to eat, and they go buy the food, and that is good 
for the local economy there. It is to try to provide a little leveling 
out of these recessions that do come in a cyclical nature. 



58 

So, you know, did something happen along the way? Did that 
concept change? Is it not coming out of the employee's pocket, and 
now it is coming out of the employer's pocket? 

Mr. Brown. Well, I would call it a theory rather than a concept, 
I think. Economists had argued ad infinitum where the final inci- 
dence of a particular tax is. 

I can assure you that employers, when they have their payroll 
tax increased, do look at it as an increased tax on the employer. 
Now whether they can adjust wages to compensate for it or wheth- 
er they can adjust prices, they are going to do one or the other if 
they can. If they cannot do either, they have to swallow it. That 
is the real world. 

The concept you describe is the economic theory of it, which does 
not really coincide with the real world all that much. 

Mr. Kopetski. Well, sometimes I agree with you in terms of all 
the money we spend on economists and their value to society, 
but 

Mr. Brown. I think the economists' theory is, you know, worth- 
while, because they are right. The employer is going to try and 

Mr. Kopetski. But if this tax 

Mr. Brown [continuing]. Either take it out of the employee's 
wages or pass it on to the consumer. But in the long run, they have 
to do some of those things, or they do not stay in business. 

Mr. Kopetski. Well, I guess my question is: What you are saying 
is that if the Federal Government imposes a higher tax, that the 
employer is going to lose the argument when it is time to increase 
the employee's wages. But the employee says: We do not care about 
higher taxes; give us an increase. 

Mr. Brown. That is right. And also he is going to look at his 
wage cost and his payroll tax cost when he determines whether he 
can afford to hire another employee. 

Mr. Kopetski. But is it not 

Mr. Brown. If he is going to face much higher costs, for example, 
to finance health care benefits, his ability to finance higher costs 
for unemployment compensation are going to be limited all the 
more. You have to look at the whole picture. And of course Ways 
and Means does look at the whole picture in the full committee, if 
not in the subcommittees. 

Mr. Kopetski. We look at the whole picture; I will tell you that 
much. 

Dr. Norwood, do you want to 

Ms. Norwood. I would just like to say a word in defense of 
economists, since I, myself, am one. 

Every employer that I am aware of does consider his labor costs, 
and he considers all aspects of his labor costs. So I think there is 
a great deal of truth in the real world to the fact that an employer 
looks at all of these. At least any rational employer does. 

One very interesting point is that the Advisory Council arranged 
for some focus group discussions of unemployed workers, and it 
was in California, when we were out there. It was very clear from 
the discussion among those workers that they really considered 
that the cost of UI was a cost that they were bearing. 

Now they may not have looked at it in theoretical terms, but 
they did feel that they were paying. 



59 



Mr. Brown. I- 



Mr. Kopetski. Well, let me finish with the Ph.D. economics here. 

Are you saying — I mean, are you agreeing with Mr. Brown that 
the practice is something else, tnat this really is not coming out of 
the employee's pocket? 

Ms. Norwood. No. 

Mr. Kopetski. Oh, you're in dis 

Ms. Norwood. I believe that any rational employer looks at his 
total labor costs. Certainly, for example, an employer looks at the 
cost of health care benefits or of any other kinds of benefits, vaca- 
tion pay and so on, and I think that he would look at whatever the 
UI tax is in the same way, as a part of his total labor cost, and 
therefore it gets involved in his decisions on whatever wage he can 
afford to pay. 

Mr. Kopetski. Mr. Brown, do you want to respond? 

Mr. Brown. Oh, I agree that it works that way. But it does not 
go just to labor costs. It also goes to the price charged to the 
consumer, depending on the market and depending on what they 
can do. In some cases, they cannot do either. But obviously they 
are goinj* to do one or the other if they can. 

But, Janet, I would suspect that some of the workers that you 
heard testify actually were thinking that the unemployment com- 
pensation tax was a tax that comes out of their payroll deduction. 
That, I find, is the common viewpoint of the worker, and therefore 
they feel certainly they are entitled to it. And I feel they are enti- 
tled to it, because their employer has paid for the benefit, but not 
because they have paid for it personally. 

In that connection, I meant to comment, Mr. Chairman, on that 
very good point you made about the wage base. The unemployment 
compensation wage base, unlike the Social Security wage base, 
does not have anything to do with benefits. Benefits are not based 
on the taxable wage base, so that you consider benefits as a sepa- 
rate issue from the level of the wage base itself. You got at that 
a little bit in one of your questions, and I just wanted to clarify 
that point. 

Mr. Kopetski. Let me have Mr. Roberts respond here to a couple 
of statements. 

Mr. Roberts. I think it is important to keep in mind that be- 
cause the taxable wage base is so low that the effective tax is just 
about 1 percent. In fact, I think overall it ends up at something 
like .9 percent. 

My point here is that 

Mr. Kopetski. Of an employer's tax load? 

Mr. Roberts. Of total payroll, right. And I think this is interest- 
ing and important and significant, and I understand why employ- 
ers are always opposing anything that would increase their tax 
load. 

I do want to put onto the table and into the consideration of Con- 
gress the issue of social costs that come from no compensation or 
inadequate unemployment compensation to workers and their fami- 
lies who are suffering when the income-earner lose the job, and 
there is either no income or low income coming in, and our income 
support system under the UI is, by and large — not totally, but by 
and large — it is quite inadequate. 



60 

But what I am trying to suggest is that society bears social costs. 
We have the human costs which have been demonstrated over and 
over again. Harvey Brenner at Johns Hopkins Public Health School 
has documented the tremendous social problems, the social dis- 
organization, divorce, suicide, and murder, alcoholism, drug abuse, 
family abuse, family disorganization that comes about when people 
suffer the effects of unemployment and prolonged unemployment. 

So what I am trying to suggest here is that there are going to 
be costs to society, whatever the costs are of the unemployment in- 
surance. 

Mr. Kopetski. That actually gets into my next question for Mr. 
Brown. But I wanted to have Mr. McHugh respond. 

Mr. McHugh. Thank you, Mr. Chairman. 

The only thing I would add briefly is that I think that one reason 
the employers are satisfied is that their taxes, whether they are 
measured either in terms of total payroll or in terms of real dollars, 
are at the lowest level since World War II, and they have essen- 
tially won the political struggle in the State legislatures, and as a 
result their taxes are low or at historic low levels compared to the 
life of the program, and it is not surprising, then, to hear that they 
find the current system satisfactory. 

On the other hand, I think Congress can look at that and say: 
Well, maybe it is appropriate for us to ask them to pay a little 
more, if we can avoid some of these costs that Mr. Roberts was 
talking about. 

Mr. Kopetski. Well, Mr. Brown, let me ask you this: What hap- 
pens to these people when they lose their unemployment, after the 
unemployment benefits are expired, or they are not covered? 

Mr. Brown. Janet and her Council have done some research on 
that so she can probably answer that better than I can. But I 
would like to do, in answering it a little further 

Mr. Kopetski. No, no, no. Wait 1 minute. Let me ask the ques- 
tion in a different way, because I am asking you the question, not 
Ms. Norwood. 

How do they pay their rent? How do they get groceries? 

Mr. Brown. Well, some studies, of course, show that once the 
benefits are up, they are much more likely to find a job and get 
back to work. But I agree that you do have to make provisions for 
them. I do not want to seem coldhearted here. 

Mr. Kopetski. Well 

Mr. Brown. And, of course, that is the reason Congress has con- 
tinued to extend — have special emergency extensions. And we have 
not really fought those. We have been concerned about how they 
are financed more than whether you did it. 

Mr. Kopetski. Well, wait 1 minute. 

Mr. Brown. And we are supporting liberalizing the unemploy- 
ment benefit — extended benefits trigger now. And it needs to be 
emphasized that the — going back to the 4 percent will be quite 
costly to the employers. Their taxes will increase automatically. 
Congress does not need to do anything to cause that to happen. 

Mr. Kopetski. Well, let me go back to my question and see if I 
can get you to answer it. 



61 

You are not suggesting that once these people's benefits expire 
that they magically find a job? Are you recognizing there is a struc- 
tural problem in our society 

Mr. Brown. Oh, yes. 

Mr. Kopetski [continuing]. With the long-term unemployed? 

Mr. Brown. Sure. We recognize there is a problem that needs to 
be dealt with, and we anticipate the administration is about to 
make their proposals for dealing with it. We have never opposed 
the training and retraining programs, and we feel that the admin- 
istration, as I said, has a good idea in trying to consolidate and co- 
ordinate them. We are concerned about how they are going to fi- 
nance them. 

Mr. Kopetski. Now for the people who do not find a job after 
their benefits have expired, how do they survive? Where do they go 
in our society? 

Mr. Brown. Well, of course, I guess that is one reason why we 
have a lot of welfare programs. 

Mr. Kopetski. Yes. Very good. 

Mr. Brown. And welfare reform, of course, is another area that 
Ways and Means is concerned about. 

Mr. Kopetski. That is right. 

Mr. Brown. Not one that has been testified on today. 

Mr. Kopetski. My point is that if they move off unemployment, 
they move onto the welfare system. 

Mr. Brown. Right. 

Mr. Kopetski. Because they have got to feed their kids, right? 

Mr. Brown. Right. 

Mr. Kopetski. They have got to have heating. You know, they 
have got to have some retraining programs. 

What do you think costs the employer more? The welfare system 
or the unemployment system? 

Mr. Brown. Well, the difference between the welfare system and 
the unemployment system is that the unemployment system is fi- 
nanced specifically by the employer. 

Now the welfare system, the employer is part of the general soci- 
ety that is financing it; therefore, it is spread over a larger popu- 
lation than it is just the employer. And we feel that when you get 
to that point, it is appropriate that it be spread over a larger popu- 
lation and society as a whole, rather than expecting the employer 
to continue to have responsibility for his former employees long 
after they have long ceased to be former employees, in some cases 
now several years in the case of all these extensions that Congress 
has had of special benefits. 

Mr. Kopetski. And who do you think does a better job of reem- 
ploying people? The Employment Service System or the welfare 
system? 

Mr. Brown. Well, I would certainly think the Employment Serv- 
ice does a better job and- 



Mr. Kopetski. So is it not in our best interest- 



Mr. Brown. I think there is a role to be played. If we could get 
the whole thing coordinated, I think it would be very good. 

Mr. Kopetski. And if it cost an eensy-beensy bit more than this 
1 percent of the employer tax load to strengthen that system, is the 
economy not better, the society better, the employer's taxes in 



62 

terms of the share that is going to the welfare system going to be 
lower, if we fix the problem as much as possible through the Em- 
ployment Service? 

Mr. Brown. Well, we are 

Mr. Kopetski. Just thinking about what is good for America. 

Mr. Brown. Yes, right. And we certainly believe that you do 
need to do some of these things. But we are concerned that it be 
done in such a way that it does not undermine the integrity of the 
benefit program, that you do not draw on taxes that were meant 
to be used for benefits, either the regular benefits or the extended 
benefits. 

And we are fearful that that is exactly what is being proposed 
and that the Congress will seriously consider. And that was the 
reason I emphasized the recommendation to the Advisory Council 
that a separate source of funding is needed, so as to not undermine 
the integrity of the benefit program. 

Mr. Kopetski. Let me ask you one other question, and then I 
want to go to Dr. Norwood again for her response to some of these 
statements. 

With your logic on the changing of the trigger or keeping it at 
least to covered employment statistics, is the logic not — the next 
extension of that logic then that the person should only have to 
take a job that is with a covered employer? 

Mr. Brown. No, I do not — I do not see that. 

Mr. Kopetski. I mean, you are saying that they are coming from 
a covered employer 

Mr. Brown. Yes. 

Mr. Kopetski [continuing]. They should just use the labor 
market 

Mr. Brown. No, no, the unfortunate situation is — and I think 
this is an area that I think my union brethren here are justly con- 
cerned about — is that much of the retraining that takes place is 
going to be to train union workers to take nonunion jobs. Obviously 
that is unfortunate from their viewpoint. 

But that, again, is the real world. That is what is going on. I do 
not like it any better than they do in some respects, but 

Mr. McHugh. Mr. Chairman. 

Mr. Brown [continuing]. I do not think you can get away from 
that. 

Mr. Kopetski. Well, the unemployed people in my district, that 
I talk to, they want a job, and if it is not good union people, they 
will go out and organize the place once they get the job. I am not 
worried about them. 

But let us hear from Dr. Norwood and then Mr. McHugh, and 
then I have one other area of questioning. 

Did you have some comments? 

Ms. Norwood. Well, I have a lot of comments. 

Mr. Kopetski. Yes, go ahead. We have got a few more minutes 
here. 

Ms. Norwood. I am not sure that I ought to really get at them. 

I do think that we have a serious problem with people who have 
exhausted their benefits, and I would also like to point out that we 
know very little about them. 



63 

The State exhaustion rate average for the country as a whole is 
29 percent of UI claimants who have exhausted their benefits. And 
they get dropped out of the system. Nobody follows them. Many of 
them, as you have quite properly indicated, go into the welfare sys- 
tem. But we do not really track them to find ways to help them, 
and I think that is a serious problem. 

I would be shedding my former responsibilities and the experi- 
ence, rather, that I got from my former responsibilities, if I were 
not to say that we really need more data on who exhausts their 
benefits and what happens to them. 

Mr. Kopetski. Mr. McHugh. 

Mr. McHugh. I was just going to try to clarify. I think there is 
a confusion sometimes in the terminology in terms of coverage and 
recipiency. And the reason that people are not getting benefits is 
not because their jobs are not covered under the FUTA system or 
under the State payroll tax system. It is because they have either 
not worked enough, they have lost their jobs for reasons that are 
disqualifying, and the disqualification penalties are much sterner 
than they used to be, or that they cannot reach new monetary eligi- 
bility requirements that have been imposed. 

And so to come back into your comment or your question to Mr. 
Brown, I think that what happens is, in many States that have 
very low IURs and very high TURs is that, because of the combina- 
tion of the labor market conditions in those States and the restric- 
tions they have put on their programs, their IUR is going to be 
very difficult to get up to 4 percent, even if you would lower it to 
4 percent. A State like Virginia over the last 10, 12 years has only 
been paying one in five of their unemployed a benefit. And Texas 
is another State that has a very big gulf between their IUR and 
their TUR. 

And so one of the problems with continuing to use the IUR is 
that those States are not going to ever trigger onto EB, even if they 
have very serious labor market problems. 

So it is not that people leave jobs that are covered and then are 
being forced to seek jobs that are uncovered. They are leaving — 
some 90 percent of the jobs in the economy are covered for pur- 
poses of unemployment insurance. It is that they are being dis- 
qualified or not becoming eligible for some reason. 

Mr. Kopetski. And you are a lawyer? 

Mr. McHugh. Yes. We can give them as much trouble as we 
gave the economists, I suppose. 

Mr. Kopetski. Well, you guys study a lot of logic in law school 
and that. And what do you think of this logic that if you come from 
a covered employer, and if you want — if, you know, the system is 
designed so that the trigger is based on covered employment or un- 
employment, then you should only have to look for a covered em- 
ployment job? 

Mr. McHugh. Well, I think that is the dilemma I am trying to 
address. I mean, basically I do not think it is — I do think that the 
total labor market is what unemployed people are competing in, 
and they have to find jobs with people who either — I mean, under 
Mr. Brown's logic, the people that are not eligible for unemploy- 
ment insurance are desperately, more desperately, seeking jobs 
than the people who are insured, and theoretically they are com- 



64 

peting harder than the people that happen to be insured unem- 
ployed people. 

And I do not think it makes sense to take three-quarters of the 
unemployed in many states and just say: We are not going to con- 
sider them for purposes of whether the EB program should be on 
or off in a State. 

Mr. Kopetski. Let me ask Dr. Norwood 

Mr. McHUGH. And that is why the majority of the Advisory 
Council came to the conclusion that a total unemployment rate was 
a preferable trigger, I think. 

Mr. Kopetski. Dr. Norwood. 

Ms. Norwood. I think the point that Rick McHugh makes is a 
very important one, and that is that you cannot really look at how 
this program operates unless you look at the eligibility require- 
ments, on the one hand, and the funding and the solvency of the 
State trust funds on the other. 

One can raise eligibility requirements and therefore have many 
fewer eligible for benefits and, as he quite properly points out, 
lower the IUR and therefore not pay out many benefits, or you 
have some States which do not do that. 

So it is a more objective system to use the TUR. 

Mr. Kopetski. Mr. Brown. 

Mr. Brown. Rick is only telling part of the story. He and 
Markley have done quite a bit of research in this area, and, of 
course, the State laws on eligibility — I believe the Advisory Council 
found in the short run that may be a fairly significant thing. 

It is not the big thing. The big thing, and especially in the long 
run, is demographic changes, not the provisions of the State laws, 
that cause this disparity between total unemployment and 

Mr. Kopetski. What do you mean? What kind of demographic 
changes? 

Mr. Brown. Those studies are summarized in here factually, so 
I refer you to the very good factual analysis that has been done by 
the Advisory Council, so you have the whole picture. And, you 
know, I agree that- 



Mr. Kopetski. You mean, getting at- 



Mr. Brown [continuing]. Part of it — and that part you have to 
look at, but you need to look at the other part, too. 

Mr. Kopetski. Is that the structural change? 

Mr. Brown. Yes, the structural, the demographic changes and 
the fact that you are dealing with new entrants into the labor mar- 
ket, who have no attachments to the labor force, therefore do not 
qualify. They are not covered. They are not covered; they are not 
part of the 90 percent. They are not in there at all. 

But they do show up in the excellent survey that Janet was re- 
sponsible for for many years, the Bureau of Labor Statistics. And 
I am sure that the Bureau of Labor Statistics is doing as good a 
job as can be done. But not being a statistician, I have some dif- 
ficulty, although I did have in graduate school a course in public 
opinion polling — I have a lot of difficulty in convincing myself that 
a sample produces more valid figures than the actual claim figures, 
you see. 

So I guess that is a conceptual thing. If I were a statistician, I 
guess I could understand it better, Mr. Chairman. 



65 

Ms. Norwood. Yes, you would. [Laughter.] 

Mr. Kopetski. Let me just ask one other area of questioning, and 
that is: On the FUTA tax, have you looked at all at reforming that 
tax itself? 

Ms. Norwood. We have looked at several of the issues. But we 
keep coming back to the fact that to determine what the particular 
increases in the tax or decreases, for that matter, that in order to 
do that, you really need to look at what the eligibility requirements 
are, what the level of benefits is, and also you need to look at eq- 
uity across the country. 

Some States have very high unemployment. Their trust funds 
are not in great shape. Other States are in a much better situation. 
And there is an equity problem, it seems to me, that does need to 
be looked at. 

So I think there are a whole lot of issues. And the Advisory 
Council does plan to get into that in much greater detail over the 
coming year. 

I should point out that I am representing myself; I cannot speak 
for the group of people on the Council who have somewhat dispar- 
ate views, although I think we have reached considerable agree- 
ment about the kinds of problems that exist in the system and the 
fact that reform is really very much needed. 

Mr. Kopetski. Well, I think that is a good place to end, with the 
fact that you have agreed on the problem. And, sure, we are going 
to differ on the options for solutions, and that is what these hear- 
ings are all about. 

I really appreciate each one of your's forthrightness and willing- 
ness to jump in the fray here. 

This committee and subcommittee will be working on the unem- 
ployment program that is hopefully going to be enunciated quite 
soon, and we are very mindful of the unemployed and what hap- 
pens to them and their families. We are also very much concerned 
about the tax load on the employers in this country. 

So we are going to use you, continue to use you, as a resource, 
and I appreciate your efforts here today. 

Thank you very much. 

The committee is adjourned. 

[Whereupon, at 11:25 a.m., the hearing was adjourned.] 



THE REEMPLOYMENT ACT OF 1994 



TUESDAY, JULY 12, 1994 

House of Representatives, 
Committee on Ways and Means, 
Subcommittee on Human Resources, joint with 

Subcommittee on Trade, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 1:05 p.m., in room 
1100, Longworth House Office Building, Hon. Harold E. Ford 
(chairman of the Subcommittee on Human Resources) presiding. 

Chairman Ford. The Subcommittees on Human Resources and 
Trade will come to order. 

Today I am pleased to welcome before the subcommittees the 
Secretary of Labor and a distinguished list of witnesses who will 
be testifying. We have as witnesses two Members of Congress, Con- 
gresswoman Lynn Woolsey and Congressman George Brown. We 
also will hear from knowledgeable witnesses representing unem- 
ployed workers, States, organized labor, and big and small busi- 
nesses throughout the Nation. 

I am particularly pleased with the support the business commu- 
nity has expressed for the bill that we have before us today. I have 
been working with private employers to create jobs in my home- 
town of Memphis, Tenn., and I am also convinced the support of 
the business community is very critical for the passage of the Re- 
employment Act. 

Last Friday, the Bureau of Labor Statistics reported on the em- 
ployment situation for June 1994. For the second consecutive 
month, the Nation's unemployment rate was 6.0 percent. That is, 
nonfarm payroll employment increased by 379,000 to 113 million. 
Although three-fourths of the employment gain was in services and 
retail trade, manufacturing and construction employment rose, too, 
by a total of 50,000 jobs. 

Although the unemployment rate has fallen by 0.7 percentage 
points and there are 888,000 fewer unemployed workers today than 
at the beginning of the year, our Nation is not yet at full employ- 
ment. While the unemployment rate for white persons is 5.3 per- 
cent, the unemployment rates for black and Hispanic persons are 
11.2 and 10.3 percent respectively, and the unemployment rate for 
teenagers is about 16.9 percent. Moreover, the number of long-term 
unemployed workers is still around 1.5 million, despite falling by 
176,000 workers in June. Mr. Secretary, as you know, in many 
urban areas unemployment among teenagers reaches as high as 45 
to 47 percent, especially among African -Americans and Hispanics. 

(67) 



68 

I am delighted to join with the acting chairman of the Trade 
Subcommittee, Mr. Matsui, to hold this joint hearing today of two 
Ways and Means subcommittees. I am delighted that you and other 
Members of Congress are here and that a distinguished list of wit- 
nesses will be testifying today. 

The full committee chairman, Mr. Gibbons is here, and other 
members of both subcommittees. 

At this time, I would like to yield to the acting chairman of the 
Subcommittee on Trade, Mr. Matsui, for any opening remarks. 

Thank you. 

[The prepared statement follows:] 



69 



OPENING STATEMENT 

THE HONORABLE HAROLD E. FORD, CHAIRMAN, 

SUBCOMMITTEE ON HUMAN RESOURCES, 

COMMITTEE ON WAYS AND MEANS 

Joint Hearing of the Subcommittee on 
Human Resources and Subcommittee on Trade 
on H.R. 4040, The Reemployment Act of 1994 



July 12, 1994 



Today I am pleased to welcome Secretary of Labor Reich and a 
distinguished list of witnesses, including Congresswoman Lynn 
Woolsey and Congressman George Brown, and knowledgeable witnesses 
representing unemployed workers, States, organized labor, and big 
and small businesses throughout the Nation. 

I am particularly pleased with the support the business 
community has expressed in this bill. I have been working with 
private employers to create jobs in my hometown of Memphis, and I 
am convinced the support of the business community is critical. 

Last Friday, the Bureau of Labor Statistics reported on the 
employment situation for June 1994. For the second consecutive 
month, the Nation's unemployment rate was 6.0 percent. Total 
nonfarm payroll employment increased by 379,000 to 113 million. 
Although three- fourths of the employment gain was in services and 
retail trade, manufacturing and construction employment rose too, 
by a total of 50,000 jobs. Average earnings held fairly steady 
at about $11 per hour. The average factory workweek remained at 
an unusually high level at 42 hours per week. 

Although the unemployment rate has fallen by 0.7 percentage 
point and there are 880,000 fewer unemployed workers today than 
at the beginning of the year, our Nation is not yet at full 
employment. While the unemployment rate for white persons is 5.3 
percent, the unemployment rates for black and hispanic persons 
are 11.2 and 10.3 percent, respectively, and the unemployment 
rate for teenagers is 16.9 percent. Moreover, the number of 
long-term unemployed workers is still around 1.5 million, despite 
falling by 176,000 workers in June. 

Black workers, hispanic workers, teenagers, and the long- 
term unemployed workers still need our help. For each of these 
groups, we must find solutions that address the unique causes of 
their unemployment, whether the causes of their joblessness are 
the unavailability of jobs, lack of education and training, 
isolation and hopelessness in deteriorating neighborhoods and 
communities, or underlying racism and sexism. 

Today we have an opportunity to focus on dislocated workers. 
The Reemployment Act of 1994 would consolidate the six Department 
of labor programs for dislocated workers. It also would provide: 
early intervention to help dislocated workers; long-term training 
assistance; income support for workers in long-term training; 
one-stop career centers to assist workers; increased flexibility 
in the unemployment insurance system; and a national labor market 
information system. 

Although the Committee on Ways and Means only has 
jurisdiction over parts of the bill -- the Trade Adjustment 
Assistance program, the proposed income assistance for the long- 
term unemployed, and the means to finance the outlays -- I am 
interested in all aspects of this bill. Our labor market 
problems demand no less than this type of comprehensive approach. 

I welcome Secretary Reich and the other witnesses today, and 
I look forward to an interesting and productive day of testimony 
on this vital subject. 



70 

Acting Chairman Matsui. I would like to thank you, Mr. Chair- 
man, for calling these hearings with the Trade Subcommittee. We 
appreciate it very much and it demonstrates your leadership in the 
area of job training and retraining for all Americans who need 
help. 

I would like to thank the Secretary for his initiative and for all 
his hard work and participation, particularly in today's hearing 
and subsequent hearings, that might be held by other committees 
in the House and the Senate. 

I would like to briefly make a couple of observations. One of the 
things that I think all of us have become aware of in this country 
is the fact that if, in fact, we as Americans want a dynamic, 
progrowth economy, we need to encourage change, whether it is 
through technology, whether it is through more and open free 
trade, or whether it is just through the process of innovation. 
Change is vitally important to growth in both America's and the 
world's economy. 

Secretary Reich has said numerous times last year and this year 
that we have experienced over 20 million job changes in the last 
decade, an average of 2 million jobs a year. If, in fact, we want to 
continue the process of high growth and a dynamic economy, we in 
this country are going to have to deal with the disruption that al- 
ways occurs whenever you have change. 

I go back only to 1941 when I was born, but I have seen tremen- 
dous changes in that period. I remember as a young child listening 
to the phonograph. I think my son today would not know what a 
phonograph is. In those days, we had 78 RPM playing records and 
then 33 RPM records and then cassettes and CDs, and there will 
be other innovations in the future. 

If we attempt to protect the makers of the phonograph, unfortu- 
nately, technology would go overseas and the products would be 
made in other countries and we as consumers would want them 
anyway. 

What I am trying to say is that as the change occurs from the 
phonograph to the latest technology on listening to music in Amer- 
ica today, you are going to see disruption in the economy. I think 
that is why we are here today. 

As Chairman Ford said, the business community understands 
that if we want free and open trade, technology changes, we are 
going to have to then provide the wherewithal for those people that 
are displaced, that have become unemployed because of these 
changes in our economy. This is where the Secretary of Labor has 
played such a paramount role by trying to consolidate the different 
training programs that have developed over the last 30 or 40 years 
to make common sense as we approach the 21st century and to de- 
velop a way to pay for it so that we can keep high growth and low 
interest rates throughout our economy. 

So I applaud the Secretary for his efforts and look forward to 
working with him. 

Thank you, Mr. Chairman. 

Chairman Ford. Chairman Gibbons. 

Mr. Gibbons. I applaud these hearings and I will try to give you 
as much scheduling time as we have available to get this work 



71 

wound up as rapidly as possible so we can get it to the floor for 
action. 

Chairman Ford. Mr. Santorum. 

Mr. Santorum. I appreciate the opportunity to be here and to 
listen to the Secretary. 

Mr. Chairman, I congratulate you on holding these hearings on 
a very important subject. I think once again we get down to fun- 
damentally the differences between how Democrats and Repub- 
licans look at problems. 

I would agree that retraining and getting people back into the 
workforce is a very important subject that the Congress must deal 
with. The question is how we accomplish it. 

I think both Republicans and Democrats are anxious to enact 
programs that do a better job than the 154 current programs that 
are authorized and appropriated in the Federal Government to deal 
with worker retraining. We just believe that the better approach is 
not a new public sector entitlement program where we are going 
to increase taxes, and even though this is a continuation of an ex- 
isting tax, this is a tax that is scheduled to expire. 

So it is an increase in taxes and it is a tax being taken from the 
FUTA account and being put into a separate fund that no longer 
will be used for unemployment benefits. That is the Darman 
model — if it walks like a duck and talks like a duck, it is a tax. 
We see that here. But we also see positive things here. 

The job search component of this program is something that we 
as Republicans believe has proven to be worthwhile and proven to 
be effective and we will be supportive of. We also support the reor- 
ganization of six training programs into one program. 

Unfortunately, under the Secretary's plan, of the 154 programs 
that are now in place to do job training and assistance, only 6 of 
them will be reorganized and folded into this law, leaving 148 other 
programs basically duplicating what this program is intended to ac- 
complish. 

So it is a good start on streamlining, but it doesn't go nearly as 
far as it should if we want to provide the kind of comprehensive 
training and retraining that the Secretary would like to see. 

We already spend $25 billion in these 154 programs adminis- 
tered by 14 different agencies. I think that this is much too modest 
an approach of just taking 6 agencies and combining them. 

We do create a new title in this proposal offered by the Sec- 
retary. We know the danger of creating new entitlement programs. 

The evidence of whether public sector retraining programs have 
been successful is virtually nonexistent. All the studies that have 
been done show that these programs are not effective in increasing 
wages and getting people back into employment over time. 

There is talk about putting this legislation on the GATT legisla- 
tion that we are going to be considering here this summer. I would 
just suggest that putting a $13 billion new program on a fast track 
without proper consideration on the floor and the ability to deal 
with that with the entire House is not a move that I think is in 
the best interest of the program nor one that will be supported by 
this side of the aisle. 

Thank you, Mr. Chairman. 

Chairman Ford. Mr. Crane. 



72 

Mr. Crane. No comments. 

Chairman Ford. Do other members want to be recognized? 

Mrs. Kennelly. 

Mrs. Kennelly. I ask that my full statement be placed in the 
record. 

Chairman Ford. Statements of members will be made part of the 
record. 

Mrs. KENNELLY. Thank you for coming here today. 

I am a woman representing the State of Connecticut, a State 
that is still in recession, a State that really needs this program 
that you are proposing. 

Connecticut historically has become a State of wealth and the 
basis of that wealth was manufacturing. We are having a difficult 
time in that sector, though we certainly intend to come back. But 
as the Secretary knows, people in Connecticut really want new op- 
portunities to learn so that they can have new opportunities to 
earn. So I commend you, Mr. Secretary, for this program that you 
are bringing before us. 

It revives a system that is duplicative, often not well coordinated, 
and not responsive to the individuals that really need a program 
of this type. I hope the new system will alleviate the concerns of 
workers who really have one thing in common: They have always 
worked and they want to continue to work. 

So I am delighted as I read through your plan that you have 
shifted the focus from unemployment to reemployment and from 
short-term training to training that would be continuous in a world 
that is changing. 

I thank you very much for the work you have put into this and 
I also am pleased to hear from the Chairman that we are going to 
move quickly on this because this is something that the country 
needs and something that you have ready for the country. 

Thank you. 

[The prepared statement follows:] 



73 



ittuhcu*^ ^.Spirtfw 



OPENING STATEMENT -- REEMPLOYMENT ACT; JULY 12, 1994 

Mr. Chairman, let me join with you and other members of the 
Committee in welcoming our very distinguished witness today. And 
let me say that his attention to the very critical issue of 
retraining is welcome indeed. 

As a Congresswoman from Connecticut, I represent a state as 
hard-hit as any by today's changing economic tides. Real estate, 
insurance, and banking have all taken their hits. But 
historically, most of Connecticut's wealth has been built on 
manufacturing. And it is in this sector that the economic news 
has been the worst, and is most likely to continue bad. 

In fact, a recent study by the New England Economic Project 
notes that manufacturing employment in Connecticut has declined 
from over 415,000 in 1984 to less than 290,000 in 1993. And, in 
the words of the report, manufacturing employment will fall 
"relentlessly" through 1998. 

As the Secretary knows, Connecticut workers are eager for 
retraining, for new opportunities to learn -- and for new 
opportunities to earn. I give Secretary Reich high marks indeed 
for trying revise a system that is duplicative, often poorly 
coordinated, and not always responsive to the needs of our 
dislocated workers. 

I am hopeful this new system will alleviate the concerns of 
workers. It is time to shift our focus from unemployment to 
reemployment and from short-term training to total retraining. 

However, I do have some concerns, as does the State of 
Connecticut. I have discussed with the Secretary, and I look 
forward to pursuing a solution. Thank you, Mr. Chairman. 



74 

Chairman Ford. Mr. Levin. 

Mr. Levin. Thank you, Mr. Chairman. 

Congratulations to both of you for holding this hearing and to the 
Secretary. 

I would like to make two very quick pleas: First, that we search 
for common ground across party lines. This problem has been with 
us and has been growing and if we simply fall back on preset posi- 
tions, we are never going to solve it. 

My second plea would be that we really remember how time has 
rubbed away the line between unemployment and reemployment. 
Mr. Matsui talked about what it was like when he was a kid. 

When I was a kid, almost everybody who was unemployed was 
going to go back to the employer he or she came from and the sys- 
tem was set up to discourage people from leaving the employer who 
laid them off. Today it is increasingly the opposite, and to say we 
should have an unemployment system separate from a reemploy- 
ment system means that we here in Washington missed the point. 
We missed the point. 

We have got structural unemployment in this country, but we 
have had structural inertia here in Washington. So my plea is that 
we try to set aside some traditional party positions and also do 
some fresh thinking. 

Mr. Secretary, you have been leading the way and I hope these 
two subcommittees and then the full committee, under Mr. Gib- 
bons' leadership, will work on a bipartisan basis with you to find 
an answer. 

Some of us have been working on this for 5 or 6 years and noth- 
ing ever happens and the situation becomes worse in every State 
represented by us here at the desk; every one of us. 

Thank you, Mr. Chairman. 

Chairman Ford. Mr. McDermott. 

Mr. McDermott. Thank you, Mr. Chairman. 

I ask unanimous consent to have my entire speech put in the 
record. 

I want to say that this is an issue that the State of Washington 
has struggled with at both ends of the scale. The timber workers 
have lost another 7,000 jobs over the last 6 or 7 years because less 
timber is coming out of the woods. Most of these jobs will never 
come back and retraining people who have spent their lives in the 
woods is a particular problem. 

On the other end of the scale, we have laid off 27,000 in aero- 
space in this last year and these people are retrainable perhaps as 
the aerospace industry picks up. 

So one system doesn't fit all. That is why we need the kind of 
flexibility that this bill is all about. 

Thank you for being here Mr. Secretary. 

[The prepared statement follows:] 



75 



Committee on Ways and Means 

Subcommittee on Health 

Subcommittee on Human Resources 

chairman 

Committee on Standards of 

Official Conouct 

Committee on District of Columbia 

chairman 

Subcommittee on Fiscal Affairs 

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Subcommittee on Judiciary and 

Education 



JIM McDERMOTT 

7TH DISTWCT. WASHINGTON 



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Washinffton, BC 20515 



Chairman 
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Policy Caucus 

Elected Regional Whip. Zone ; 



OPENING STATEMENT OF REP. JIM MCDERMOTT 

WAYS AND MEANS 

HUMAN RESOURCES AND TRADE SUBCOMMITTEES 

HEARING ON THE REEMPLOYMENT ACT OF 1994 

July 12, 1994 

Thank you Mr. Chairman. First, I would like to thank both 
Chairman Ford and Chairman Matsui for holding this hearing. 

The Reemployment Act is an important part of President 
Clinton's effort to help a large number of unemployed and 
dislocated workers - - in the state of Washington and across the 
country --to become employed and self-sufficient. 

The Reemployment Act of 1994 is an opportunity to look for 
creative and imaginative solutions to address the reemployment 
and training needs of the citizens of this country. 

Changes in the economy and the effect those changes have on 
workers, their families, communities, and businesses require 
strong action to turn the current unemployment system into a re- 
employment system. 

In Washington State we know this first hand. We are 
experiencing persistent layoffs in aerospace industry and in the 
lumber and wood products industry. Our aerospace industry has 
cut 27,000 jobs in four-and-a-half years. They expect to cut 
another 2,000 jobs over the next 6 months. The lumber and wood 
products industry has lost about 7,000 jobs since 1988 due to 
reduced timber harvests. Some of the coastal timber -dependent 
areas of Washington experience double -digit unemployment most 
months of the year. 

Fortunately, Washington State has been successful in 
designing innovative reemployment and training solutions to help 
these workers. Many of those solutions now in place in 
Washington State are similar to the ideas proposed in the 
Reemployment Act. 

Washington State recognized the link between unemployment 
insurance and retraining last year when our state government 
enacted the Workforce Employment and Training Act . The Act 
provided funding for community college training for an additional 
5,000 dislocated workers in the last two years. 



1 707 longwurth Building 

Washington, DC 20515-4707 

|202| 225-3106 



PRINTED ON RECYCLED PAPER 



1809 7th Avenue. Suite 1212 

Seattle. WA 98101-1399 

(206) 663-7170 



76 



In response to the sudden decline in aerospace employment, 
Washington State brought together Boeing, labor unions, community 
colleges, private industry councils and others to establish "one- 
stop" multi- service centers. 

Washington State has also experimented with innovative uses 
of unemployment insurance, including programs which allow workers 
to start their own businesses using unemployment insurance funds 
as seed money. 

All of these programs were initiated to help the dislocated 
worker get a new job or receive effective services and training 
more easily. 

I am pleased that the President has put these programs into 
the Reemployment bill. 

Mr. Chairman, this is not a perfect bill. But it is a good 
start and I am pleased to be able to work with Secretary Reich 
and this committee to make it even better. 



77 

Chairman Ford. Mr. Kopetski. 

Mr. Kopetski. Thank you, Mr. Chairman. 

I just want to say that I compliment the Secretary in drawing 
from the expertise in individual States that have been working on 
this issue. There is a lot of creativity that has been going on in 
State governments around the Nation trying to consolidate pro- 
grams, seeking Federal waivers in some instances to do that, and 
doing it on their own when they could legally, and I am pleased 
too that he has gone out to the States and sought out ideas that 
have been put to the test, brought them together, and put together 
a commendable piece of legislation. 

Chairman Ford. There are no further requests for recognition 
from members at this time. Mr. Matsui and I have talked about the 
number of witnesses on the list today. We are going to follow the 
5-minute rule for members as well as for witnesses. You will be 
limited to 5 minutes. The full text of the testimony will be made 
part of the record of the hearings. 

At this time, we have the privilege to hear from the Secretary 
of Labor. We are very honored to have you. It is clear that we have 
an opportunity to focus on dislocated workers in America. It is the 
Reemployment Act of 1994 that is before the Congress. 

It is my intent to work with members of the subcommittee, hope- 
fully in a bipartisan manner, to report a bill to the full committee 
some time in the very near future. Regarding whether or not it will 
be attached to any other bill, we can't say today. We will look for 
that ground that Mr. Levin talked about to try to bring a biparti- 
san bill to the full committee. 

Mr. Santorum. Mr. Chairman, I would ask that Secretary Reich 
be given more than 5 minutes to explain the bill. 

Chairman Ford. I did not mean to include the Secretary, al- 
though I think he is capable of explaining it in 5 minutes. 

Secretary Reich. 

STATEMENT OF HON. ROBERT B. REICH, SECRETARY, U.S. 
DEPARTMENT OF LABOR 

Secretary REICH. Thank you, Chairman Ford, Chairman Matsui, 
and distinguished members of the subcommittee. I will try to be 
brief. Sometimes I am not always able to be brief, but I certainly 
can be short. 

I am pleased to have the opportunity to discuss with you the role 
of the Reemployment Act of 1994 in equipping all Americans to 
move quickly and rapidly to new jobs. 

Let me, if I may, with your permission, submit my prepared re- 
marks for the record and simply talk about what we are proposing 
here. 

The good news you all know is that jobs are beginning to come 
back: 3.8 million net new jobs over the past 17 months, that is a 
very good record, 1 million net new jobs over the last quarter. The 
great American jobs machine is beginning to roll once again. But 
it is not entirely good news and we have to face the reality of a 
very changing structure of this economy. Eight million Americans 
are still unemployed. Almost 6 million Americans are working part 
time who would rather be working full time. 



78 

But more to the point with regard to the discussion we are about 
to have, the percentage of unemployed Americans who are unem- 
ployed for a long time, longer than 6 months, is at an all-time post- 
war high. Roughly around 20 percent of all unemployed Americans 
have been unemployed for more than 6 months. 

In the 1980s, the average was around 16 percent. In the 1970s 
it was 11 percent. 

What we are seeing, in other words, is a steady, relentless climb 
in structural unemployment and what I mean by structural unem- 
ployment is people who are unemployed who do not have the right 
skills, who are not in the right place, there is a mismatch between 
what employers want and need and what employees are able to 
provide. 

They are unemployed for a long time because they are having a 
hard time getting the right job. 

Over the last IV2 years I have been to many of your States, some 
of your districts. I have talked with employers, I have talked with 
unemployed workers. Again and again, I hear the same issue. Even 
though jobs are coming back, say many of those workers, I don't 
know what the jobs are and I am not necessarily qualified for the 
job. I hear from employers, and you will hear this afternoon from 
employers again and again, "We can't get the skilled workers we 
need. There is too great a gap." 

The economy, in other words, is changing. At the end of previous 
recessions, a large majority of people who were laid off because of 
the recession got their old iob back again at the end of the reces- 
sion. You recall we used to have a word called layoff. The word lay- 
off implied that once the recession was over, they would be back 
on the payroll, or at the very least, they would get another job in 
the same industry closely akin to the job they lost. 

Seventy-five percent of Americans who are losing their jobs or 
have lost their jobs in the last recession are not getting their old 
jobs back again. They have to get new jobs. And that is why we 
see the relentless rise of structural unemployment. We are seeing 
it again in every one of your States and in many of your districts. 
The unemployment insurance system, designed in the late thirties, 
was put into effect to deal primarily with cyclical unemployment. 
It provides people with limited, 26 weeks in most instances, income 
assistance during the downturn of the business cycle, until in most 
instances they get their old job back again when times get better. 

My predecessor, Frances Perkins, Secretary of Labor under Roo- 
sevelt, developed the conception of the unemployment insurance 
system. She produced a report for Franklin D. Roosevelt which 
talked about the part that most workers who lose their job will get 
their jobs back. That is no longer the case. 

Structural unemployment demands a different system; not an 
unemployment insurance system, but a reemployment system, a 
system geared to helping people quickly and efficiently get the next 
job, a system that is designed to help people move from job to job, 
give them the right information, the right job search assistance, 
and where necessary, the right skills. 

We do not have that system in place right now. Too many work- 
ers simply remain on unemployment insurance for 26 weeks, use 
up their unemployment insurance, then begin to try to find a job. 



79 

Over the last 2 years, we have spent enormous energy and re- 
sources as a Nation providing emergency extended unemployment 
insurance; $14 billion last year on top of the normal $22 billion of 
State and Federal unemployment insurance. The year before, it 
was $12 billion. 

Again, this money I am not suggesting is ill spent, but it doesn't 
necessarily help people get the next job. It simply keeps them in- 
tact, hoping that their old job is going to come back. 

Now the Trade Subcommittee and the Human Resources Sub- 
committee are dealing with issues that are very closely aligned 
with regard to workplace flexibility, the ability of workers to get 
the new job. Unless American workers feel tnat they can easily 
move from job to job, unless there is a labor market system in place 
that enables them to move from job to job, unless we have a genu- 
ine reemployment system, there will continuously, continuously be 
fears that open trade, international trade, technological change will 
jeopardize my job. 

If the choice is between no job and my present job, between an 
uncertain and fearsome future and my present job, by golly, I will 
do everything I can do to protect my present job. And thus the 
Human Resources Subcommittee agenda with regard to helping 
people get the next job quickly fits hand in glove with an agenda 
to open markets. 

Indeed, this administration is emphasizing as a core aspect of its 
economic policy open trade, trading internationally, opening foreign 
markets and the U.S. market combined with investments in people 
and investments in human capital, to use a coldblooded word. In- 
vestments in enabling people to move quickly and get the next job. 
That is what the Reemployment Act is all about, that is what much 
of health care is about in terms of ending job lock, what welfare 
is about, helping people get jobs, get the next job, staying in a job. 

Here with regard to reemployment our proposals rest upon many 
experiments that have been done. There is a wealth of experi- 
mental literature, there are pilot projects. We are not coming at 
this cold. 

In this area, we know what works. Not only have I visited 
around the country places that seem to be doing it well, we have 
experiments that show what works. 

Let me review them quickly because they are the core of the pro- 
posal we have before you. First and foremost, if you get to workers 
early after they lose a job and you give them reemployment serv- 
ices, job search assistance, job counseling and where necessary job 
training, and you identify those workers who are not likely to get 
their old job back again, you reduce the duration of unemployment. 

We have had experiments in five States, carefully controlled ex- 
periments with a control group that is not given these reemploy- 
ment services, and compared to the control group that is not given 
reemployment services, the experimental group has shown in some 
States 4 weeks quicker access to the next job and a good job. 

In fact, the investments that the public sector makes in helping 
people get the next job are more than twice repaid in terms of sav- 
ings in unemployment insurance and in terms of getting tax-paying 
citizens back to work; early intervention, job search assistance, job 
counseling and where necessary training, instead of simply income 



80 

assistance and an unemployment insurance system not geared to 
the next job. 

Second, we have a lot of evidence that when you give people bo- 
nuses for getting off unemployment, that is, you give them a lump 
sum payment of some of their future unemployment insurance that 
they otherwise would be entitled to, in exchange for taking a job 
that may not be quite as good as a job they had before, the bonus 
at least gives them a start and enables them to get back into the 
job market. This approach also reduces duration of unemployment 
insurance. It also helps people get the next start and it avoids the 
problem with regard to unemployed workers and people on welfare, 
the longer time you are off a job, the longer time you don't have 
connection with the job market, the inore difficult it is to get back 
into a job and back into the job market. 

Third, we provide a flexibility with regard to allowing States to 
provide part-time unemployment insurance with regard to employ- 
ers who otherwise might have had to lay off a large number of 
workers. Instead of laying off a large number of workers, you 
spread the burden of unemployment among many workers, have 
them work part time, and the State and Federal Government pro- 
vide part-time assistance. 

Fourth, consolidation. Let me be very clear on this. We have con- 
solidated in this legislation all of the programs for dislocated work- 
ers, all of the Federal programs dealing with dislocated workers. 

The GAO study to which you referred, Congressman, the 154 
programs deals with all education and training programs in the 
United States. That includes Pell grants, that includes all of the 
vocational education programs. That combines apples and oranges. 

What we are attempting to do in this legislation now is consoli- 
date every dislocated worker program, so regardless of why you lost 
your job, you shouldn't have to worry whether you are qualified for 
help. Regardless of why you lost your job, you should be able to get 
some assistance in getting the next job on the principle that we all 
gain when everybody quickly moves into the next job. 

Let me also add that a feature, a key feature of this program is 
one-stop shopping. Instead of an unemployment insurance office, 
instead of a lot of different offices, you ought to be able to come 
to one place at one time and get the assistance you need. 

Again, I have traveled from State to State, from district to dis- 
trict, from city to city, and I have seen this work. This isn't an 
untested hypothesis. These job centers, combined with consolida- 
tion of training programs, combined with the other principles I out- 
lined, getting people assistance early, identifying the people who 
are not likely to get their old job back, giving them a whole panoply 
of reemployment services, does work to help people get the next job 
more easily. 

Mr. Chairman, the net result is a more dynamic and flexible 
labor market. There is a great deal of discussion these days about 
the so-called natural rate of unemployment. 

There is a debate. Some people say we are coming very close to 
the so-called natural rate of unemployment. Some people say it is 
6 percent unemployment. Some people say 5.7, some people say it 
is 5.5. There is a great deal of dispute, but I can tell you 30 years 



81 

ago, 40 years ago, we thought the natural rate of unemployment 
was around 3 or 4 percent. 

What has happened is, regardless of the precise figure you ac- 
cept, there has been an increase in the structural rate of unemploy- 
ment that does not ignite inflation. What we are proposing here is 
a step in the direction of reducing the natural rate of unemploy- 
ment. Regardless of what you think it is, it must be reduced. 

By overcoming structural unemployment, by eliminating some of 
the frictions in the labor market, by enabling people to get the new 
job more quickly, we are, in effect, contributing to reducing the so- 
called natural rate of unemployment that does not ignite inflation. 

So not only are you reducing fears and worries that people have 
with regard to international trade or economic change, you are also 
contributing to noninflationary employment growth. 

As to financing, I want to make this very clear because there is 
some confusion on this as evidenced by some of your remarks. 
What we are proposing here with regard to most of these reforms 
are financially neutral. They do not call for any new funding at all. 

Many of the reforms I listed call for no additional funding. The 
only particular reform that may in certain instances call for more 
funding has to do with when someone is identified as not likely to 
get their old job back again. When that person is also identified as 
someone who could benefit from long-term training, we do need to 
provide extended benefits, extended unemployment benefits for 
those people. 

We are not talking about a large number of people. In fact, our 
estimates, our actuaries, are talking in the range of 220,000 a year, 
but those people can benefit from long-term training. Short-term 
training sometimes works, but it is not terribly effective. 

Congressman, you talked about long-term training. In my testi- 
mony — and I am happy to supply you with a lot of individual stud- 
ies — there is a great deal of evidence that long-term training, with- 
out degrees at the end — we are not talking about college degrees 
or community college degrees, we are talking about long-term 
training that does not end in a degree that is provided for some- 
body after high school between jobs — provides a 5 to 10 percent 
wage premium; that is, they get a higher level job, a better job as 
a result of that particular long-term training. 

I have here a chart. I apologize if you can't see it. We will get 
you specifics. 

[The chart referred to follows:] 



82 



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83 

Secretary Reich. This chart shows — here you see above average 
wages. The question is where did people get their training and 
their education in order to get above average wage jobs. 

The yellow indicates college. The blue indicates post-high school 
training of whatever course or whatever kind, nondegree in many 
cases and between jobs in many cases. The point is that that layer 
right here, postsecondary, nondegree training, is directly related to 
higher than average wage jobs. 

Many individuals cannot afford to get that kind of training if 
they don't have longer-term extended benefits. We are talking 
again about a small number of people. We are not talking about 
an emergency extended program nearly of the size that we have 
had over the past few years, $14 billion, $12 billion. In fact, we are 
talking about no increase in taxes at all. We are talking merely 
about extending a surcharge of 0.2 percent on unemployment in- 
surance that amounts to $11 a year per worker. 

American businesses have been paying it since 1977. It has been 
used in recent years to offset many other kinds of expenditures. We 
are suggesting that this 0.2 percent surcharge be extended as a 
capped — not an uncapped entitlement — and it be used only for the 
purpose for which it is intended, and that is to give workers who 
need it the extended unemployment insurance who are in training, 
who have been deemed eligible and who have been determined to 
be in need of that kind of training. 

Eleven dollars a year per worker, something that businesses 
have been paying since 1977, is a small investment in the kind of 
adaptability we need to make sure that workers are ready for the 
future. The fact that many businesses support this, the fact that 
you will hear from many businesses and business groups this after- 
noon, attests to the understanding in the business community of 
the importance of an adaptable workforce for the new global envi- 
ronment we now live in. 

The Reemployment Act in summary, Mr. Chairman, will help as- 
sure a dynamic workforce in the future. It will help assure rising 
living standards. It will not guarantee it, but it will be a step to- 
ward the kind of flexibility and dynamism that American workers 
and American employers both desperately need. 

Thank you. 

Chairman Ford. Thank you very much Mr. Secretary. 

[The prepared statement follows:] 



84 



STATEMENT OF 

ROBERT B. REICH 

SECRETARY OF LABOR 

BEFORE THE COMMITTEE OM WAYS AMD MEANS 

SUBCOMMITTEE ON HUMAN RESOURCES AND 

SUBCOMMITTEE ON TRADE 

U. S. HOUSE OF REPRESENTATIVES 

July 12, 1994 

Chairman Ford, Chairman Matsui, and distinguished Members of 
the Subcommittees: 

I am pleased to have the opportunity to discuss with you the 
role of the Reemployment Act of 1994 (H.R. 4040) in equipping all 
Americans to prosper in today's challenging new economy, and thus 
cementing a broad-based coalition in favor of open markets and 
continuous economic adaptation. 

Briefly put, the Reemployment Act represents the key 
component in an ongoing effort to transform America's 
unemployment system into a reemployment system. This is an 
urgent enterprise, because the current system is simply not 
working as it should for America's workers, businesses, or 
taxpayers. 

The programs that make up our existing unemployment system 
were designed in an earlier time to meet the needs of a simpler 
economy. Their main purpose was to cushion the employment impact 
of cyclical and seasonal downturns. The foundations of the 
current system were laid nearly sixty years ago by the Committee 
on Economic Security established by Franklin D. Roosevelt and led 
by my legendary predecessor, Frances Perkins. 

The unemployment insurance system launched during the New 
Deal was a remarkably durable success for so sweeping an 
experiment. But the economy has changed, and the system has not. 
It is time for us to return to Frances Perkins' experimental 
ethic, to learn from the evidence that six decades of experience 
offer us, and to take up anew the challenge of developing a more 
nearly perfect system. 

While cyclical and seasonal unemployment still exists, the 
problem of structural unemployment has grown in importance as 
technological progress, corporate restructuring, the integration 
of the world economy, and defense downsizing have accelerated the 
pace of fundamental economic change. A smaller fraction of lost 
jobs can be expected to return with the next upturn in the 
business cycle. A growing number of unemployed workers need to 
equip themselves for new jobs, often in new industries. The 
1935 report by Frances Perkins' Committee on Economic Security 



85 



noted that "normally the insured worker will return to his old 
job or find other work before his right to benefits is 
exhausted." Last year, however, fewer than one-fourth of 
unemployed job losers expected to be recalled to their old jobs. 
The broad statistical trends are mirrored in the anxieties of 
individual Americans. The Family and Workplace Institute found 
that 4 2 percent of surveyed workers reported recent job cuts at 
their workplaces, and 17 percent felt it was likely or very 
likely that they themselves would permanently lose their jobs 
within a year. 

Because our current system is not geared to assisting this 
transition to new work, we face a serious problem of long-term 
unemployment. Even in this increasingly solid jobs expansion, 
about 1.5 million Americans have been jobless for more than 26 
weeks. In fact, the share of long-term unemployed as a percent 
of total joblessness has been rising over the last 25 years. 
During the 1970 *s, about 11 percent of the jobless were long-term 
unemployed. So far in the 1990' s, the average has been about 16 
percent. The most recent figure, for June of this year, shows 
that over 19 percent of total unemployment is accounted for by 
people who have been without work for more than 26 weeks. 

As long-term unemployment rises, so does the number of 
unemployment insurance recipients who run through their full 
entitlement to benefits without returning to work. In 1993, 39 
percent of those who collected regular unemployment benefits 
ended up exhausting their eligibility. Over the past quarter- 
century, only in 1983, when the unemployment rate averaged 9.6 
percent, did a higher fraction of UI recipients fail to find work 
before their eligibility for benefits expired. 

We would face a different problem, and in some ways a 
simpler one, if long-term unemployment simply reflected a lack of 
jobs. Yet while workers are suffering high rates of 
unemployment, underemployment, and long-term joblessness, some 
employers are having difficulty finding the workers they need. 
This mismatch between labor supply and demand is a tragic waste 
for both workers and employers. But it also complicates 
macroeconomic policy. When workers are skilled and flexible, 
labor shortages in a particular industry can be quickly remedied. 
But when unemployed workers are unable co fill new jobs as the 
economy creates them, labor shortages can persist and kindle 
inflationary pressures, despite high levels of unemployment. 

Economists are fond of debating the "natural" rate of 
unemployment — the level of joblessness that is required to keep 
inflation in check. This is not the time or place for engaging 
that debate, but I would like to point out that whatever that 
rate might be, it is not an immutable constant, but can be 
lowered. If we can arrange to keep inflation under control while 
suffering less joblessness, we can spare America both the lost 



86 



production and the social damage that needless unemployment 
entails. And among the most promising ways to lower the natural 
rate of unemployment is to ease the transition of American 
workers from job to job. Workforce flexibility can help 
alleviate the painful paradox of simultaneous skill shortages and 
joblessness. 

We already know a great deal about how to boost workforce 
flexibility. In preparation for drafting the Reemployment Act 
proposal, the Labor Department conducted an exhaustive review of 
the evidence. We were determined to learn what works, and what 
doesn't work, for moving people quickly into new jobs. Wherever 
possible we have relied upon the kinds of experimental studies, 
with random assignment between participant groups and control 
groups, that can generate conclusive results. 

While high-quality experimental answers do not exist for 
every relevant question, on a large number of the key 
reemployment issues we have been able to assemble quite robust 
findings. We have extracted from the evidence several core 
lessons. And we have attempted to parlay these lessons, as 
quickly and directly as possible, into program reforms — in some 
cases through incremental changes that have already been 
accomplished, but more often through the new authority the 
Reemployment Act would provide. 

m 

1. The first lesson concerns the importance of early 
identification and action for dislocated workers. This makes it 
possible to reduce unemployment through simple, low-cost 
services. Some of the best data come from well-designed 
experiments in five states — New Jersey, Nevada, Minnesota, South 
Carolina, and Washington. When workers first applied for 
unemployment insurance, state agencies used labor market 
information, work history and educational attainment information 
to determine which of the newly jobless were at risk of long-term 
unemployment. These at-risk workers then received counseling and 
job-search assistance. 

A scientific assessment of these experiments found that at- 
risk workers who got this kind of basic reemployment assistance 
found new jobs earlier than they otherwise would have — averaging 
between one-half and four weeks earlier — with no loss in the 
quality of the employment they found. Quicker reemployment meant 
lower unemployment insurance costs; on average, government saved 
two dollars for every dollar invested in targeted job search 



87 



assistance. And workers, of course, were better off with a 
shorter period without work or wages. 

This evidence was sufficiently convincing to warrant our 
proposal and Congress's enactment of a special provision attached 
to one of the extensions of Emergency Unemployment Compensation 
last year. Under this provision, unemployment insurance offices 
will take steps to identify workers who are unlikely to get their 
old jobs back, and then link those workers to all available 
reemployment services. The Reemployment Act will enhance this 
reform by improving the availability, quality and effectiveness 
of these services. 

2. A second lesson shows the potential payoff to letting 
unemployment insurance recipients start their own businesses . 
Labor Department demonstration programs in Washington State and 
Massachusetts gave unemployment insurance claimants a self- 
employment option. Jobless workers interested in starting their 
own businesses were given training and support through the UI 
system. A systematic evaluation found that participants were 
about twice as likely as comparable non-participants to 
successfully launch a business. They also had higher average 
subsequent employment rates and earnings than the control 
group. 

The solid results from state demonstrations of self- 
employment assistance inspired a provision in the legislation 
implementing the North American Free Trade Agreement. Under this 
provision, all states have the option of creating self -employment 
programs of the sort that have been shown to pay off in 
Washington and Massachusetts. This authority is only temporary 
under current law; the Reemployment Act would make it a permanent 
option. 

3. A third lesson concerns reemployment bonuses paid to 
workers who find jobs quickly. Random-assignment experiments in 
Illinois, Pennsylvania, and Washington showed that offering such 
bonuses cut the average length of unemployment among eligible 
populations by one-half to one week — even though only ten to 
fifteen percent of eligible clients actually made use of the 
bonuses. The programs paid for themselves from the government's 
perspective; savings in benefit payments offset the cost of the 
bonuses. And since they meant higher earnings for participants, 



1 Bruce Meyer, Policy Lessons from the U.S. Unemployment 
Insurance Experiments, National Bureau of Economic Research 
Working Paper #4197, 1992 

2 Jacob Benus et al., A Comparative Analysis of the 
Washington and Massachusetts UI Self -Employment Demonstrations , 
Abt Associates, Bethesda, Md., November 1993 



88 



they generated net benefits overall. The evidence is robust 
enough to convince us to propose, in the Reemployment Act, a new 
reemployment bonus option for all States. 

4. Beyond reemployment bonuses and self -employment options, 
a proven provision to boost the flexibility of the unemployment 
insurance system concerns short-time compensation. This option 
allows states to offer partial unemployment benefits to employees 
who are working reduced hours, because their employer is seeking 
to reduce costs to avert a shutdown, or is spreading work 
reductions throughout the labor force in an attempt to avoid 
layoffs. About one-third of the States now operate short-time 
compensation programs. The Reemployment Act would encourage more 
States to offer this option. 

5. A central lesson concerns the importance of integrating 
skill training with unemployment insurance. While only a 
minority of job losers require new skills for reemployment, for 
those who do there are great advantages to integrating training 
and unemployment benefits. At present, too many workers who need 
and can benefit from training have their first exposure to 
training programs only after using up their unemployment 
insurance. (A 1988 study found that only one percent of the 
long-term unemployed had attended training programs by the time 
their eligibility for jobless benefits expired. ) 

Yet there is a good deal of solid evidence on the payoff to 
longer-term post-secondary education, including training at 
community colleges. While there are no good data on dislocated 
workers specifically, the findings on post-secondary education 
generally show a clear pattern of less joblessness and higher 
earnings as skill levels increase. Importantly, the payoff from 
education seems to be largely due to the new skills acquired, 
rather than the "credentialing" effect of graduation: Workers 



Paul Decker and Christopher O'Leary, An Analysis of Pooled 
Evidence from the Pennsylvania and Washington Reemployment Bonus 
Demonstrations, Unemployment Insurance Occasional Paper 92-7, 
U.S. Department of Labor, 1992; Bruce Meyer, Policy Lessons From 
the U.S. Unemployment Insurance Experiments, National Bureau of 
Economic Research Working Paper #4197, 1992 

Philip Richardson et al., Referral of Long-Term 
Unemployment Insurance Claimants to Reemployment Services, U.S. 
Department of Labor Occasional Paper 89-2, 1989 

A good overview of the growing role of education levels in 
income differentials is Frank Levy and Richard Murname, "U.S. 
Earnings Levels and Earnings Inequality: A Review of Recent 
Trends and Proposed Explanations," Journal of Economic 
Literature, September 1992 



89 



with college experience earn five to ten percent more than do 
comparable high-school graduates per year of courses completed, 
whether at four-year or community colleges, and whether or not 
college education leads to a degree. 

By contrast, the evidence suggests that many forms of short- 
term training for dislocated workers are not effective. In three 
studies — two of them featuring randomized control-group methods — 
workers offered short-term training plus job search assistance 
showed no significant increase in earnings or employment over 
workers offered job-search assistance alone. while the 
Reemployment Act encourages rapid reemployment through improved 
job search assistance, it also incorporates three provisions to 
make longer-term training a practical option for workers who need 
it: First is the emphasis on early identification and 
intervention, to get dislocated workers into training before 
their regular unemployment benefits are exhausted. Second is the 
Act's provision for extended unemployment benefits for workers 
who need it to complete appropriate retraining programs. Third 
is access to student financial assistance, including income- 
contingent loans, to fund especially lengthy or expensive 
training regimes, or for workers who are ineligible for income 
support delivered through the unemployment insurance system. 

6. A sixth lesson is the importance of integrated, 
accountable delivery of reemployment services. It requires no 
sophisticated analysis to pinpoint the problem: The current 
system is confusing and complex, balkanized into a profusion of 
narrow programs. We clearly need to streamline the delivery of 
employment and training services. The Reemployment Act, which 
will combine all six programs for dislocated workers into a 
single system, represents a promising step toward program 
consolidation. And this is only our first step. The 
Reemployment Act is crafted to encourage additional waves of 
consolidation, and set in motion a continuous campaign of 
streamlining and improvements. 

Program consolidation is clearly important for efficiency 
and accountability. An equally central tactic for accomplishing 
the same key goals, however, is integrated one-stop delivery at 
the point where the customer encounters the system. One of the 



Thomas J. Kane and Cecilia Rouse, Labor Market Returns to 
Two and Four-Year College: Is a Credit a Credit and Do Degrees 
Matter? Working Paper #311, Industrial Relations Section, 
Princeton University, January, 1993 

7 The studies are summarized in Duane Leigh, "An Overview of 
Existing Evaluation Evidence for the U.S.," in Assisting Workers 
Displaced By Structural Change: An International Comparison, 
Upjohn Institute, Forthcoming 1994 



90 



cornerstones of the Reemployment Act is the progressive 
construction of a network of one-stop career centers that will 
provide a common point of access to a wide range of workforce 
services — not just for dislocated workers, and not just programs 
based at the Labor Department. Fortunately, there is a wealth of 
pioneering models on which to build. In California, for example, 
the NOVA project runs a one-stop reemployment center for laid-off 
workers in the defense and electronics industries in the Silicon 
Valley. NOVA also partners with local employers to provide on- 
site career transition centers. In Tampa a former shopping mall 
was reconfigured into a one-stop employment and training center 
that collocates eight organizations and replaces 13 separate 
employment and training offices. The center provides "customer- 
friendly" access to a rich array of reemployment services, 
including job data banks, skills assessment, counseling and 
training. Up-to-date information technology, common intake 
forms, and cross-trained staff are utilized to minimize red tape 
and maximize customer service. In Washington State, the Boeing 
Dislocated Worker Project provides one-stop delivery of services 
such as testing, assessment, job placement workshops, job 
development, financial aid, career counseling, entrepreneurial 
training and job clubs. This project, which just received the 
National Performance Review's Hammer Award, is a true partnership 
between business, labor and government. 

In Tennessee, the Columbia State Community College runs a 
one-stop center for dislocated workers that provides access to 
assessment, retraining, reemployment and rapid response services 
offered by a variety of Federal and State programs and agencies. 
In Iowa, the Eastern Iowa Community College District has 
creatively integrated job training programs, economic development 
and rapid response assistance, by developing centers of 
excellence in graphic arts and manufacturing technologies to 
prepare workers for "demand" occupational fields. Oregon has a 
statewide program called Choices and Options, which helps 
dislocated workers assess their options and make informed 
decisions before their eligibility for jobless benefits expires. 
And in Michigan, the famous Focus: HOPE program delivers high 
quality training, carefully connected to jobs in demand for the 
local labor market. 

I can't expect to even mention all of the promising 
approaches under way out in the States: a Pennsylvania program 
that provides non-traditional construction-related skills 
training for low-income women and places them in building trades 
apprenticeships working for utility, transportation and 
manufacturing companies; and the highly regarded CET program, 
based in California and serving 36 communities in California, 
Arizona, Maryland, Nevada, New York and Virginia, that uniquely 
combines basic skills remediation with occupational skill 
training, life skills instruction, counseling and job placement. 
The list could go on and on. The Reemployment Act takes the best 



91 



ideas developed in these "laboratories of democracy" — one-stop 
service delivery, market-driven training, customer orientation, 
computer-driven labor market information systems, and so on — and 
builds them into the national reemployment system. 

The incremental reforms to the unemployment insurance 
system — reemployment bonuses, short-time compensation, self- 
employment options, universal profiling — and the local 
innovations occurring throughout America will make a modest but 
real difference for dislocated workers, and for public budgets. 
But modest changes are not enough. If we are to do right by 
American workers faced with a fundamentally different economy — if 
we are to honor through action the pragmatic, experimental 
tradition of my predecessor Frances Perkins and your predecessors 
in the Senate who shaped America's original unemployment 
insurance system — we must commit to a fundamental transformation 
in policy and programs. 

The mismatch between the current system's structure and the 
needs it is pressed to serve has occurred because the system is 
not geared to reemployment. There have been few investments in 
new skills, little growth of flexibility, and no coordinated 
attack against the problems of structural unemployment. 

However, the present system serves a crucial function in 
responding to economic downturns. For example, it pumped over 
$26 billion dollars into the economy in FY 1992, responding to 
the recent recession. This compares to $13 billion provided in 
regular State benefits in FY 1988. These State expenditures were 
augmented by Emergency Unemployment Compensation payments 
totalling $24 billion over the last two years. This money was 
not wasted, to be sure. It spared jobless workers from the worst 
forms of financial hardship and helped shore up consumer 
spending, which are important accomplishments. 

But we can do better. In the current budgetary environment, 
we can and must deploy the resources of the unemployment 
insurance system to greater effect. By gearing jobless benefits 
to rapid reemployment, and by integrating cash benefits and skill 
training programs, we can respond more effectively to the risks 
and opportunities of today's economy. 

The Reemployment Act is designed with a keen awareness of 
fiscal limits. Most of the financing is discretionary, and the 
majority is financed through consolidating separate dislocated 
worker training programs into this integrated system. Additional 
discretionary funds come from reductions in other Federal 
programs. The modest mandatory component, limited to retraining 
income support, is initially financed in part by offsets from 
consolidation, and in part by applying to a jobs-related purpose 
certain Unemployment Insurance revenues. One of the programs to 
be consolidated into the Reemployment Act system is Trade 



92 



Adjustment Assistance. We have attempted to ensure a smooth 
transition from this categorical adjustment program to the 
Reemployment Act's comprehensive approach. Virtually all trade- 
displaced workers will receive equal or superior benefits under 
the new system. One of the main distinctions is that extended 
unemployment benefits will be targeted to workers who need that 
support to complete longer-term training programs. 

Beginning in FY 1999, income support for workers who need 
long-term training will be financed by a permanent extension of 
the 0.2 percent surcharge first levied in 1977 under the Federal 
Unemployment Tax Act. This FUTA extension is a small but crucial 
component of the systematic reform envisaged by the Reemployment 
Act. Since some dislocated workers will inevitably need long- 
term training to equip themselves for reemployment, a reliable 
source of funding to make this training possible is essential to 
the integrity of the reemployment system. Income support is 
available only to the minority of workers who participate in the 
training for reemployment. By integrating training with the 
unemployment insurance system, this provision reinforces the 
system-wide emphasis on preparation for new jobs that is central 
to the overall reform effort. 

The extension of the 0.2 percent surtax and its dedication 
to retraining income support in no way threatens the balances in 
the Federal Unemployment Trust Fund accounts. The balances in 
these accounts are expected to total $21 billion at the end of 
1999, more than enough to handle the costs of a recession, in the 
unlikely event that one would occur. 

The mandatory component is carefully crafted to meet the 
imperative of fiscal discipline. It is tightly capped. Spending 
for income support cannot exceed 20 percent of FUTA receipts. 
While some workers will need training that goes beyond their term 
of eligibility for income support, they will not be left on their 
own. Income-contingent loans and other forms of financial aid 
delivered under the Higher Education Act of 1965 are intended to 
extend, supplement, or in some cases substitute for income 
support . 

Since the income-support financing is linked to FUTA 
receipts, and since the wage base against which that charge is 
levied is limited to the first $7,000 paid to a worker, the 
maximum annual cost of retraining income support is about $11 per 
employee. I believe this is a small price for business to pay 
for a reform that will boost the supply of skilled, flexible 
labor. 

We expect that the Reemployment Act will also decrease 
unemployment and increase earnings, which would boost tax 
revenues and help shrink governmental payments for unemployment 
insurance and other forms of public support. 



93 



Finally, American business and the economy at large can 
expect an even more fundamental payoff from the Reemployment Act. 
Putting in place a sturdy system of reemployment services will 
give all American workers greater cause for confidence that they 
will benefit from the economic changes that will continue to 
transform American industry. By broadening the coalition in 
favor of change, the Reemployment Act will reduce the risk of the 
kind of backlash against change that would imperil our common 
agenda of open markets, technological dynamism, and structural 
transformation. 

We have been actively working with individual companies and 
business groups to enlist their input and support for the 
Reemployment Act. I am pleased to say that support from 
businesses, who often have trouble finding the skilled workers 
they need for their emerging needs, is growing and becoming more 
visible every day. You will hear business representatives 
testify later today. 

The Reemployment Act of 1994 is informed by systematic 
attention to empirical evidence, and a deep commitment to what 
works. Through respect for the evidence, and through persistence 
in pursuit of the American tradition of broadly-shared middle 
class prosperity, we can prepare every American to succeed in the 
skill-based economy taking shape all around us today. There is 
no excuse for leaving a single citizen behind. 

Mr. Chairmen, this concludes my prepared remarks. I would 
be glad to answer any questions. 



94 

Chairman Ford. Let's go back to the Federal unemployment sur- 
tax of 0.2 percent. Some employers are probably going to view this 
as a tax increase; one of my colleagues on the committee has al- 
ready made the argument, Mr. Secretary. 

Given that employers can shift this tax to workers or to consum- 
ers, is it really a tax that is being imposed upon businesses since 
they can shift this particular burden to the workers or consumers? 

Secretary Reich. This is, Mr. Chairman, a small part of unem- 
ployment insurance. It is, as I said, approximately $11 a year per 
worker. It has been on the books since 1977 and employers have 

Eaid it since 1977. It seems to me very unlikely given that it has 
een there since 1977, and given that it is such a small amount 
of money, and that employers already are paying it, that this is 
asking very much of employers or that this would in your terms 
amount to any kind of burden. 

Chairman Ford. Is it really a tax increase on business? 

Secretary Reich. This is not a tax increase. This is an extension 
of a small tax, $11 per year per worker that has been there since 
1977. Until 1999, this has been used to offset other kinds of ex- 
penditures. 

Chairman Ford. And workers wouldn't receive lower wages with 
this surcharge, would they? 

Secretary Reich. There is literally no change from the status 
quo. The only change is that instead, of using this to offset every- 
thing but the kitchen sink, we would use this and dedicate this, be- 
ginning in 1999, to an appropriate use which is helping workers 
who have already been determined to need additional unemploy- 
ment insurance to go on with their training, to get the training 
they need and the income support during that training. 

Chairman Ford. Mr. Secretary, as you know, the Ways and 
Means Committee does not have full jurisdiction over all of the ti- 
tles of the Reemployment Act of 1994. What happens if this com- 
mittee reports out only title II which falls within the scope of the 
Ways and Means Committee? Would title II work even though the 
other titles of the bill have not been enacted by the House? 

Secretary Reich. Yes, title II can stand on its own. All the provi- 
sions I have talked to you about, the extended benefits provision, 
the early identification of people who need reemployment assist- 
ance, the range of reemployment assistance that they are provided, 
all of that can stand on its own and can travel through this com- 
mittee. 

The labor committees are working on one-stop shopping. They 
are working on consolidating, and by the way, we are in favor of 
as much consolidation as we can undertake. The reason we have 
consolidated all the dislocated worker programs is that it is a good 
first step, but this committee could act independently. 

Chairman Ford. We talked about the 78 weeks of benefits for 
dislocated workers. It wasn't quite clear. That is about 1 year 
longer than unemployment compensation benefits today. 

Secretary Reich. That is up to 1 year beyond. 

Chairman Ford. Will the workers be in training for that time, 
up to 78 weeks? 

Secretary Reich. They would qualify for extended benefits only 
to the extent they needed it for training. 



95 

Chairman Ford. So they would not be entitled to the 78 weeks 
if they were out of training in 50 weeks, is that correct? 

Secretary REICH. No. If they were out of training in 26 weeks, 
if they were in a program, they would not get any extended bene- 
fits at all. 

Chairman Ford. I am going to abide by the 5-minute rule. 

Mr. Matsui. 

Mr. Matsui. Thank you very much, Mr. Secretary, for your testi- 
mony. 

I would like to spend a moment on the Inspector General's report 
on the trade adjustment assistance program. That program has 
been in existence, I believe, since 1972, if I am not mistaken. There 
was an IG study that came out this year, I believe it was, that ana- 
lyzed the program and although there is some concern about the 
study because they had no control group, nevertheless the findings 
were that through this program, the average wages for those that 
went through the program were less than what they were before 
the individual that participated was unemployed. That is the first 
finding. 

The second was that about half of the people on the TAA pro- 
gram did not actually participate in a job training program. Could 
you comment on that and maybe analyze the report somewhat? 

Secretary Reich. As the TAA program is now structured, it is 
relatively easy to waive the training requirement. So trade adjust- 
ment assistance has become an extended benefits income support 
system. It is not necessarily geared toward helping people get into 
the next job. Because it is relatively easy to waive the training re- 
quirement is it geared to helping them prepare for a higher-wage 
job? Thus, it is not surprising that like people who have lost their 
jobs in this structurally changing economy, people who have lost 
their jobs due to trade impacts have found many times, even with 
trade adjustment assistance, even with extended benefits, that they 
end up in a job paying less. 

That is precisely why it is so important to gear both trade adjust- 
ment assistance, unemployment insurance, all of these income sup- 
port programs, to training and also job search assistance. 

We are proposing to give trade-impacted workers much more 
than they have now; that is, the reemployment services that I 
pointed out, job search assistance, the job counseling. It is impor- 
tant for every worker, regardless of why they have lost their job, 
to get quickly and efficiently into the next job; if they need train- 
ing, to get the training they need. Otherwise we will see more and 
more categorical programs unrelated to helping people get the next 
job. 

The administrative costs of trying to determine whether some- 
body is a trade-impacted worker are growing because as the inter- 
national economy becomes so much more intertwined with the do- 
mestic economy, it is becoming more and more difficult to say why 
somebody lost their job, which is again precisely my point. 

We should get out of the business of categorical programs. We 
should get out of the business of determining that somebody gets 
a particular benefit because they have lost their job for a particular 
reason. 



96 

The administrative burdens, the burdens on individuals, the un- 
fairness are becoming larger and larger. The people who are work- 
ing side by side in a factory, the factory closes, one line of business, 
one particular line in the factory happens to be trade impacted, the 
other happens to be not trade impacted, the first gets additional ex- 
tended benefits; the other doesn't. That makes no sense. 

Acting Chairman Matsui. If I may, and I appreciate your answer 
because I think you hit on the problem with the TAA program and 
that is that it has been used as an income support program rather 
than a job training program over the years. If, because of forces 
that certainly might disagree with eliminating the program, if we 
decided to pass a program, but TAA would remain pretty much in- 
tact, would you recommend tightening it up so that the waiver re- 
quirements would not be as liberal as they are today? 

Secretary Reich. Yes. 

I think a fallback position might be appropriate if we cannot con- 
solidate it, but our preference would be to consolidate it. This is not 
hurting the trade adjustment assistance program. In fact, it is cre- 
ating a benefit because they would still have priority. They would 
still be the first in the queue, but they would get additional sup- 
port. 

But as a fallback, we should tighten up the program. The 
NAFTA program is a tighter program. In the NAFTA program, we 
have a restriction, a training requirement, we do build in some 
support for helping people get the next job. 

Acting Chairman Matsui. Thank you Mr. Secretary. 

Chairman Ford. Mr. Santorum. 

Mr. Santorum. Thank you, Mr. Chairman. 

I have a few questions, if we can rip through them quickly. 

No. 1, and this is an area that is directly under our committee's 
jurisdiction, this 0.2 percent tax extension. You say in your testi- 
mony that this goes to pay for everything and the kitchen sink. My 
understanding is this money goes in to pay for unemployment ben- 
efits, it goes into a trust fund is that not correct? 

Secretary Reich. Mr. Santorum, under the Budget Enforcement 
Act this money is used for accounting purposes as an offset. 

Mr. Santorum. I understand. Trust funds are always used if 
there are surpluses for accounting purposes to offset the deficit. 
Whether it is the highway trust fund or the unemployment trust 
fund, if there is a surplus it goes to reduce the unified deficit but 
the money isn't being spent anywhere on anything other than un- 
employment, right? 

Secretary Reich. We are talking about two different things. First 
of all, we are talking about Budget Enforcement Act accounting 
and second, we are talking about the unified budget in which So- 
cial Security, unemployment insurance, any other surplus goes to 
paying down and under the unified budget is used to reduce the 
overall spending of the government. 

Mr. Santorum. Is the 0.2 percent being used for any purpose 
other than paying out unemployment benefits or administrative 
costs to the unemployment system? 

Secretary Reich. Putting the Budget Enforcement Act to one 
side, with regard to this 0.2 percent right now, it is going into the 



97 

unemployment insurance trust fund, but this trust fund is in sur- 
plus and the surplus is growing. 

All of the actuaries who have looked at this, and we have run 
scenario after scenario and model after model, have told us that 
this surplus is not needed in the unemployment insurance trust 
fund even if we went into a recession. 

Mr. Santorum. That is not necessarily the case here. We have 
figures from 1993 when we see the trust fund down to $31 million. 
At the lowest point in the recession here, we had virtually a zero 
balance in the trust fund. So that is not accurate because we are 
coming out of a recession and it is growing as it would when you 
come out of a recession and when we hit into a recession, the ac- 
count goes down to zero, as it should, if you properly fund the ac- 
count. 

Secretary Reich. I would be happy to share with you the actuar- 
ial runs we have done on the program. 

Mr. Santorum. I am talking about actual figures. I am not talk- 
ing about actuarial funds. 

We are down to $31 million in this account and that is not a 
healthy balance. You can write actuarial figures to tell you any- 
thing. I am talking about fact. This is what happened last year. 

Secretary Reich. We are not right now down to that 

Mr. Santorum. I understand we are not now, Mr. Secretary. I 
am talking about what happened during the recession. We got 
down to almost zero in the account and now you want to take 0.2 
percent money going into that account and take it for another pur- 
pose which may result in a deficit in that account at the next reces- 
sion, which I am sure we will have pretty soon. 

Secretary Reich. Congressman, if I may share with you the re- 
sults we have from the most recent actuarial run we have. 

Mr. Santorum. I don't want to argue what your actuaries are 
saying in the future. I just want to let you know that in the past, 
we have had this program with its current funding stream get 
down to zero and I am not prepared to take money away from that 
account and risk it being below zero, where we will either have to 
increase taxes to help pay for that, which is another tax increase, 
or somehow or another put this on the deficit. 

I don't think that is responsible. Please submit 

Secretary Reich. Actuaries say that unemployment would have 
to go way over 11 percent in order to in any way jeopardize the sys- 
tem, even if we took the 0.2 — I am just telling you what the actuar- 
ies are telling me — that over 11 percent unemployment is higher 
than we have had at any time in the post- World War II era. 

Mr. Santorum. All I would say, Mr. Secretary, is we had unem- 
ployment at about 7.5 percent and we were down to almost zero in 
the trust fund last year. 

I don't know how that squares, but I will be happy to look at 
your numbers. 

You pulled up a chart on the worker retraining. You said train- 
ing programs do result in a higher increase in wages. Do you break 
out whether those are public or private sector worker retraining 
programs? 

Secretary Reich. Yes. 



98 

Mr. Santorum. You break it out on the chart? It is broken out 
between public and private? 

Secretary Reich. Yes. It is broken out in terms of training that 
is both public and private. I don't know that it is on this particular 
chart, but I can get you that information. 

Mr. Santorum. I would appreciate that. 

Secretary Reich. Yes, we have employer training, private train- 
ing and we also have the postsecondary training, which is no de- 
gree. That is broken out separately. We can also get you that infor- 
mation. 

By the way, the study that I was referring to, one of the studies 
that I referred to in my testimony is a study by Rouse & Kane, 
Harvard and Princeton researchers who recently did an econo- 
metric study on the effects of job training with regard to future in- 
come. What they found — and this is a very important finding — is 
that with each year of nondegree — it does not have to be a degree, 
it does not have to be college — with each year, the average increase 
in subsequent wages is between 5 and 10 percent. 

There is other evidence, and I can give you other evidence as 
well, but that is a 1993 study. 

[The Harvard and Princeton study will be retained in the com- 
mittee files.] 

Mr. Santorum. My only comment is I would like to see what the 
rate of return is on the money invested versus the money earned 
and see whether there might be a more efficient use of Federal 
money for training. There are studies showing that the private sec- 
tor working programs are the only ones that have shown to be ef- 
fective. 

[The additional information referred to follows:] 



99 



SOME RESEARCH ON PAYOFFS TO TRAINING AND EDUCATION 

Countless studies have found that a year or more of 
additional education or training pays substantial dividends. The 
rewards to long-term education and training are in fact one of 
the most well-established findings in economics. The seven 
attached studies which are summarized below are just a small 
fraction of these many studies 1 . 

The studies summarized below were selected because they are 
all recent, methodologically sound, and cover a very wide range 
of types of post-secondary training. These studies provide 
evidence on varieties of long-term education and training that 
include four-year university education, 2-year community college 
education, vocational training provided by employers, and 
vocational training received at proprietary schools. 

The papers generally evaluate the impacts of education by 
examining the annual earnings of persons who have received long- 
term education or training compared to the earnings of similar 
people who have not 2 . This earnings measure sums up the impacts 
of education on employment (persons who are employed more earn 
more) , and the impact of education on wage growth. 

Much of the evidence below relates to the impacts of 
community college training on earnings. One reason for this is 
that community colleges provide a great deal of vocational 
training -- about two thirds of community college students major 
in vocational areas 3 . Furthermore, community college education 
is in many cases very similar to what dislocated workers receive 
in long-term training courses, since many public providers 
deliver long-term training to dislocated workers by contracting 
with local community colleges to provide vocational courses 4 . 



1 Rosen, Sherwin, "Human Capital, A Survey of Empirical Research." In Ronald Ehrenberg, ed., 
Research in Labor Economics Volume 1 . Greenwich Connecticutt: JAI Press, 1 977; Willis, Robert, 
"Wage Determinants: A Survey And Reinterpretation of Human Capital Earnings Functions." In Orley 
Ashenfelter and Richard Layard, eds. Handbook of Labor Economics, Volume I, Elsevier Publishers, 
1986. These articles discuss previous research in the area of rewards to education. 

2 Most of the studies cited determine the effects of training by adjusting for the impacts of other 
factors (e.g. ability, family background, and gender) on earnings. Occasionally more sophisticated 
means are used as well. 

3 National Assessment of Vocational Education Interim Report to Congress, Office of 
Educational Research and Improvement, U.S. Department of Education, Washington, D.C. 1993. 

4 Hansen, Janet, ed. Preparing for the Workplace: Charting A Course For Federal 
Postsecondary Training Policy, National Research Council, Washington, D.C, November, 1993. 



100 



Angrist, Joshua and Alan Krueger, "Does Compulsory School 
Attendance Affect Schooling and Earnings?" Quarterly Journal of 
Economics Vol. 61 Issue 4 (November, 1991). 

This study examines the impact of compulsory schooling laws, 
which require students to remain in school through age 16. The 
authors find strong evidence that these laws do result in small 
but measurable improvements in earnings and employment . The 
magnitude of the impact on earnings appears to be about 8% per 
additional year of education received, although statistical 
problems limit the precision of this estimate. 

Since compulsory schooling laws tend to affect students who are 
poor and academically unskilled (other students remain in school 
without legal mandates) , this provides evidence that additional 
education for the disadvantaged has a positive long-term effect. 

Card, David, Earnings, Schooling and Ability Revisited , Princeton 
University Industrial Relations Working Paper #331, May, 1994. 

This paper, by a Princeton economist, begins by stating that "one 
of the most important 'facts' about the labor market is that 
individuals with more education earn higher wages." (p. 1). 
However, some people have previously raised the possibility that 
pre-existing ability or family background accounts for this 
finding. The author reviews 8 recent studies which use 
innovative methods to determine the payoffs to education and 
training after adjusting for all possible pre-existing ability 
and family background factors (pp. 3 through 10) . He concludes 
that these studies show that very substantial payoffs to 
education and training are found even after controlling for pre- 
existing factors (p. 10) . These payoffs may even be higher than 
those estimated without adjusting for background factors (p. 10) . 

Hollenbeck, K. Post -Secondary Education as Triage; The 
consequences of post secondary education tracks on wages, earn- 
ings, and wage growth , Upjohn Institute, 1993. 

The author finds that after controlling for ability and family 
background, students receive annual earnings about 9% higher for 
each 10 months (1 school year) of post-secondary education they 
receive at a community college or a university (Table 4). 
Holders of degrees from vocational technical schools appear to 
receive payoffs of about 5% in annual earnings for their degree 
(Table 4) . 

Even if students do not attend a college or university the author 
states that the data "indicate a high return to the receipt of 
formal training" (p. 16) . Workers indicating that they received 
formal training from their employer had annual earnings some 17% 



101 



higher than those who did not, even after adjusting for ability 
and family background (Table 5) . Some selection bias may enter 
here, but these results are still quite positive. 

Jacobson, Louis, et. al., The Returns From Classroom Training for 
Displaced Workers , Draft, October, 1994. 

This paper analyzes the experiences of 7,500 dislocated workers 
who enrolled in a community college training program during 1983 
and 1984. The program was unusually comprehensive in that it 
offered free books and tuition to any dislocated worker in the 
area who wished to take any of the community college's programs, 
even if the program was a full degree course which lasted several 
years. The paper tracks the earnings and employment experiences 
of dislocated workers who enrolled in this training. 

The authors find that after leaving training, workers earned 6% 
to 8% in additional earnings for each year of training they had 
completed. These earnings gains were consistently maintained 
through seven years after entry into the program, and these 
higher earnings will apparently continue throughout the workers 
career . The evidence shows that the program appears to generate 
social benefits roughly equal to its costs during just the first 
seven years after entry into training. Benefits will continue to 
grow in later years. 

Kane, Thomas J. and Cecilia Rouse, Labor Market Returns to Two 
and Four-Year College; Is A Credit a Credit and do Degrees 
Matter? , Working Paper #311, Industrial Relations Section, 
Princeton University, December, 1993. 

This is a paper by economists from Harvard and Princeton which 
analyzes nationwide survey data on education, training, and 
earnings to determine the payoffs to education and training. 
After adjusting for ability and family background, the authors 
determine that "the average two-year and four-year college 
student earned 4% to 7% more than similar high school graduates 
for every year of credits completed." (Abstract; Tables la-lb). 
The researchers then test alternate ways of measuring the payoffs 
to education which correct for various potential sources of 
error. These alternate methods indicate that the possible payoff 
per year of education could well be in the range of 8% to 10% per 
year (pages 13-20; Table 6) . 



Levy, Frank and Richard Humane, "U.S. Earnings Levels and 
Earnings Inequality: A Review of Recent Trends and Proposed 
Explanations", Journal of Economic Literature , September, 1992. 

This article by economists from MIT and Harvard reviews the 



102 



evidence for and possible explanations of the large increase in 
returns to education that took place over the 1980s. The authors 
conclude that the rewards to education have in fact increased, 
and that "a steady increase in the demand for skilled workers 
relative to unskilled workers" is one of the reasons for this 
increase (pp. 1371-1372). This demand increase is characterized 
as the result of a "long-term trend toward increasing relative 
demand for highly skilled workers." (P. 1336). In other words, 
education and skills training is becoming more important. 

Lynch, Lisa, Private Sector Training and the Earnings of Young 
Workers , American Economic Review, 1992, Vol. 82, No. 1. 

This study specifically examines the impact of formal vocational 
training on the earnings of workers who are not college 
graduates. The author finds that "on average, for this sample of 
non-college graduates, off-the-job training from proprietary 
institutions is significantly related to earnings." (p. 311; 
Table 4). Her estimate of the size of the earnings increase 
created by formal vocational training leads her to conclude that 
"...the impact of training on wages is quite large relative to 
other factors for young workers." (p. 311; Table 4). 

This positive impact occurs for those workers who received formal 
vocational training when they were working for previous employers 
(p. 307; Table 4) . 

U.S. Bureau of the Census, Money Income of Families, Households, 
and Persons in the United States; 1992 , Current Population 
Reports, Series P60-184, September, 1993. 

Table 29 in the publication, lays out the median annual earnings 
of various groups organized by education level. Persons with 
additional post -secondary education (including community college 
degrees) earn far more than high school graduates. The 
introduction to the book states that "The relationship between 
educational attainment and median earnings ... is strong." (p. xv) . 



103 

Chairman Ford. Mrs. Kennelly. 

Mrs. Kennelly. I thank you, Mr. Chairman. Mr. Secretary, over 
1 year ago our State, my State, Mrs. Johnson's State of Connecti- 
cut, faced a deficit in tneir unemployment compensation funding 
situation. They did the responsible thing, and they borrowed — they 
bonded, excuse me, they bonded $1 billion, and now things are in 
order. 

I am hearing from my Governor that there is concern about the 
new income support provision program. The fear is that people will 
know that this type of assistance is available at the end of the line. 
Then when they become unemployed, they will use their unemploy- 
ment benefits, and then go into the training program with more as- 
sistance. There is concern that this again will draw down on our 
trust fund. 

Can you address this issue? Can you expand on it so that I could 
address these concerns when I go home? 

Secretary Reich. Yes, Congresswoman. This proposal would 
avoid that kind of gaming in two ways. First, the only way anyone 
would be eligible for training is if they had already been identified 
as someone who is unlikely to get their old job back again, and sec- 
ond, could benefit from the training. 

Second, one would have to be in training by the 16th week of un- 
employment insurance. One could not wait until the end of the 26 
weeks of unemployment insurance and then decide, ah-ha, here is 
a way to get some additional benefits if I go into training. 

Those two controls, those two screens, make it very, very difficult 
for anybody to game the system. But by the same token, would 
allow people who genuinely needed additional income support to 
complete their training, to get the income support they need. 

Mrs. Kennelly. So, at 16 weeks — roughly in the middle of your 
unemployment payments, you would have to be chosen to go into 
this program? 

Secretary Reich. Immediately, actually by week No. 12, you 
would have to be identified as someone who is unlikely to get the 
old job back and could benefit from training. You would have to be 
in training by week No. 16. 

Mrs. Kennelly. So you couldn't use your benefits and then say, 
oh, gee, now I want to go into training? 

Secretary Reich. You could not get to the end of your benefits. 
You could not get to even week 17 or 18 or 19 or 20 or 26 and say, 
here is a good way of getting some additional benefits, let me go 
into training, you could not do that. 

Mrs. Kennelly. Thank you, Mr. Secretary. One other question. 
As I was reading through your proposal, I notice there is a certain 
amount of emphasis on privatization. What happens if a State has 
an effective program already set up, how does that fit in with the 
new program? Can a State keep what it has or are there regula- 
tions that a State would have to adjust to? 

Secretary Reich. We want to build on what the States are doing. 
The State of Connecticut, for example, has moved very rapidly to- 
ward the direction of one-stop centers with regard to providing a 
full panoply of reemployment services. The State also is actively 
putting together, consolidating with Federal and State reemploy- 
ment programs. 



104 

We want to encourage the State of Connecticut, we are working 
with the State of Connecticut to move down that road. We are 
working with Pennsylvania, we are working with many of your 
States to move in the same direction. Just 1 week ago, I visited in 
Memphis a center that was pulling together many of these reem- 
ployment and employment services, helping people in the commu- 
nity by providing a whole range of services at one place at one 
time. I have seen the same thing in Pittsburgh. 

By the way, let me just add by way of context, under title III of 
JTPA, a great deal of money is now going out to dislocated workers 
in almost all of your States. Some of it is by formula, some of it 
is by discretion. It is going out to help dislocated workers. In Con- 
necticut, for example, last year by formula, $14.5 million went out 
to help the workers of Connecticut, and then there was an addi- 
tional $12.6 million so far this year that I in my capacity as Sec- 
retary of Labor have dispensed to Connecticut. Congressman 
Santorum, in Pennsylvania, $43.7 million was sent last year to 
help Pennsylvania workers who were dislocated from their jobs. 

This year, I have under my discretionary authority provided 13 
grants of $23.6 million for the workers of Pennsylvania to get new 
jobs. My concern is that this money must be spent well, it must be 
provided in a consolidated form, it must go to people who really 
need it, and we must make sure, we must make sure that there 
is an adequate system in place to help workers who need additional 
training, and therefore need the additional unemployment insur- 
ance so that they can take advantage of this money. 

Mrs. Kennelly. Thank you, Mr. Secretary. And I want to thank 
you for providing those funds, but I particularly want to thank you 
for proposing a program — which I believe will work and for the 
rapid manner in which you moved to help the defense workers in 
Connecticut. I think you really are on to something, and I salute 
you. 

Chairman Ford. Mr. Levin. 

Mr. Levin. Thank you, Mr. Chairman. 

Mr. Secretary, I would like to continue the discussion that you 
had with Mr. Santorum, because I do hope we just don't veer off 
on two tracks here because then the twain would never meet, per- 
haps, and we will go another year or more without resolving this 
problem. 

Mr. Santorum, you referred to taking the unemployment com- 
pensation money for another purpose. Arid I really think the issue 
here is whether this really is for another purpose, or whether we 
don't need to meld the purposes of income support with retraining, 
with reemployment. I think that is really the issue. 

We are going to spend some time in this talking about linking 
welfare with work, and what is now being proposed is that we link 
unemployment with work. 

Mr. Santorum. If the gentleman will yield. I don't have any ob- 
jection to the concept of linking income support to job search and 
training, I have no problem with that concept at all. 

I just think if we are going to do an additional service or spend 
additional money, we should come clean that we need more money 
to do that, not rob from an existing program that is not particu- 
larly well funded. That is my only point. 



105 

Mr. Levin. I think a little dialog might be useful before we get 
into hardened positions here. I think what the Secretary is saying 
is that it isn't robbing Peter to pay Paul, but if you look at this 
thing actuarially, it is a very good gamble, if you want to put it 
that way. 

I mean there is always some risk, we are never entirely sure of 
our projections. We are trying to be cautious about them. You are 
looking at every actuarial study, and what is being said is, this is 
always the trouble with prevention — you take a chance that you 
are going to save in the longer run. And that is what is being sug- 
gested here, that if you invest in getting people back to work, you 
will really save money, as well as most importantly, people being 
back to work. 

So maybe we need to spend just a couple minutes talking about 
what other countries do because I think we are way behind the 
curve on this. We have had nonintervention and then at the best, 
late intervention. And so we end up with these donnybrooks, over- 
extended benefits when we haven't spent money up front to help 
match unemployed people with jobs. 

I may be wrong, but I think other countries are way ahead of us, 
aren't they, Mr. Secretary? Maybe you can draw a perspective for 
us. 

Secretary Reich. Yes, Congressman. Many other industrialized 
countries have labor market systems in place designed not only to 
get people the updated information about jobs, but also to enable 
them to move from job to job. 

Now, on the other hand, let me hasten to say that many of these 
industrialized countries also have very, very thick social safety 
nets, much thicker than ours. They have many higher levels of un- 
employed workers, greater rates and higher numbers of unem- 
ployed workers as a proportion of the population. 

And many of these countries are trying to look for a third way, 
a way that is not simply a huge social safety net that doesn't help 
people get the next job, but is also not simply laissez-faire, because 
they understand that if they don't help people in some way, protec- 
tionist forces continue to grow. 

And they are looking at alternatives. They are looking at labor 
market alternatives very similar to some of the alternatives we are 
looking at, both with regard to welfare and with regard to reem- 
ployment. 

Mr. Levin. All right. I guess my time is up. Mr. Matsui, did you 
want me to yield — you say my time is up. 

Thank you. 

Acting Chairman Matsui [presiding]. Thank you, Mr. Levin. 

Mr. Kopetski will inquire. 

Mr. Kopetski. Yes, thank you, Mr. Chairman. 

Mr. Secretary, again I commend you for your diligence and perse- 
verance in getting the legislation thus far, and I am confident that 
we will get it through the House. I think it is very important that 
we do this. 

I have two areas of questioning. One is the fact that last year 
employers paid about $700 million to assist their own workers to 
find new jobs and many times new careers. 



106 

What efforts will be made in the legislation to ensure that gov- 
ernment spending does not supplant what has been going on in the 
private sector by those good meaning employers? 

Secretary Reich. Congressman, employers are now spending ap- 
proximately $30 billion a year training their employees. About two- 
thirds of this sum, $20 billion, goes to supervisory employees, man- 
agement employees. 

But much of the training is firm specific. It has to do with skills 
that are necessary to do particular jobs within that particular com- 
pany. The reason it is so firm specific is very simple. It makes very 
little sense for me as an employer to invest a lot in you, for exam- 
ple, as an employee, if you could take those more general skills and 
go down to my competitor. The only way it makes sense for me to 
invest in you is if I am investing in firm specific skills. 

And that is precisely the so-called market imperfection that we 
are dealing with. Many people need broader skills, skills that cover 
an entire industry, skills that perhaps cover clusters of industries, 
like electronics. But they cannot get it from individual employers 
because the employers have very little or no incentive to provide 
those broad-based skills. So in no way does what we are proposing 
draw away from, in no way is it inconsistent with the very impor- 
tant steps that employers are making to provide their own employ- 
ees with skills. 

Mr. Kopetski. OK. The second area of questioning, and I draw 
upon my experiences as a State legislator working in this area, 
with our employment service program, government does oftentimes 
those things which the private sector can't or won't do. 

One of those areas is that with the private employment agencies, 
they tend to take the management level and those more skilled po- 
sitions whereas government tends to place the low-skilled or non- 
skilled workers. And interestingly, it is a very important service for 
my district because the government helps locate and place workers 
in the farm community, especially during harvest periods. 

It is a very efficient program in our State, it works very well, the 
farmers and the State government have a very good working rela- 
tionship there. But it is not something that the private sector could 
make any money at, so they don't do it, makes sense. 

So in this bill, you establish though these one-stop career cen- 
ters, and I understand that that is a different concept than job 
placement per se. But there is a fear out there that because the 
private sector has been doing these career, one-stop career centers, 
that government will replace them. 

Will private companies be allowed to operate these one-stop ca- 
reer centers? If not, why not? What will be the relationship out 
there if this bill passes? 

Secretary Reich. Congressman, the universe of need is extraor- 
dinarily great. Right now, workers who have been laid off and who 
have the assets necessary to hire private placement and private 
placement services, do so. But that still leaves a huge gap. 

There are many workers who simply don't have the assets. Their 
assets are very quickly drawn down. When they have lost their 
jobs, many workers have no capacity to go into the private sector 
and get these kinds of services. So this is not in any way competing 
with those private services. 



107 

Those private services may offer a slightly different menu. As to 
your question, can the private services provide some of these serv- 
ices we are talking about, the answer is that right now under the 
JTPA Act, under many of our job training programs, private con- 
tractors do provide training services. 

Mr. Kopetski. Let's suppose that a company, and I will pick 
Techtronics, for example, a very large employer, perhaps they do 
some reorganization, restructuring, et cetera, maybe they will lay 
off 500 employees, which has happened. Would anything prevent 
them from going to a private company and contracting with them 
to help their own specific workers? 

Secretary Reich. No. In fact, Congressman, we have a provision 
in the proposed reemployment act to work with outplacement serv- 
ices, through transition assistance centers and also cooperative 
demonstration programs. Grants can be made to companies and 
also to communities to work with private outplacement agencies to 
help in transitions. 

Mr. Kopetski. OK. Thank you. 

Secretary Reich. You will hear, later on, I believe, because I 
have talked with some of the people and I know some of the people 
that are going to be testifying from the private sector about some 
of the successful work they have done with the assistance of the 
Labor Department in ensuring that their employees do get placed. 

Mr. Kopetski. All right. 

Thank you, Mr. Chairman. 

Acting Chairman Matsui. Thank you. 

Ms. Johnson will inquire. 

Mrs. Johnson. Thank you, Mr. Chairman, and welcome, Sec- 
retary Reich. I appreciate your testimony today and I appreciate 
some aspects of your bill very much. I am concerned, however, with 
a number of other aspects, and in 5 minutes it is hard to get at 
it, but you propose consolidating six programs, and I think that is 
absolutely called for. 

We have created a system that is terribly inequitable. People are 
being treated differently, though their circumstances are the same, 
and we absolutely have to do something to restore equity and bal- 
ance and evenhandedness to our job training programs. 

However, trying to introduce legislation on this subject 2 years 
ago, I got deeply into it, and found that there are 150 Federal edu- 
cation job training programs operated by 14 departments and agen- 
cies spending $25 billion. 

Now, I really think we have to go much further than consolidat- 
ing them, and I will tell you why. The average unemployed worker 
is unemployed for 15 weeks. Now, I think that the effect of this is 
going to be to get many more people into retraining programs, 
which means that they are going to be unemployed much longer 
than 15 weeks. 

And that is why I join my colleague, Mr. Santorum, in being 
very, very skeptical about the funding mechanism behind this bill 
and the estimates associated with it. But I think when you look at 
the fact that the average unemployed worker draws benefits for 
only 15 weeks, and we are not going to even get them into the re- 
training program for 12 weeks, I think there are some problems in 
this bill that we need to think about. 



108 

First of all, I don't see any reason why it should take 12 weeks, 
since the issue of whether or not you are going to get your iob back, 
particularly in the kinds of programs that you are consolidating, is 
usually very clear. It is usually very clear, there is going to be no 
job to go back to. 

Whether they are able to benefit, I don't think that is going to 
be a difficult determination, because the kind of people affected by 
the programs we are talking about here, are good solid workers, 
most of them have a very good work history. 

They are the victims of either businesses that can't compete or 
businesses that are frankly the victim of changes in Federal policy. 
So I don't think it is going to be hard to determine who needs re- 
training. I can think of a dozen right off the top of my head. 

I think letting people hang in there for 12 weeks ought to be re- 
examined. The other thing that is not clear to me from your pro- 
posal is whether or not they can continue to receive unemployment 
compensation benefits while they are being retrained, which is an- 
other reason for them to start in week 2 or week 3, not week 12. 

One other comment. We have traditionally not made good use of 
the private sector outplacement firms under JTPA. We let JTPA do 
training, they can do computer training, they can do some job 
training, but we don't use them effectively. That is why our unem- 
ployment offices really have such poor records. I need a clear un- 
derstanding of how you are going to integrate some of the success- 
ful private sector outplacement firms, how you are going to get peo- 
ple into this program far earlier than you are anticipating, and how 
we are going to support the cost of a plan that is looking at 18 
months, when the average recipient is on unemployment 15 weeks. 

Secretary Reich. Congresswoman, let me go through your ques- 
tions one at a time. 

First of all, let me say something about consolidation, and I feel 
very strongly about this. The report to which you refer, the GAO 
report on 150 programs, that concerns 

Mrs. Johnson. I am sorry, Secretary Reich, I didn't realize I had 
3 minutes to vote. So I do have to go, and I will have to talk to 
you later about the answers to my questions because I assume the 
Chairman wants to move onto the other panel. 

Chairman Ford. Yes. 

Mrs. Johnson. I appreciate your work and look forward to work- 
ing with you. 

I do want to make the comment though in response to a com- 
ment by my colleague from Michigan, who made a very clear point, 
he hopes we don't get off on two different tracks. Traditionally, 
when the body was controlled by one party, the administration was 
controlled by the other party, information was broadly distributed 
to Members of both parties. 

In this instance, as in every other instance with this administra- 
tion, the minority party really hasn't been included in the devel- 
opmental work. So we come to these hearings without the amount 
of information behind us that our colleagues from the other party 
do. 

And so while it may sound like there is the danger of hardening 
in opposite positions, it is partly because this is a one-party govern- 
ment right now. I would have hoped by this point you would have 



109 

changed the mode of operation, but it means there is an imbalance 
in the knowledge level. And if the administration chooses to work 
with the Republicans, I am certainly there to work with you. 

Secretary Reich. Well, I will work with you, I promise, and my 
colleagues will as well. And I look forward to answering your ques- 
tion. 

Chairman Ford. Mr. Reynolds. 

Mr. Reynolds. Thank you, Mr. Chairman. 

Mr. Secretary, how are you? I just had a quick question. Mr. Sec- 
retary, the targeted jobs tax credit encourages employers to hire 
the structurally unemployed, as you know. That is those with little 
or no job experience. 

The Reemployment Act seeks to establish a one-stop shop to 
serve all the dislocated workers regardless of cause. The TJTC has 
been successful in providing incentives to private employers to hire 
the structurally unemployed. 

I have been a strong proponent of the TJTC and I know you have 
expressed some concerns about the TJTC's effectiveness. I am won- 
dering how you view the TJTC's fitting into this reemployment sys- 
tem? 

Secretary Reich. Congressman, the concerns about the targeted 
jobs tax credit are really derived from a number of studies showing 
that the vast majority of employers who have used the targeted 
jobs tax credit would nave hired the people for whom the credit is 
available in any event. 

What we would like to do is make sure that there is not the kind 
of abuse that sometimes occurs in terms of churning. Sometimes 
employers hire someone under the targeted jobs tax credit, some- 
one who they might have hired in any event, but then let that per- 
son go and tnen hire somebody else to get a tax credit. 

So one consideration or one innovation that is under consider- 
ation is requiring that employers hire someone in order to qualify 
for the targeted jobs tax credit, hire someone for a longer length 
of time, that the job be a real job instead of a temporary job. 

Another related potential innovation is that the employer provide 
some on-the-job training, which is enormously important to people, 
particularly disadvantaged people who might not otherwise have 
the opportunity to get on-the-job training. 

We will be back with our proposals. They are now under consid- 
eration and there are several others. We don't want to end the tar- 
geted jobs tax credit conceptually, but we do want to modify it in 
a way that guarantees that people who use it, both employees, po- 
tential employees, and employers, get a good deal from it, and that 
particularly disadvantaged potential employees really get a good 
deal from it. 

Now, the targeted jobs tax credit fits in in the following way: 
People who have lost their jobs or anyone who is coming to a one- 
stop career center, could find out about their eligibility for the tar- 
geted jobs tax credit through that center, through the profiling, the 
job search assistance, the job counseling process. 

Right now there is a terrible dearth of information. Most people 
who qualify for various programs don't even know they qualify. We 
were going to talk, Congresswoman Johnson raises the issue of con- 
solidation. What we are proposing is street level consolidation, if 



110 

you will, that in a one-stop career center all of the various pro- 
grams should be available, accessible, understandable, to individ- 
uals who come in to one place at one time. 

Individuals don't care that a program comes out of the Labor 
Committee or the Ways and Means Committee, they don't care that 
it comes out of the Labor Department or the Education Depart- 
ment. They do care that there is some help for them. And that 
street level consolidation, whether it be the targeted jobs tax credit 
or it be any other program, is the most important consolidation we 
can provide. 

Mr. Reynolds. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

Chairman Ford. Mr. Payne. 

Mr. Payne. Thank you very much, Mr. Chairman. Mr. Secretary, 
welcome and thank you very much for all that you and your staff 
have done to put forth this proposal. It is one that is very innova- 
tive and I certainly appreciate all the work that you have done. 

I had two questions. One has to do with the consolidation. It was 
my understanding that there are six programs that are being con- 
solidated in order to defray the cost of the new retraining program. 
And you had mentioned in your testimony, or you had mentioned 
in response to a question something about the JTPA. 

Is the JTPA one of those programs that is being consolidated in 
order to pay for the retraining program? 

Secretary Reich. Yes, Congressman. We are consolidating all dis- 
located worker programs, including the dislocated worker program, 
the EDWAA program, title III of JTPA, which is for workers who 
have lost their jobs. 

Also, the clean air act dislocated worker program, in fact, every 
program designed to categorically help a particular group of work- 
ers who have lost their jobs. The notion is, again, we want to make 
sure that there is a capped entitlement here and regardless of why 
you lost your job, you should get help, instead of spending some- 
times 6 months determining why you are eligible. 

But let me go beyond that, because I do agree that there should 
be more consolidation. This is a first step, and we do want to sup- 
port efforts and we will continue to work with Congress to consoli- 
date more programs. I mentioned in response to the previous ques- 
tion that the one-stop shopping idea is in effect a very important 
means of consolidation, because individuals coming into one par- 
ticular location, will have access to all of the various programs they 
might be eligible for. 

We are also proposing broader waiver authority. Right now the 
JTPA does not have waiver authority in it. Right now, if a State 
or locale comes up with a very innovative way of putting together 
various job training programs, they can't do it, because there is no 
application procedure in which they can engage to seek a waiver 
of the present regulations and requirements. We want that to be 
part of the future as well. 

Mr. Payne. One final question has to do with low-wage, low-skill 
jobs. In a district such as the one that I represent, we have thou- 
sands of textile and apparel workers. The apparel workers particu- 
larly are often low-wage, in some cases low-skill professions, these 



Ill 

jobs are very competitive, globally competitive, and we are strug- 
gling to keep these jobs, but we are losing these jobs. 

In the event that an apparel worker loses his job and is not like- 
ly to be reemployed in that job, how then specifically would this 
program work for someone who is generally low-wage and often 
someone with few skills? 

Secretary Reich. Somebody right now who is low-wage, low-skill, 
who loses say a manufacturing job that has either become auto- 
mated or has gone abroad, has very few options. 

Right now they can collect unemployment insurance or go on 
welfare, unfortunately. They can seek another very low-wage, low- 
skill job, normally in the service sector, but there is no system ena- 
bling them to seek out a job which — to which they might aspire 
that might have some upward mobility, upward career mobility, 
that might require a little bit of education beyond high school or 
some specialized skills. 

There is no system enabling them to find out what is out there 
and to get the skills that are necessary. I have traveled around this 
country and seen in particular places very successful experiments 
at getting low-wage, low-skill people, the right skills they need to 
get technical jobs that pay much better than the jobs they had be- 
fore. 

You see, the country is developing an entire layer right now of 
technical jobs, technician-type jobs, laboratory technicians, sales 
and service technicians, and manufacturing technicians. These jobs 
don't require a college degree, but they do require some expertise 
beyond high school, in most cases. 

We should not and cannot write off the low-wage worker who 
loses a manufacturing job. We cannot consign that low-wage work- 
er simply to a low-wage retail service job and assume that that is 
the end of it. Many of those people, I would venture to say most 
of them, could learn skills that pay better. This program enables 
them to do so. 

Mr. PAYNE. Thank you very much, Mr. Secretary. 

Chairman Ford. Mr. Secretary, I have a couple of questions. I 
am going to be very brief and you may be very brief in response 
because there are other witnesses who must testify today. 

During the past 2 years, the unemployment rate has dropped 
from about 7.8 percent to about 6 percent, meaning that about 2 
million people are no longer on the unemployment rolls. 

Mr. Secretary, given the good news, would you say that people 
are better off today than they were 2 years ago? 

Secretary Reich. Well, undoubtedly, Mr. Chairman, Americans, 
by and large, are better off — 3.8 million net new jobs, and I want 
to emphasize that word net. 

Chairman Ford. But the effect of that has been 2 million people 
off the unemployment roles. 

Secretary Reich. Yes, but actually notwithstanding the corporate 
downsizing, defense downsizing and all of the changes going on, we 
have added 3.8 million jobs, 3.5 million in the private sector alone. 

But the jobs have been distributed in ways that are unequal. Al- 
though most of the jobs are good paying jobs, many of the jobs are 
poor paying jobs. And as you said in your opening remarks, in our 



112 

inner cities and in our poor rural areas, we are still seeing extraor- 
dinarily high rates of unemployment and nonemployment. 

The official unemployment statistics do not pick up many people 
who have not had any relationship for years with the labor market. 
In our inner cities, in some cases we have unemployment, 
nonemployment rates, of 20, 30, 40 percent among teenagers who 
have had no relationship with the labor market. It sometimes is 50 
to 70 percent. 

Chairman Ford. Well, how are we better off, besides unemploy- 
ment and inflation? What are the other things the administration 
needs to do to continue to move in that direction? What besides 
controlling inflation and unemployment? 

Secretary Reich. Well, this administration not only is dedicated 
to helping people get the skills they need for that good job or that 
first job, but also through several measures that have already been 
enacted; the School to Work Opportunities Act which enables young 
people who may not go on to college the chance to get the skills 
they need to get a good job, the Goals 2000 Act, which is going to 
hopefully improve the quality of education overall, empowerment 
zones and enterprise districts, which will provide incentives for 
new jobs in areas where otherwise there may not be jobs. 

A program called youth fair chance, which you know, Mr. Chair- 
man, the administration is funding and we are providing to areas 
of very high unemployment and areas where there has been very 
low job growth. We are trying many innovations. 

Am I optimistic that they will all succeed? No. Do I think that 
they have a good chance of succeeding? Yes. Is it all that we can 
do or should do? No. 

Chairman Ford. Mr. Reynolds talked about the targeted jobs tax 
credit. You and I talked about the credit around 4 or 5 months ago. 
When we are looking for offsets for this bill and other bills, we will 
not want to take that item off the table. 

The targeted jobs tax credit will expire at the end of 1994 any- 
way, and that program has been in existence since 1978. You have 
just stated that most of the people, if not all, would have gotten 
those jobs even if the targeted jobs tax credit was not in place. 

In looking at revenue to solve this area, Mr. Levin has expressed 
some concerns and Mr. Santorum is talking about the surtax. We 
certainly would like to see the Labor Department keep the targeted 
jobs tax credits on the table. 

Secretary Reich. Yes, Mr. Chairman, we certainly don't intend 
to remove it from the table. As I mentioned before, the Treasury 
Department and the Labor Department are now studying how to 
improve the targeted jobs tax credit so it genuinely provides jobs, 
not just temporary jobs, but it provides jobs and good jobs for our 
disadvantaged people. 

Chairman Ford. Mr. Santorum. 

Mr. SANTORUM. Thank you, Mr. Chairman. I just want to revisit 
the last discussion we had and I just want to point out in your own 
document in April 1994, you say that there is — the document is 
called A Reemployment Services Review of their Effectiveness. 
"There are no random assignment valuations of the effectiveness of 
long term — 1 year or more — classroom training for dislocated work- 
ers/' 



113 

Now, you are testifying here that you have these studies that say 
all these programs work so well. Your own department says, as of 
a couple months ago, it doesn't. If you have new studies, I would 
very much like to see them because all we have seen to date are 
studies, and I referred to the Mathematica study before that 
showed that these dislocated worker programs in fact are not im- 
proving the results of reemployment and increased wages. That 
was not a random assignment study, but the conclusion was pretty 
clear. 

So if you do have that study, I would very much like that to be 
made available to the committee so we could take a look at that. 

Secretary Reich. Congressman, if I may, we will forward to you 
that study. Also, you brought up the Mathematica policy research 
study, which compared a group of workers who chose to enter 
training with another group who chose not to. 

I think it is important to point out that those who chose to enter 
training were a self-selected group who differed systematically from 
the workers — they were being compared to. For example, trainees 
were far more likely than nontrainees to be making major career 
changes. 

Now, this fact in itself could lead to lower earnings, and for this 
reason, the researchers in that report, that Mathematica report it- 
self, found they could not draw any conclusions on training effec- 
tiveness. The report that I am suggesting, the report that I am re- 
ferring to, the study showed that with each year of nondegree, and 
again I want to emphasize, nondegree training, whether it was de- 
gree or nondegree, there was a 5 to 10 percent improvement in 
wages. 

Also, Congressman, I did want to clarify, because 1 think you and 
I before were talking about the extended unemployment compensa- 
tion account, and remember, there are, as you obviously know, 
there are different accounts and what happens when one account 
becomes drawn down, is that it is replenished. 

The $31 million you referred to at the beginning of 1993 built up 
by the end of the year to $877 million. That is going to be up to, 
according to the information I have here, to $13 billion by the end 
of 1999. You have to look at all of these accounts together. 

And again, the study that we had done, the actuarial study that 
we had done with regard to all of the accounts together, shows that 
you would have to have a very high, over 11 percent rate of unem- 
ployment, in order to at any point endanger these accounts. 

Mr. Santorum. I just want to make one comment on that, and 
then I have a couple other questions I really must move on to. One 
of the reasons that account built up so much is because we passed 
an extended benefits program that was paid for out of the general 
fund, and the general fund moneys were shifted into that account. 
So it is not because there was money existing with the existing 
funding stream for unemployment insurance. 

The next question I have is you talked about structural unem- 
ployment and the rise of structural unemployment. You talked 
about the need to have more programs to reduce that unemploy- 
ment, which is going to result, at least in the long term, in more 
taxes being paid. 



114 

Have you looked at the structural unemployment in Europe and 
in Canada as other countries that have, as you admitted, much 
more aggressive programs of this nature and much higher degrees 
of taxation on labor, and haven't we seen over the past decade, par- 
ticularly with Social Security tax and others, an increased taxation 
on labor which makes it less likely for that employment — for that 
structural unemployment rate to be reduced. All your program does 
is pour more taxes on labor and come up with a government pro- 
gram to try to reduce what we caused in a sense by putting the 
tax on in the first place? 

Secretary Reich. Congressman, that is precisely the point of this 
initiative, and that is precisely the point of this testimony. We have 
now — part of our social safety net is an unemployment insurance 
system that is simply an income provision. 

What we need to do is move out of social safety nets and toward 
springboards, how to make the unemployment insurance system 
not a social safety net that simply maintains income, but a spring- 
board into a new job that provides 

Mr. Santorum. But don't 

Secretary Reich. That is precisely the issue we are talking 
about. 

Mr. Santorum. Don't the other European countries that have the 
high structural rate of unemployment have these kinds of spring- 
board programs? 

Secretary Reich. No, they don't. 

Mr. Santorum. They do not? 

Secretary Reich. No, they don't. They have social safety nets, but 
they do not have what we are talking about here, they do not have 
the kind of iob search assistance, job counseling, one-stop shopping. 

They don t have the kind of training programs that we are em- 
phasizing here in which people are identified very early when they 
lose a job as someone who is likely to need a new job. In fact, what 
you have in Europe right now, are very, very generous welfare and 
social service safety nets that simply provide income assistance to 
someone for a very long period of time, without any attempt to help 
them get a new job. That is exactly the opposite of what we are 
trying to do here. 

Mr. Santorum. The point I am trying to make with this is that 
instead of looking at the tax credits and trying to remove incen- 
tives for businesses to hire people to pay for this program, why 
don't we look at the "safety net program," which you say in fact 
contributes to the structural unemployment rate that we have in 
this country, as a funding source to help the springboard, instead 
of your approach of drawing down the water in the pool so people 
don't jump in, and use that as an opportunity to provide them the 
opportunity to get out? 

Secretary REICH. Well, I am not sure I completely follow your 
metaphor. 

Mr. Santorum. I will be happy to detail it further. 

Secretary Reich. But let me just say, that what we are intending 
to do here, exactly what we are proposing in terms of making un- 
employment insurance more flexible, providing lump sum bonuses, 
providing part-time unemployment insurance, letting people be 
trained as Congresswoman Johnson pointed out, get them into 



115 

training after they lose their job, and Congresswoman, now that 
you are back, let me just, if it is not inappropriate to answer both 
of your questions at the same time, we do want as early as possible 
for somebody to be identified as unlikely to get their old job back. 

We are putting 12 weeks as the outside limit. It may be that we 
can push that up forward. But getting back to your point, Mr. Con- 
gressman, it is vitally, vitally important that we turn this unem- 
ployment insurance system into a system for helping people quickly 
get jobs. If they can get jobs within 3 weeks or 4 weeks or 8 weeks, 
that is much better than 26 weeks. That is exactly the direction we 
are going to head in. 

Mr. Santorum. I agree with that. If I could just comment on 
that, the point I was trying to make and I will make it one more 
time, is that by increasing taxes to pay for this program, the fixed 
safety net you create in fact causes some of the structural unem- 
ployment that will result. 

And what we may need to do is look for new ways to get money — 
for example, you mentioned bonuses or people who get employment 
while on unemployment compensation. Why don't we front-end load 
the program where you get higher unemployment benefits the first 
2 weeks and they go down as you go forward? So we in fact create 
incentives not to stay on for a long period of time. 

In this approach, we would have the safety net thin out as peo- 
ple, you know, go farther out into the system. Now, this is the kind 
of thing I think we could probably work on and use as a funding 
source for the program. 

Chairman Ford. Mr. Secretary, I am going to ask you not to re- 
spond. I have to yield to Mr. Cardin, another member of the com- 
mittee. 

Mr. Cardin. 

Mr. Cardin. Thank you, Mr. Chairman. Will the Reemployment 
Act be funded through extension of the FUTA tax? 

Secretary Reich. Yes. 

Mr. Cardin. And you testified that the FUTA tax has been 
around since 1970. 

Secretary Reich. That has been there since 1977. American busi- 
nesses have been paying it since 1977. 

Mr. Cardin. So, funding for the program will come from the ex- 
tension of the FUTA tax that employers have been paying? 

Secretary Reich. Yes. 

Mr. Cardin. And you are taking all the funds and using it for 
the purpose for which it was designed? 

Secretary Reich. I believe, certainly consistent with the purposes 
for which it was designed, and again, the entire goal here, I want 
to emphasize, is to get people back in jobs as early as possible and 
wherever possible get them into better jobs. 

Mr. Cardin. I just wanted to comment on the funding source. It 
seems to me that tax is going to be extended, the business commu- 
nity knows it is going to be extended, and if we use it for a way 
to reduce structural unemployment, it is certainly in the business 
interest to see those funds used for that purpose, rather than being 
used for some other purpose around here. 

I think you have come up with a funding source that makes 
sense for what we are trying to do. I don't think anybody here is 



116 

so naive to believe that that tax won't be extended. So why not use 
it for a purpose related to employment? 

Let me — I want to get to an area that you have commented on 
that intrigues me. I want to congratulate you for dealing with 
structural unemployment because you are absolutely correct, if we 
can reduce structural unemployment, we are going to increase the 
standard of living for Americans and improve our economy. 

It is a very important goal. You want to provide some form of bo- 
nuses to people who go on unemployment if they can get off unem- 
ployment quicker than they otherwise would. And I am curious just 
how you would structure that. Seems to me that would be very dif- 
ficult. 

Secretary Reich. One of the provisions we are suggesting, and 
again this is based on experiments around the country, based on 
data we have from various jurisdictions as to what works, is to en- 
able people to take some of the unemployment insurance remain- 
ing, due them should they not find a job within 26 weeks, and in- 
stead get it in a lump sum, enabling them therefore to perhaps 
take a job that may not otherwise be as remunerative as the job 
they were looking for, to at least get back into the labor force more 
quickly. 

And we found that that innovation where it has been tried does 
indeed get people into work sooner. Again, they may not get a job 
that is as good as the job they had before, but at least they get a 
job. Often they can get back on their feet and getting back into the 
job market is so vitally important. I think we all agree that we 
want to get people back in the job market as soon as possible. 

Mr. Cardin. I would caution that this program must be very 
carefully targeted so that the intended recipients receive these ben- 
efits. We must guard against new potential loopholes that encour- 
age some to go on unemployment only in order to draw these bene- 
fits. 

Secretary Reich. Yes, I want to assure you, Congressman, that 
where it has been tried and the way we are designing it and the 
way we are permitting States to design it, would be very, very care- 
fully targeted and very carefully done, so that it would not be 
gamed. 

Mr. Cardin. I understand, I was not in the room, that you be- 
lieve there is some churning of the targeted jobs tax credit pro- 
gram. I am wondering if you know of any study that suggests that 
employers are firing workers rather than workers voluntarily leav- 
ing for another job. 

Secretary Reich. Congressman, there are some studies suggest- 
ing that there are two problems that need to be addressed. 

One problem is that a large number of employers are hiring peo- 
ple they would have hired anyway. The second related problem is 
that there is some churning, that is employers are hiring, but then 
once the targeted jobs tax credit is no longer in effect, hiring again. 

Our intent is not to end the targeted jobs tax credit when it 
comes up for renewal; our intent is to propose changes that would 
avoid these problems and put particularly disadvantaged people for 
whom the targeted jobs tax credit is designed in a better position 
for a better job, a longer-term job, and often a job that provides 
some on-the-job training. 



117 

Mr. Cardin. How would you monitor to make sure that there is 
a training component to those who get the credit? 

Secretary Reich. Well, we are now examining that very issue. 
We will be back. The Treasury Department and the Labor Depart- 
ment are examining that. We will be back with particular rec- 
ommendations as to how we might structure it and how we might 
monitor it. 

Mr. CARDIN. Thank you, Mr. Secretary. 

Chairman Ford. Yes. First, I am going to let the Secretary re- 
spond to Mrs. Johnson on the questions she raised. She did utilize 
her 5 minutes, but she had to go over to the House for a vote, so 
we are going to let her be recognized. 

Mrs. Johnson. Thank you, Mr. Chairman. 

Secretary Reich. Congress woman, I was saying with regard to 
your point that the earlier the better with regard to identifying 
people and getting them into reemployment services, I couldn't 
agree with you more. 

Our current proposal says you have to be identified by the 12th 
week in order to qualify. If we can push it up further, by all means 
we are flexible to the extent that that is doable, we would like to 
do that. 

Your other point about consolidation, I did want to touch on, I 
didn't have a chance to say, we have to be very careful about the 
GAO report and the 154 programs, because they include vocational 
education, special education, Pell grants. They include apples and 
oranges. 

What we have done here, and I think it is only a beginning, I 
am very much in favor of more consolidation, is to take all of the 
dislocated worker programs 

Mrs. Johnson. I appreciate the logic of what you have done. I 
just think in view of the need for money and the very real possibil- 
ity this is going to cost considerably more than is being projected. 
I nave talked with my State Department of Labor at great length 
about this, and the cost of administering duplicate or similar pro- 
grams with different criteria, so on, so forth, is extraordinary, and 
we are literally wasting billions of dollars. 

Secretary Reich. I agree. 

Mrs. Johnson. The one other issue you didn't mention, the issue 
I raised, was the issue about the private sector outplacement pro- 
grams and how we are going to avoid supplanting the role that 
they are playing and avoid feeding those people into the public sys- 
tem, and also how the public system can make far better use of the 
outplacement firms than they are making in the current systems. 

Secretary Reich. Yes, two points there. First of all, there is $700 
million at least that the President is proposing, there is provision, 
regardless of what the appropriation might be, there is provision 
in the bill for using outplacement firms when companies anticipate 
that they will be closing, they will be downsizing, we can use the 
outplacement firm. In fact, we want to encourage the use of 
outplacement services with regard to transition assistance centers. 

And also there are a number of cooperative demonstration pro- 
grams to explore how outplacement services can be better used for 
a whole range of JTPA programs that are underway right now. So 
we do want to explore all of those alternatives. 



118 

The point I was making before, though, when you stepped out of 
the room, was that I don't see this particular set of innovations as 
in any way threatening the private job placement market. The uni- 
verse of people who are losing their jobs, 2.1 million a year, perma- 
nently losing their jobs, is so much greater than we could possibly 
meet with regard to this kind of program or the for-profit job place- 
ment can possibly meet, that they are not really competitive with 
one another. 

But point No. 2, there are many individuals around the country 
who have lost their jobs, who simply have no resources. They have 
drawn down all of their assets very quickly. They cannot afford a 
private job placement, even if they wanted to. And so again, we are 
not entering a market that is interfering with the job placement 
market. We are actually fulfilling a market need that otherwise is 
not being met. 

Mrs. Johnson. Thank you, Mr. Secretary. 

Chairman Ford. Mr. Camp. 

Mr. Camp. Thank you, Mr. Chairman. 

With regard to retraining programs, in 1993, CBO reviewed evi- 
dence and on those programs concluded there wasn't enough known 
to draw any conclusions about their effectiveness. 

A recent publication from your own department concluded that 
there were no good evaluations of long-term training programs. So 
it seems that there is agreement that we have no good evidence 
that long-term training works. 

By contrast, there is some pretty good evidence that job search, 
which is much quicker and less expensive than long-term training, 
does work. In 1993, for example, CBO noted that evaluations of job 
search programs have repeatedly shown them to be effective, and 
even to save government money. 

Yet your proposal spends $13 billion on reemployment, several 
billion of which is devoted specifically to long-term training pro- 
grams. So in view of the evidence, why does your bill emphasize 
long-term training? And do you think, Mr. Secretary, there is evi- 
dence that retraining programs work? 

Secretary Reich. Congressman, let me again be very clear about 
this. Most of the bill in terms of the appropriations side is dedi- 
cated not to long-term training, it is dedicated to job search assist- 
ance, job placement, job counseling, all of the factors that you men- 
tioned which are directly related to helping people quickly move 
into new jobs. 

We do, however, want to make sure that if people are designated 
as people who are likely to benefit from long-term training, that 
they have the wherewithal in terms of extended benefits to take 
advantage of this. 

You say that there are no surveys or studies. Actually, there are 
a number of studies showing that long-term training, even in a 
nondegree setting, does lead to better jobs paying 5 to 10 percent 
above the job that someone left before. 

Mr. Camp. I do believe then a comparison of those two ap- 
proaches would be very helpful for the committee. If you can pro- 
vide the committee or provide me in writing with an unbiased anal- 
ysis of the accomplishments and costs of those programs, I would 
be very appreciative. 



119 

Secretary Reich. Yes, I would be happy to do that. 

Mr. Camp. Thank you. 

Chairman Ford. Mr. Secretary, we want to thank you for taking 
the time to explain the Reemployment Act of 1994. 

We look forward to working with you over the weeks to come as 
we try to forward a bill from the subcommittee and the full com- 
mittee. Again, I want to thank you on behalf of all the members 
of the committee. 

Secretary Reich. Thank you very much. 

Chairman Ford. The Chair will now call Hon. Lynn Woolsey, 
and Hon. George Brown, two Members of the House, to the witness 
table. 

Let me welcome the two of you before the committee. We will 
take your full written statements and make them part of the 
recora. We ask that you summarize your statements. We are on a 
5-minute time rule. 

I want to thank you for coming in. I appreciate that you have 
waited so long. That is true also for the other witnesses who will 
be testifying today. We apologize for the time. We started at 1 
o'clock. We are going to try to get things moving right along. At 
this time, Ms. Woolsey. 

STATEMENT OF HON. LYNN C. WOOLSEY, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. Woolsey. Thank you, Chairman Ford and Chairman Mat- 
sui, Congressman Santorum and esteemed committee members. I 
really appreciate your allowing me to come before you today. 

Our Nation's attention has turned to the issue of training dis- 
located workers because the number of unemployed workers has 
been alarmingly rising due to defense layoffs, corporate downsizing, 
and Federal policy decisions. And there is no indication that these 
trends will abate in the near future. Real people and real families 
will be affected by these actions. 

We need to ensure that we have a stronger worker retraining 
program in place with real income support and real training serv- 
ices. We must do this so that people out of work have a real oppor- 
tunity to get back to work. As a human resources professional for 
over 20 years, I know the importance of training programs and 
what works and what doesn't. 

Last year, in response to the massive problem of dislocated work- 
ers, Representative George Brown and I introduced the Displaced 
Worker Retraining Act. Our bill has two main elements. First, it 
provides for comprehensive flexible training options. We place spe- 
cial emphasis on funding programs that train workers for jobs of 
the future, in environmental technologies, communications and 
computer systems, and displaced workers would be eligible for up 
to 3 years of retraining. 

Second, our bill pairs training with income support to enable a 
family to survive while the wage earner completes the training pro- 
gram. In addition, the bill allows for temporary wage supplements 
for workers who are hired at wages lower than their previous job. 
It also includes relocation allowances for workers who must move 
to accept employment. 



120 

These provisions would give workers a real chance to make a 
successful employment transition. In my experience as a human re- 
sources director, I encountered the same two problems over and 
over again. One problem is that many job training programs are 
training participants for jobs which will soon be nonexistent or ob- 
solete, sometimes before the job training program is even com- 
pleted and the individual is entering the labor force. 

The second problem is that many training programs do not train 
participants for jobs they can afford to live on. It is a terrible waste 
of our money, our resources, and the time to train people for jobs, 
if they don't train for jobs that they can afford to support their fam- 
ilies on. 

I am pleased to be an original cosponsor of the President's bill, 
and it was my pleasure to work closely with Secretary Reich and 
his office to ensure that training for jobs of the future has a place 
in the President's bill. I look forward to continuing to work with 
him to strengthen those provisions. In addition I believe that some 
of the discretionary funding in the bill should be used to fund 
model training programs which are focused on jobs that truly exist, 
jobs of the future, jobs that will pay a family wage. Finally, no one 
should be forced to choose between providing for his or her family 
and receiving adequate job training, and the income support pack- 
age included in the administration's bill is a step in the right direc- 
tion. 

But based on my experience, I believe that both income support 
and job training must be available to families for a greater length 
of time. This will help ensure two things. One, that workers can 
and will be able to take care of their families while participating 
in training programs, and two, that training programs are exten- 
sive and intensive, enough to help put people to work in jobs they 
can afford to live on. That takes time. Job creation and worker re- 
training are essential to getting our entire Nation back to work. 
The Reemployment Act goes a long way to doing so, and I urge you 
to support the act. Thank you. 

[The prepared statement follows:] 



121 



TESTIMONY OF LYNN WOOLSEY 
JOINT WAYS AND MEANS HEARING 
THE REEMPLOYMENT ACT 
TUESDAY , JULY 12 , 1 9 9'4 



THANK YOU, CHAIRMAN FORD, CHAIRMAN MATSUI , CONGRESSMAN CRANE, AND 
CONGRESSMAN SANTORUM. I APPRECIATE YOUR ALLOWING ME TO COME 
BEFORE THE PANEL TODAY, AND I WANT TO COMMEND BOTH YOUR 
COMMITTEE'S AND THE ADMINISTRATION' S COMMITMENT TO ADDRESSING THE 
PRESSING ISSUE OF RETRAINING AMERICA'S DISLOCATED WORKFORCE. 

OUR NATION'S ATTENTION HAS TURNED TO THE ISSUE OF TRAINlNii 
DISLOCATED WORKERS BECAUSE THE NUMBER OF UNEMPLOYED WORKERS HAS 
RISEN ALARMINGLY DUE TO DEFENSE LAYOFFS, CORPORATE DOWN-SIZING, 
AND FEDERAL POLICY DECISIONS CONCERNING TRADE. THERE IS NO 
INDICATION THAT THESE TRENDS WILL ABATE IN THE NEAR FUTURE. 

REAL PEOPLE AND REAL FAMILIES WILL BE AFFECTED BY THESE ACTIONS, 
AND WE NEED TO ENSURE THAT WE HAVE A STRONG WORKER RETRAINING 
PROGRAM IN PLACE, WITH REAL INCOME SUPPORT AND REAL TRAINING 
SERVICES. WE MUST DO THIS SO THAT PEOPLE OUT OF WORK HAVE A REAL 
OPPORTUNITY TO GET BACK TO WORK, AND SO THAT THE UNITED STATES 
HAS A REAL PLACE AT THE TABLE IN THE EMERGING GLOBAL ECONOMY. 

AS A HUMAN RESOURCES PROFESSIONAL FOR OVER 20 YEARS, I KNOW FIRST 
HAND THE IMPORTANCE OF TRAINING PROGRAMS AND WHAT WORKS AND WHAT 
DOESN'T. LAST YEAR, IN RESPONSE TO THE MASSIVE PROBLEM OF 
DISLOCATED WORKERS, PARTICULARLY IN AEROSPACE AND DEFENSE 
INDUSTRIES, IN OUR HOME STATE OF CALIFORNIA AND ACROSS THE 
NATION, REPRESENTATIVE BROWN AND I INTRODUCED THE "DISPLACED 
WORKER RETRAINING ACT . " 

OUR BILL HAS TWO MAIN ELEMENTS. FIRST . IT PROVIDES FOR 
COMPREHENSIVE, FLEXIBLE TRAINING OPTIONS, INCLUDING WORK-BASED 
TRAINING INCENTIVES FOR COMPANIES. MOST IMPORTANTLY, WE PLACE A 
SPECIAL EMPHASIS ON FUNDING TRAINING PROGRAMS THAT TRAIN WORKERS 
FOR JOBS OF THE FUTURE --IN ENVIRONMENTAL TECHNOLOGIES, 
COMMUNICATIONS, AND COMPUTER SYSTEMS. DISPLACED WORKERS WOULD BE 
ELIGIBLE FOR UP TO THREE YEARS OF RETRAINING. 

SECOND . OUR BILL PAIRS TRAINING WITH A REASONABLE AMOUNT OF 
INCOME SUPPORT TO ENABLE A FAMILY TO SURVIVE WHILE THE WAGE- 
EARNER COMPLETES THE TRAINING PROGRAM. IN ADDITION, THE BILL 
ALLOWS FOR TEMPORARY WAGE SUPPLEMENTS FOR WORKERS WHO ARE HIRED 
AT WAGES LOWER THAN THEIR PREVIOUS JOBS. IT ALSO INCLUDES 
RELOCATION ALLOWANCES FOR WORKERS WHO MUST MOVE TO ACCEPT 
EMPLOYMENT. 

THESE PROVISIONS WOULD GIVE WORKERS A REAL CHANCE TO MAKE A 
SUCCESSFUL EMPLOYMENT TRANSITION. 

IN MY EXPERIENCE AS A HUMAN RESOURCES DIRECTOR AND AS THE OWNER 
OF AN EMPLOYMENT PERSONNEL SERVICE, I ENCOUNTERED THE SAME TWO 



122 



PROBLEMS OVER AND OVER AGAIN. ONE PROBLEM IS THAT MANY JOB 
TRAINING PROGRAMS ARE TRAINING PARTICIPANTS FOR JOBS WHICH WILL 
SOON BE OBSOLETE OR NONEXISTANT SOMETIMES BEFORE THEY ENTER THE 
LABOR FORCE. 

THE SECOND PROBLEM IS THAT MANY TRAINING PROGRAMS DO NOT TRAIN 
PARTICIPANTS FOR JOBS THEY CAN AFFORD TO LIVE ON. IT IS A 
TERRIBLE WASTE OF MONEY, RESOURCES, AND TIME TO TRAIN PEOPLE FOR 
JOBS THAT DON'T EXIST OR THAT DON'T SUPPORT THEIR FAMILIES. 

I WANT TO COMMEND THE ADMINISTRATION FOR MEETING THE PROBLEMS OF 
OUR CHANGING ECONOMY HEAD ON. THE PRESIDENT'S "REEMPLOYMENT ACT 1 ' 
INCLUDES ESSENTIAL COMPONENTS TO ENSURE TRAINING A WORKFORCE FOR 
THE JOBS OF THE FUTURE. . ' 

I AM PLEASED TO BE AN ORIGINAL COSPONSOR, AND STRONG SUPPORTER OF 
THIS BILL, AND I AM LOOKING FORWARD TO FIGHTING FOR ITS SWIFT 
ENACTMENT ON THE EDUCATION AND LABOR COMMITTEE. 



IT WAS MY PLEASURE TO WORK CLOSELY WITH SECRETARY REICH, AND HIS 
OFFICE, TO ENSURE THAT TRAINING FOR JOBS OF THE FUTURE HAS A 
PLACE IN THE BILL, AND I WANT TO THANK HIM FOR HIS COOPERATION ON 
THIS IMPORTANT PART OF THE LEGISLATION. I LOOK FORWARD TO 
CONTINUING TO WORK WITH HIM TO STRENGTHEN THOSE PROVISIONS. 

IN ADDITION, TO FURTHER INCLUDE THE PRINCIPLES OF THE "DISPLACED 
WORKER RETRAINING BILL" IN THE ADMINISTRATION'S BILL, I BELIEVE 
THAT SOME OF THE DISCRETIONARY FUNDING SHOULD BE USED TO FUND 
MODEL TRAINING PROGRAMS, WHICH ARE FOCUSED ON JOBS THAT TRULY 
EXIST. 

I HAVE BEEN CONVINCED OF THE IMPORTANCE OF THIS APPROACH BY A 
PROGRAM IN MY DISTRICT. 

THE GOLDEN GATE UNIVERSITY'S PROPOSAL, WHICH COUPLES INNOVATIVE 
TRAINING METHODS WITH PRIVATE SECTOR INVOLVEMENT, IS STRUGGLING 
FOR FUNDING. PROJECTS LIKE THIS ONE, AND OTHERS ACROSS THE 
COUNTRY, ARE CRITICALLY IMPORTANT TO TRAINING INDIVIDUALS IN 
ADVANCED EMERGING TECHNOLOGIES, AND ARE GREATLY DESERVING OF 
FEDERAL AID. 

FINALLY, NO ONE SHOULD BE FORCED TO CHOOSE BETWEEN PROVIDING FOR 
HIS OR HER FAMILY AND RECEIVING ADEQUATE JOB TRAINING. THE 
INCOME SUPPORTS PACKAGE INCLUDED IN THE ADMINISTRATION'S BILL IS 
CERTAINLY A STEP IN THE RIGHT DIRECTION. BUT, BASED ON MY 
EXPERIENCE, I BELIEVE THAT BOTH INCOME SUPPORT AUQ JOB TRAINING 
MUST BE AVAILABLE TO FAMILIES FOR A GREATER LENGTH OF TIME. THIS 
WILL HELP ENSURE TWO THINGS: 1) THAT WORKERS CAN TAKE CARE OF 
THEIR FAMILIES WHILE PARTICIPATING IN TRAINING PROGRAMS, AND 2) 
THAT TRAINING PROGRAMS ARE EXTENSIVE -- AND INTENSIVE -- ENOUGH 
TO HELP PUT PEOPLE TO WORK IN JOBS THEY CAN AFFORD TO LIVE ON. 
THAT TAKES TIME! 

MY HOME STATE OF CALIFORNIA HAS AN UNEMPLOYMENT RATE OF OVER 9 
PERCENT, BUT, I AM CONFIDENT THAT OUR COLLEAGUES WHOSE DISTRICTS 
HAVE NOT BEEN AFFECTED AS SEVERLY AS CALIFORNIA BY OUR NATION'S 
CHANGING ECONOMY WILL RECOGNIZE THAT JOB CREATION AND WORKER 
RETRAINING ARE ESSENTIAL TO GETTING OUR ENTIRE NATION BACK TO 
WORK. THE REEMPLOYMENT ACT GOES A LONG WAY TO DOING SO, AND I 
URGE ALL MY COLLEAGUES TO GET ON BOARD AND SUPPORT THE 
REEMPLOYMENT ACT. 

THANK YOU. 



123 

Chairman Ford. Thank you very much. 
Mr. Brown. 

STATEMENT OF HON. GEORGE E. BROWN, JR., A REPRESENTA- 
TIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. Brown. Thank you, Mr. Chairman. I want to commend the 
committee for holding this hearing and beginning to move 
H.R. 4040, the administration's job training bill. 

With the leadership of Ms. Woolsey, based upon her own lengthy 
experience in this field and her very capable legislative skills, we 
think that the bill which we have crafted, H.R. 3234, provides a 
useful supplement or addition to the administration's bill. We hope 
that it can be considered. 

We may even feel that our bill perhaps has made some contribu- 
tion to the structure of the administration's bill. Let me say that 
I personally have been experiencing the need for retraining in my 
own district in southern California for a number of years. It was 
in this district that we had the first failure of a major steel plant, 
the Kaiser Steel Plant on the west coast, which dislocated about 
78,000 workers and we had to go through this process of providing 
assistance to this large number of displaced workers, and we didn't 
do a very good job. 

Retraining steelworkers who have spent a lifetime in a steelmill 
for some other kind of job that pays anywhere near that is next to 
impossible. The situation has been complicated by the massive im- 
pact of defense downsizing, which hit southern California and my 
area particularly hard. 

So I am extremely eager to see this administration move to de- 
velop the kind of a program which can provide for the kind of peo- 
ple that I represent in my district in southern California. I hope 
that you will be able to move this bill forward. 

It does, as Ms. Woolsey has said, provide additional provisions 
with regard to extended job training and family support and reloca- 
tion assistance which I feel are essential to meet the severity of the 
problem that exists at the present time. 

Again I thank the committee for giving us this opportunity to 
testify. 

Chairman Ford. Thank you very much. 

[The prepared statement follows:] 



124 



TESTIMONY OF CONGRESSMAN GEORGE E. BROWN, JR. 

ON THE DISPLACED WORKER RETRAINING ACT (H.R. 3234) AND 

ITS PERTINENCE TO THE REEMPLOYMENT ACT OF 1994 (H.R. 4040 

JOINT PUBLIC HEARING BEFORE THE HUMAN RESOURCES AND TRADE 
SUBCOMMITTEES OF THE HOUSE WAYS AND MEANS COMMITTEE 



JULY 12, 1994 



I AM VERY 'PLEASED TO TESTIFY BEFORE YOUR SUBCOMMITTEES AS 
YOU CONSIDER H.R. 4040, THE REEMPLOYMENT ACT OF 1994, AND OTHER 
PENDING BILLS TO OVERHAUL OUR NATION'S JOB TRAINING AND 
ADJUSTMENT ASSISTANCE PROGRAMS. I WANT TO SEE THE BEST POSSIBLE 
BILL EMERGE FROM THIS COMMITTEE, AND CERTAINLY H.R. 4040 IS AN 
IMPORTANT FIRST STEP. 

IT IS ESPECIALLY PLEASING TO ME TO APPEAR BEFORE YOU WITH MY 
DISTINGUISHED COLLEAGUE, CONGRESSWOMAN LYNN WOOLSEY, WHO HAS 
SHOWN HERSELF TO BE ONE OF THE MOST ASTUTE AND SKILLFUL 
LEGISLATORS IN THE CONGRESS. SHE HAS DONE AN EXCELLENT 
JOB OF SUMMARIZING THE KEY COMPONENTS OF OUR COMPREHENSIVE JOB 
TRAINING BILL FOR DISLOCATED WORKERS. WE INTRODUCED THIS 
LEGISLATION LAST YEAR BECAUSE IT EMBODIES CERTAIN ESSENTIAL 
ELEMENTS THAT WE THINK MUST BE INCLUDED IN ANY JOB TRAINING BILL 
THAT IS ULTIMATELY ENACTED. I AM HEARTENED THAT OUR BILL HAS 
CLEARLY BEEN A VERY FORMATIVE INFLUENCE UPON THE CLINTON 
ADMINISTRATION'S JOB TRAINING BILL AS SENT TO THE CONGRESS FOUR 
MONTHS AGO. 

SINCE I AM CHAIRMAN OF THE HOUSE SCIENCE, 1 SPACE, AND 
TECHNOLOGY COMMITTEE, YOU MAY THINK THAT I AM CONSUMED WITH 
"HARD SCIENCE" ISSUES AND LESS CONCERNED ABOUT INVESTMENTS IN 
PEOPLE RATHER THAN RESEARCH AND NEW TECHNOLOGIES. NOTHING COULD 
BE FARTHER FROM THE TRUTH. 

IT HAS ALWAYS BEEN MY FIRM BELIEF THAT THE GREATEST RESOURCE 
OF ANY CIVIL SOCIETY IS ITS PEOPLE. IT FOLLOWS THEN THAT THE 
INVESTMENTS WE MAKE IN EDUCATING AND TRAINING OUR PEOPLE ARE THE 
WISEST, AND MOST COST EFFECTIVE EXPENDITURES WE CAN EVER MAKE. 

THIS SHOULD BE CLEAR TO ALL OF US AS WE STAND AT THE DAWN OF 
A NEW POST-COLD WAR ERA WHERE OUR JOBS, OUR STANDARDS OF LIVING, 
AND OUR QUALITY OF LIFE HINGE AS NEVER BEFORE ON OUR ABILITY TO 
COMPETE IN THE GLOBAL ECONOMY. 

GROWING CONCERN INSIDE AND OUTSIDE OF THE CONGRESS 

IN RECENT YEARS, THERE HAS BEEN GROWING CONGRESSIONAL 
INTEREST IN RE-TRAINING DISLOCATED WORKERS, UPGRADING THE SKILLS 
OF CURRENTLY-EMPLOYED WORKERS, AND PROVIDING IMPROVED JOBS SKILLS 



125 



FOR YOUNG PERSONS JUST ENTERING THE WORKFORCE. CONCERNS ARISE, 
IN PART, BECAUSE THE NUMBER OF WORKERS DISLOCATED EACH YEAR HAS 
BEEN INCREASING AS COMPANIES RE-STRUCTURE AND AS NEW PUBLIC 
POLICIES IN THE AREAS OF DEFENSE, TRADE, AND ENVIRONMENTAL 
PROTECTION ARE CONSIDERED AND IMPLEMENTED. 

IT IS RELIABLY ESTIMATED THAT BETWEEN ONE 
AND TWO MILLION AMERICAN WORKERS ARE BEING DISLOCATED EACH YEAR. 

THEIR PLIGHT IS EVIDENT ALL AROUND US. DEFENSE AND 
AEROSPACE-RELATED MANUFACTURING EMPLOYMENT HAS BEEN ONE OF THE 
MAINSTAYS OF OUR WORKFORCE FOR SEVERAL DECADES. SUDDENLY, WITH 
THE END OF THE COLD WAR, THOUSANDS OF OUR NEIGHBORS HAVE ALREADY 
BEEN LAID OFF AS A RESULT OF BASE CLOSINGS AND DEFENSE DOWN- 
SIZING. 

AND THERE ARE MORE DISLOCATIONS LOOMING. ACCORDINGLY, I 
HAVE CONCLUDED THAT CALIFORNIA AND THE COUNTRY AS A WHOLE NEED 
STRONGER PROGRAMS FOR DISLOCATED WORKER TRAINING AND ADJUSTMENT 
ASSISTANCE AND WE NEED TO DIVERSIFY THE TRAINING OPTIONS, BEYOND 
WHAT IS CURRENTLY AVAILABLE, TO A MUCH BROADER CROSS-SECTION OF 
OUR WORKFORCE. 

ACTING ON THIS CONCLUSION, CONGRESSWOMAN LYNN WOOLSEY, 
CONGRESSMAN WALTER TUCKER, CONGRESSWOMAN ROYBAL-ALLARD, 
CONGRESSMAN BOB FILNER AND I DRAFTED H.R. 3234, WHICH SPEAKS TO 
THE IMMEDIATE NEEDS OF ALL DISLOCATED WORKERS WHO FIND THEMSELVES 
STRUGGLING TO PROVIDE FOR THEMSELVES AND THEIR FAMILIES. I AM 
ALSO VERY PLEASED THAT CHAIRMAN GIBBONS WAS AMONG OUR ORIGINAL 
CO-SPONSORS OF OUR BILL. 

WE HAVE SOUGHT TO RETAIN THE BEST FEATURES OF THE EXISTING 
TRADE ADJUSTMENT ACT AND THE JOB TRAINING PARTNERSHIP ACT 
PROGRAMS IN THIS LEGISLATION, WHILE ALSO REDRESSING THE TWO 
MAJOR CRITICISMS THAT HAVE BEEN DIRECTED AT EACH OF THESE 
EXISTING PROGRAMS ONE CRITICISM OF TAA IS THAT WORKERS EITHER DO 
NOT RECEIVE SERVICES OR DO NOT RECEIVE THEM UNTIL AFTER BEING 
UNEMPLOYED FOR A LONG PERIOD OF TIME BECAUSE OF CUMBERSOME 
CERTIFICATION REQUIREMENTS. 

A SECOND CRITICISM IS THAT UNDER JTPA, WORKERS GENERALLY DO 
NOT RECEIVE CASH ASSISTANCE, WHICH MIGHT ENABLE THEM TO 
PARTICIPATE IN LONGER-TERM TRAINING. THIS IS IN CONTRAST TO TAA, 
WHERE ELIGIBLE PARTICIPANTS RECEIVE CASH BENEFITS, CALLED TRADE 
READJUSTMENT ALLOWANCES ( TRA ) , AFTER EXHAUSTING THEIR 
UNEMPLOYMENT COMPENSATION BENEFITS ( UC ) . TO RECEIVE TRA 
BENEFITS, WORKERS MUST BE ENROLLED IN A JOB TRAINING PROGRAM, 
UNLESS THEY HAVE RECEIVED A WAIVER FROM THE SECRETARY OF LABOR. 

OUR BILL COUPLES EXPANDED, FLEXIBLE TRAINING OPTIONS WITH 
REASONABLE INCOME SUPPORT WHILE A DISLOCATED WORKER REMAINS IN 
TRAINING. IT ALSO INCLUDES ON-THE-JOB TRAINING INCENTIVES FOR 



126 



COMPANIES, TEMPORARY WAGE SUPPLEMENTS FOR WORKERS HIRED AT 
SUBSTANTIALLY LOWER WAGES, AND RELOCATION ALLOWANCES FOR WORKERS 
OFFERED EMPLOYMENT THAT REQUIRES A MOVE. THROUGHOUT ITS DESIGN, 
WE RECOGNIZED THERE ARE VERY DIFFERENT TRAINING NEEDS AT AN 
AEROSPACE OR DEFENSE CONTRACTOR, FOR EXAMPLE, BETWEEN ASSEMBLY- 
LINE WORKERS AND LAID-OFF ENGINEERS AND MID-LEVEL WHITE-COLLAR 
MANAGERS . 

SUCH A PROGRAM WILL NOT COME CHEAP. BUT ITS COST MUST BE 
WEIGHED AGAINST THE HIGHER COSTS OF CONSIGNING MILLIONS OF 
ADDITIONAL DISLOCATED WORKERS TO FREE-FALLING LIVING STANDARDS 
AND LONG-TERM UNEMPLOYMENT. TO OFFSET ANY INCREASE IN COST FOR 
THE PROGRAMS IN OUR BILL, WE HAVE IDENTIFIED A COMBINATION OF 
NEW FUNDING SOURCES. FOR EXAMPLE, A FEE OF 5% ON U.S. CAPITAL 
WITHDRAWN FROM U.S. BANKS AND INVESTED IN MEXICO WOULD 
APPROXIMATE $1 BILLION/YEAR. A FIVE CENT ASSESSMENT PER BOARD 
FOOT OF TIMBER HARVESTED FROM FEDERAL LANDS WOULD YIELD $240 
MILLION/YEAR. 

I AM OPTIMISTIC THAT REFORM OF OUR NATION'S DISLOCATED 
WORKERS TRAINING AND ADJUSTMENT PROGRAMS WILL BE ACHIEVED BY THE 
END OF 1994. 

CONCLUDING OBSERVATIONS 



MR. CHAIRMAN, THIS COUNTRY SPENDS BILLIONS OF DOLLARS PER 
YEAR ON WORK-FORCE TRAINING, ACCORDING TO THE AMERICAN SOCIETY 
FOR TRAINING AND DEVELOPMENT. THIS INCLUDES PUBLIC AND PRIVATE 
SECTOR SPENDING FOR EVERYTHING FROM HIGH SCHOOL VOCATIONAL 
COURSES TO CORPORATE TRAINING PROGRAMS FOR NEW EMPLOYEES AND 
EVERYTHING IN BETWEEN. 

THIS REFLECTS TWO SHARED BELIEFS: (1) THAT EMPLOYERS SAVE 
MONEY IN THE LONG RUN BY HAVING A WELL-TRAINED, HIGHLY-SKILLED 
WORK FORCE; AND (2) THAT EMPLOYEES ALSO BENEFIT FROM TRAINING AT 
EVERY LEVEL — NOT THE JUST ON THE JOB — AND IN A BIG WAY. 

INCREASINGLY, TRAINING DETERMINES WHO SINKS OR SWIMS IN THE 
LABOR POOL. IF ANYBODY DOUBTS THAT TRAINING IS THE KEY TO 
SURVIVAL IN THIS TOUGH JOB MARKET, ONE NEED NOT LOOK ANY FURTHER 
FOR AN ANSWER THAN THE CONCLUSIONS DRAWN FROM THE LABOR 
DEPARTMENT'S MOST RECENT OCCUPATIONAL OUTLOOK REPORT. ITS 
FINDINGS ARE TELLING ABOUT WHO NEEDS JOB TRAINING, WHO GETS IT 
AND THE IMPACT IT HAS ON CAREERS. 

** WORKERS WHO NEEDED TRAINING TO GET THEIR JOBS EARNED $10,000 
MORE PER YEAR THAN THOSE WHO REPORTED NOT NEEDING TRAINING. 

** PROFESSIONAL WORKERS WHO DID NOT NEED TRAINING IN THEIR JOBS 
HAD UNEMPLOYMENT RATES THREE TIMES HIGHER THAN THOSE WHO DID. 

** TRAINING CONTINUED AFTER HIRING. ALMOST 47 MILLION AMERICAN 
WORKERS --41%-- HAD SOME TRAINING OR FURTHER JOB-RELATED 
EDUCATION. 

** BUT MOST OF THE SKILL IMPROVEMENT TRAINING FOR PEOPLE ON THE 
JOB NOW GOES TO EXECUTIVE, ADMINISTRATIVE, AND MANAGERIAL 
EMPLOYEES AND PROFESSIONAL SPECIALISTS. 

** BECAUSE TRAINING IS SUCH AN IMPORTANT FACTOR IN A SUCCESSFUL 
CAREER, THE QUESTION OF WHO IS GETTING TRAINED BECOMES A CRUCIAL 
CONCERN TO ALL OF US . I DON'T THINK WE CAN AFFORD TO IGNORE 
THE TRAINING NEEDS OF ANY AMERICAN WHO WANTS TO WORK. 

I URGE YOU TO REPORT OUT THE STRONGEST POSSIBLE REEMPLOYMENT 
LEGISLATION. I BELIEVE THAT THE PROVISIONS OF H.R. 3234 SHOULD 
BE A PART OF THAT LEGISLATION. 



127 

Chairman Ford. I can assure you that H.R. 3234 will be taken 
into consideration when we go into markup in the Subcommittee 
on Human Resources. I thank you for your testimony. 

I know that the two of you have expressed concerns about the 
situation in the State of California. You are well aware of the 
training assistance programs that are needed for job search/job 
placement, and that those who are job ready have no counsel and 
we have to move them into the workplace. 

I assure you that we will take certain provisions and components 
of your bill under consideration when we mark up. 

Mr. Matsui. 

Mr. Matsui. I would like to commend you both for your input 
into this process and for your leadership on the issue of job retrain- 
ing, particularly Representative Woolsey on the issue of job retrain- 
ing and also on welfare reform. 

Chairman Brown, your leadership on Science, Space and Tech- 
nology issues has been tremendous. So thank you for your input to 
this subcommittee and the full Ways and Means Committee. 

Ms. Woolsey. This job training program is prevention to wel- 
fare. 

Chairman Ford. It probably would also move people from the 
welfare rolls into the workplace. 

Do other members have comments or questions for the panel? If 
not, thank you very much. 

Frank Doyle, executive vice president of GE Co.; Denise Lloyd, 
executive vice president of National Small Business United; John 
Zimmerman, MCI Communications Corp. and the National Alliance 
of Business. 

We will also call up the panel of William Morin, chairman and 
chief executive officer of Drake Beam Morin, Inc. and Rick Romine, 
director of strategic development, education division, Novell, Inc. 

I am going to recognize Mr. Morin first. We are running a little 
longer than anticipated, but will try to get caught up. 

Why don't I recognize the panel from my left to right if you don't 
mind. Is that OK with the panel members? We will make your full 
prepared text a part of the record. 

You may summarize. We are under the 5-minute rule of the com- 
mittee. 

Mr. Morin. 

STATEMENT OF WILLIAM J. MORIN, CHAIRMAN AND CHIEF 
EXECUTIVE OFFICER, DRAKE BEAM MORIN, INC., 
WASHINGTON, D.C. 

Mr. Morin. Mr. Chairman and members of the subcommittee, 
good afternoon. I would like to thank you for the opportunity to tes- 
tify. 

My name is Bill Morin and I am chairman and chief executive 
officer of Drake Beam Morin, Inc. My views today are my own and 
I appreciate the opportunity to offer them. 

I am going to give you a little background. Drake Beam Morin 
is an international transition consulting firm with 164 offices 
around the world, 82 of which are located in the United States. Our 
1993 revenues were in excess of $200 million and our company pio- 



128 

neered in career transition programs and services as we know 
them today. 

We are the world's leading organizational and individual transi- 
tion consulting firm. In 1993, we serviced in excess of 700,000 peo- 
ple worldwide; dislocated workers who were going through reem- 
ployment. We annually dedicate more than $1.5 million for re- 
search and development and job search training strategies for as- 
sisting workers who have been displaced. 

Our services are strictly paid for by organizations and corpora- 
tions who are displacing their workers. We receive no fees from any 
governmental agencies or any individual. 

My company and I have personally counseled thousands of indi- 
viduals during my 20 years in the industry. These individuals are 
employed from the very highest level executive to blue collar and 
hourly workers. These displaced workers represent a broad spec- 
trum of corporate and governmental entities, including firms like 
GM, IBM, Exxon, Dow, Rockwell, Lockheed, AT&T, Chemical 
Bank, Citibank, as well as the U.S. Air Force, State Department, 
CIA, universities, not-for-profits and many, many other organiza- 
tions. 

In fact, 80 percent of the Fortune Top 1000 corporations have 
utilized our company and other transition firms from time to time 
when considering downsizing or reorganization challenges. 

Currently DBM services over 4,000 corporations and organiza- 
tions throughout the world. In addition to these experiences, I have 
personally written, coauthored and authored seven books on the 
subject of career guidance and transition in displacement and 
downsizing. Today I would like to offer a few simple ideas. I hope 
that they are useful. 

I want to start by making a clear statement that I don't know 
of any efficient entity in the world more efficient than a well run 
business corporation. To be sure, they have their faults and their 
politics and their inefficiencies, but they are still the best. They 
are, in fact, the most efficient way of producing goods and services 
and distributing those services throughout the world. In terms of 
human resources, they hire, they fire and they retire workers. 

Most companies ensure that dislocated workers are efficiently as- 
sisted in becoming productive in society again and today we offer 
those people career transition services on a regular basis. 

To assist displaced workers, there are four major phases that I 
want to emphasize that all persons have to go through. The Sec- 
retary talked about many of them earlier. 

Phase 1, which is an assessment and guidance counseling phase 
because when you have lost your job and you hear the words "You 
are being terminated. You are no longer with the company," this 
phase becomes so critical to learning what else is possible that I 
can do. A lot of psychology is wrapped around this phase. 

Phase two is training and, if necessary, retraining which is so 
critical. 

The third phase is iob search and the fourth is job placement. 

Of the 450,000 individuals that we worked with in the United 
States in 1993, the median time for job search was 3.8 months. 
When compared to other types of services provided by govern- 
mental agencies, welfare organizations, philanthropic organiza- 



129 

tions, our best guess is we are about twice as fast as any of those 
other agencies in helping blue collar and executive personnel find 
jobs. 

As I mentioned earlier, a clear majority of the Fortune Top 1000 
corporations currently pay for career transition services to help em- 
ployees find jobs in a speedy fashion. 

The Association of Outplacement Consulting Firms International 
has identified that private expenditure for job transition assistance 
in 1993 exceeded the Federal budget for such purposes. 

I believe the exponential growth and broadening of Federal pro- 
grams to assist corporations to downsize would significantly reduce 
an employer's incentive to purchase any type of career transition 
services for their workers. 

To replace private spending with public spending is not an effec- 
tive use of government resources. Individuals who are displaced or 
outplaced today would suffer greatly if corporations walked away 
from their responsibility to provide services to those individuals. 

My concern over the Reemployment Act of 1994 is it may be con- 
strued by corporations as an opportunity to "displace their people 
and turn them over to the government." That is a vital concern to 
our industry. 

A federally funded outplacement service to the employers with- 
out cost to the employers would, in fact, provide a governmental 
subsidy to companies seeking to restructure for business purposes. 

In essence, it would take the responsibility away from business 
for helping people whom they terminate and place it on the shoul- 
ders of the government. Currently, there are private industry coun- 
cils (PICs) and other State and federally funded agencies attempt- 
ing to do some of the work that should be done by corporations 
themselves. 

Recently, a private industry council in the State of Massachu- 
setts used moneys from the Labor Department to tell a large cor- 
poration who was paying for outplacement services that they would 
provide for free all the same services the outplacement company 
was doing for free. This type of endeavor is occurring all over the 
United States at this time and is providing a great deal of confu- 
sion within corporations and to employees about their job security. 
That confusion can lead to reduction of responsibility that corpora- 
tions have to their people when undertaking an economically in- 
duced layoff. 

What could happen is the companies would merely say to the dis- 
placed worker, "Go to the governmental agency. They will help you. 
Goodbye." 

The worker then finds himself 

Chairman Ford. I am sorry to interrupt you, but your 5 minutes 
has expired. There are 15 other witnesses and I moved you ahead 
of everybody else to accommodate you on your flight. 

I don't want to interrupt you, but I have to. We will make your 
full text a part of the record. 

Mr. Moren. Thank you very much. 

[The prepared statement follows:] 



130 



STATEMENT OF WILLIAM J. MORIN 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER 

DRAKE BEAM MORIN, INC. 



Mr. Chairmen and Members of the Subcommittees, Good Afternoon: 

I would like to thank you for the opportunity to testify today. My 
name is Bill Morin, and I am Chairman and chief executive officer of Drake 
Beam Morin, Inc. I am very pleased to be before you today and represent 
the views of my company and our entire industry. Drake Beam Morin is an 
international transition consulting firm with 164 offices around the world, 
of which 82 are located in the United States. Our 1993 revenues are in 
excess of $200 million, and our company pioneered career transition 
programs as we know them today. 

We are the world's leading organizational and individual transition 
consulting firm. In 1993, we serviced in excess of 700,000 dislocated 
workers who were going through reemployment We annually dedicate 
more than $1.5 million for research and development and job search 
tr ainin g strategies for assisting workers who have been displaced. 

My company and I have personally counseled thousands of 
individuals during my 20 years in this industry. These individuals are 
employed at the very highest level executive to blue collar and hourly 
workers. These displaced workers represent a broad spectrum of corporate 
and governmental entities, including firms like General Motors, IBM 
AT&T, Chemical Bank, Citibank as well as the US Air Force, The State 
Department, universities and many, many other organizations. In fact, 80% 
of the Fortune Top 1000 corporations have utilized our company and other 
outplacement firms from time to time when considering a downsizing or 
reorganization challenge. Currently, DBM services over 4,000 corporations 
and organizations throughout the world. In addition to these experiences, I 
personally have authored and co-authored 7 books on the subject of career 
transition and displacement management. 

Today, I would like to present some ideas that I hope you will find 
useful. My thoughts are based upon my years of experience and hopefully 
represents our 1,900 consultants, who in day-to-day practice, provide career 
counseling to the many thousands of displaced employees. 

Let me begin by making a simple statement I know of no more 
efficient entity in the world than the business corporation. To be sure, they 
have their faults and their politics. But in reality they are, in my opinion, 
the most efficient way of producing goods and services and distributing 
those goods and services throughout the world. In terms of human 
resources, they hire, they fire and they retire workers. Most companies 
ensure that dislocated workers are assisted in becoming productive in 
society through career transition services. Of course, they hire companies 
like mine to provide those types of support programs. 

To assist displaced workers there are 4 major phase in almost all of 
these programs. They are: 1) assessment guidance and counseling 2) 
training and retraining, if necessary 3) job search and 4) job placement 
Of the 700,000 plus individuals that we worked with in 1993, the median 
time for successful job search was 3.8 months. When compared to other 



131 



types of services provided by governmental agencies, welfare agencies, and 
philanthropic agencies, our best guess is that we are about twice as fast in 
helping people find jobs than any other agencies that exist today. 

As mentioned earlier, a clear majority of the Fortune Top 1000 
corporations currently pay for career transition services to help employees 
at all employment levels faced with job loss. The Association of 
Outplacement Consulting Firms International (AOCFI) has identified that 
private expenditure for job transition assistance in 1993 exceeded the 
federal budget for such purposes. I believe the exponential growth and 
broadening of federal programs to assist corporations would significantly 
reduce an employer's incentive to purchase career transition services for 
their workers. To replace private spending with public spending is not an 
effective use of government resources. Individuals who are displaced or 
outplaced today would suffer greatly if corporations walked away from their 
responsibility to provide services to those individuals. 

A federally funded outplacement service to employers, without cost 
to the employers, would in fact provide a governmental subsidy to 
companies seeking to restructure for business purposes. In essence, it 
would take the responsibility away from business for helping people and 
place it on the shoulders of government. Currently, there are Private 
Industry Councils (PICs) and other state and federally funded agencies 
attempting to do some of the work that should be done by corporations 
themselves. 

Recently, a Private Industry Council, using monies from the Labor 
Department, told a large computer corporation who paid for outplacement 
services for their employees, that they would provide free job counseling 
programs. This type of endeavor is occurring all over the United States at 
this very moment and is providing a great deal of confusion within 
corporations. That confusion can lead to reduction of responsibility that 
corporations have to their people when undertaking an economically 
induced layoff. What could happen is that companies could merely say to 
the displaced worker "go to the governmental agency and they'll help you." 
The worker then finds him/herself standing in more lines, being served 
poorly and often being counseled by understaffed, under-trained, non- 
professionals in terms of the job search process. 

Today, I would like to propose, that employers with 50 or more 
workers who are planning a layoff of workers due to economic conditions, 
notify the government via the WARN Act The government, in turn, would 
provide the company with a tax incentive or stipend for employee career 
transition services. This incentive would leave the responsibility in the 
hands of the company, where it should be, and provide a more efficient use 
of taxpayers' dollars. The government would then audit the use of these 
monies to make sure that the assistance was indeed provided to the people 
leaving the corporation. 



132 



Secondly, I would further recommend that federal monies be 
allocated to Phase II of the job search process. That phase, as previously 
mentioned, is the "training and retraining" phase. 

All too often, employees are displaced in an industry that is suffering 
in total and have great difficulties in finding reemployment in their area of 
specialty. Today, for example, if you are in the aerospace industry, you 
must leave that industry, if you are an aeronautical engineer. To find a job 
that would utilize some of your skills, you would have to look to the fields 
of environmental safety, environmental waste treatment, engineering, high 
tech, etc. These are difficult transitions for individuals who often have to 
look at retraining if they are going to be employed elsewhere. If we are 
truly to have an impact, we need to make sure that we're not wasting 
tremendous human talent. This phase of the job search process needs to be 
supported through vocational institutions, colleges, junior colleges, etc., 

Thirdly, should government Career Centers be provided for hard-core 
unemployed people, I would strongly encourage you to consider letting 
private companies, such as mine, bid on these services and to actually 
operate these Career Centers. Having recently tried to bid on a Job 
Development Center in New York City, it was amazing that it took an 
expenditure of $30,000 to hire lawyers to fill out the RFPs for us to bid on 
these highly complex job search centers. Perhaps I am very naive, but it 
still shocks me every time I approach a governmental endeavor, at the 
amount of paperwork and due diligence that is necessary for a simple 
citizen, or a legitimate business to even bid on something of this nature. Of 
course, it is further "shocking" to me that it takes a financial advisor, a 
lawyer and a tax accountant to do an individual's income tax return in our 
country today. 

On a final note, our industry has the experience. Most major career 
transition companies have been in business for over 10 years. All of the 
major firms have 15 or more years experience. Drake Beam Morin, who 
has pioneered career transition programs, has been in business for over 25 
years. This experience provides the public the benefit of our professional 
services, as well as choice and quality generated by a competitive market. 
Also, quite frankly, we can also do it cheaper than putting it in the hands of 
governmental agencies. 

If the federal programs continue to supplement private services, the 
private outplacement industry will cease to exist This will create a ripple 
effect as more and more companies do not bear the responsibility for their 
dislocated workers, but rather become dependent on publicly funded 
programs which increase federal spending and tax burdens. In addition, 
people trained by the federal government do not seem to have the success 
rate in being accepted by corporations. When they are viewed with a stigma 
of poorly funded and poor quality local or state governmental training 
programs, industry shies away from these people. However, if they are 
trained by General Motors or IBM they have a better chance at becoming 
employed elsewhere. 

In closing, I strongly urge you to ensure that in the Reemployment 
Act of 1994, there is no duplication of efforts between the public and 
private sectors. As our American economy continues to restructure in the 
'90s, we can anticipate far more challenges than we've seen in recent times. 
At a minimum, the federal and state governments should be encouraged to 
leverage the public/private partnership through tax incentives or stipends in 
some form. Thank you for listening to my views, I would be pleased to 
answer any questions you might have. 



133 
Chairman Ford. Mr. Romine. 

STATEMENT OF RICK ROMINE, DIRECTOR OF STRATEGIC 
DEVELOPMENT, EDUCATION DIVISION, NOVELL, INC., SAN 
JOSE, CALIF. 

Mr. Romine. Chairman Ford, Chairman Matsui and members of 
the Subcommittees on Human Resources and Trade, I want to 
thank you for the opportunity to testify before this hearing on the 
Reemployment Act of 1994. I am Rick Romine, representing Novell. 

Novell is the leading provider of network software and the third 
largest computer software company in the world. I am here to 
share with you our experiences in the area of education and train- 
ing in the computer industry. 

We are in the midst of a historic change to our information econ- 
omy. By some estimates, two-thirds of U.S. workers are in informa- 
tion-related fields and the rest are in industries that rely heavily 
on information. 

While much of the technical expertise of information system pro- 
fessionals has become obsolete, client server and networking skills 
are in great demand. It is no surprise that a U.S. News and World 
Report article on the 20 hottest career tracks reported that quali- 
fied network computer administrators are sought by companies in 
almost every industry. 

To meet this demand while seeking to maintain the highest level 
of competence, Novell has established multidimensional education 
and training programs. All our programs lead to certifications 
which reflect employer demands. 

These industry-recognized professional certifications are the Cer- 
tified NetWare Administrator, of which there are over 10,000 peo- 
ple certified; the Certified NetWare Engineer program with over 
30,000 people certified and about 37,000 more who are currently in 
training. 

The most important of the subcommittee's considerations is that 
our programs are all based on performance-based testing. Novell 
has developed several avenues for attaining these skills. 

The Novell authorized education program is an alliance between 
Novell and about 750 private sector education partners while the 
Novell education academic partner program is an alliance between 
Novell and institutes of higher education. 

In order to qualify to be any of these partners, one must meet 
very stringent education requirements, including up-to-date cur- 
riculum, instructor certification, state-of-the-art facilities, hardware 
and software, and each center must submit student evaluations. 
The bottomline is that we as a corporation guarantee customer sat- 
isfaction. 

The success of these and other skills-based education programs 
have begun to get the attention of policymakers. The Goals 2000 
legislation which passed in March calls for the creation of a Na- 
tional Skills Standards Board. The resulting standards are to be 
used for providing employers, trainers, educators and government 
workers with the skills necessary. 

The fact is that Novell and the private sector today is providing 
already what Goals 2000 legislation is hoping to provide more 
broadly in the future. 



134 

This brings us to the consideration of H.R. 4040. We applaud the 
administration's intent to consolidate, streamline and fortify the 
Nation's retraining programs. For our part, information technology 
industries such as ours can contribute significantly to national 
goals of retraining displaced workers and reducing unemployment. 

Unfortunately, many of those in most need of such opportunities 
may never get a chance at them if Congress doesn't make these 
programs more widely available. Currently the vast majority of 
training candidates are employed. They are enrolled in training by 
their employers. 

On the other hand, in most States, acceptance of trainees from 
the general public, that is, the unemployed, forces centers to go 
through the State accreditation process for education institutions 
which is generally not practical for our industry. However, I can 
give examples of displaced workers who have taken advantage of 
these programs. 

A displaced female electronics technician from Sacramento Army 
Depot was selected for CNE training and with her background was 
hired as a systems consultant. A 50-year-old electrician and plumb- 
er out of work because of company downsizing completed his train- 
ing and now works as a network manager at a local hospital. 

A Hispanic male in his late twenties was laid off by IBM in New 
York. He relocated to Tampa and worked at an amusement park 
as a waiter and in the evening took CNE training and education 
and now is hired by the Postal Service at a salary higher than he 
made at IBM. 

There are many advantages to these certification training pro- 
grams, for both trainees and the government. Under the current 
bill, the authors attempted to accommodate training providers 
other than full-range educational institutions in section 154(b) 
which provides alternate eligibility criteria for inclusion in the pro- 
gram. 

This provision directs the Governors to develop an alternative 
eligibility procedure which will "establish minimum acceptable lev- 
els of provider performance based on factors and guidelines devel- 
oped by the Secretary of Labor and the Secretary of Education." 

Certainly we support the Federal Government being assured of 
instructional quality and we believe that section 154 is pointed in 
the right direction. However, we do have several concerns. 

First, the factors and guidelines to be developed by the two sec- 
retaries may end up encompassing many requirements more reflec- 
tive of the traditional education mindset than the realities of the 
private marketplace inhabited by our employers. 

Second, the State-by-State process could easily lead to varying 
requirements potentially disrupting a program which today is con- 
sistent nationwide both in provider standards and trainee certifi- 
cation. 

Finally, the multistep process of formulating these factors and 
then seeing them incorporated into a State procedure by Governors 
will likely take 4 to 5 years by normal administrative standards. 
This would unduly delay the flow of benefits to workers and might 
establish a mechanism too cumbersome to cope with the training 
standards in an industry with such rapid change. 



135 

We encourage the subcommittees to look at these issues care- 
fully. We urge you to keep the qualifications burden to a minimum, 
not only to attract more providers into the programs, but to main- 
tain our ability to continually adjust the curriculum and standards. 

We feel that the emphasis should be on performance outcomes 
rather than on traditional education models. We stand ready to 
work with you to address these problems during the legislative 
process to make this legislation truly useful to unemployed and dis- 
placed workers who want to move to the forefront of the informa- 
tion technology revolution. 

I would be pleased to answer any questions you have. 

[The prepared statement follows:] 



136 



Statement of Rick Romine 

Director of Strategic Development, Education Division, Novell, Inc. 

Before 

Joint Hearing of the Subcommittee on Human Resources 

and the Subcommittee on Trade 

July 12, 1994 



Chairman Ford, Acting Chairman Matsui, and members of the subcommittees on Human 
Resources and Trade, I want to thank you for the opportunity to testify before this joint 
hearing on H.R. 4040 — The Reemployment Act of 1994. My name is Rick Romine and I 
am Director of Strategic Development, Education Division for Novell, Inc. Novell is the 
leading provider of network software and the third largest personal computer software 
company in the world. We are headquartered in Provo, Utah, with a large facility in San 
Jose, California, and offices across the country. I am also the chairperson of the Certification 
Advisory Council of the Network Professional Association, and an active member of the 
Computer Education Management Association, though my testimony today is on behalf of 
Novell only. I am here to share our experiences in the area of computer education and 
training — an area of critical importance to the continued growth and success of our industry 
and to the global competitiveness of American business. 

America is witnessing a major redistribution of both capital and human resources, rapid and 
accelerating advances in technology, a new world of global competition, and changes in the 
structure and processes of business management. More than any other sector in this country, 
the computer training industry recognizes and has been rapidly responding to the third 
industrial revolution taking place in the United States. Its key elements are a renewed 
emphasis on product quality and service, workforce training and education, cost control, 
customer satisfaction, and employee participation in decision-making. As a result, 
information has become one of the nation's most critical economic resources, for service 
industries as well as manufacturing, for economic as well as national security. By one 
estimate, two-thirds of U.S. workers are in information-related jobs, and the rest are in 
industries that rely heavily on information. 

The movement away from centralized mainframe computing to a decentralized, network 
based approach has not only revolutionized the way America does business, it has also made 
many of the technical skills of information systems professionals obsolete. The once 
predominant large central information systems division is now decentralized and the 
professionals responsible for maintaining and operating a company's information systems are 
no longer located at headquarters but in the field. The largely proprietary expertise required 
in a minicomputer or mainframe environment has little value in today's markets. The 
rapidity of innovation in networking technology is demanding that those who would be 
information systems professionals acquire thorough familiarity with the most recent versions 
of system software and hardware and be capable of continually updating their skills as 
software/hardware improvements are made. 

The network is no longer simply a physical connection over which business is conducted. 
Local Area Networks (LANs) have become corporate-wide business resources enveloping 
technology, business activities and operations. According to both the Gartner Group and 
International Data Corporation, in 1992 nearly half of all the computing power in the world 
was running on Local Area Networks (LANs). The report went on to note that over 90% of 
Fortune 500 companies are deploying LAN technologies. Since 1992, these trends have 
continued and even accelerated. 

This radical change in the nature of computing and in the rapidity of technological evolution 
has created an enormous demand for individuals with the skills to manage leading edge 
systems technologies. According to a Dataquest survey, information technology is a $470 



137 



billion market. By the year 1997, it is projected to reach $600 billion. A U.S. News and 
World Report article on the twenty hottest career tracks reports, "Qualified network computer 
administrators are sought by companies in almost every industry." Business Week on June 
20, 1994 reported "Managers needed to run sophisticated client-server networks are in 
demand.. .Georgia Pacific Corp. has been turning over rocks to find experienced information 
systems people." 

To meet this demand while seeking to maintain the highest level of competency, Novell has 
established multi-dimensional education and training programs. Because I am most familiar 
with Novell's programs, I will confine my remarks to them, although there are many other 
excellent computer-related training programs as well. 

All our education and training programs recognize that our customers require different 
"packages" of skills for different purposes, and we have tailored our certification tracks 
accordingly. These industry recognized professional certification programs are: the 
Certified NetWare Administrator (CNA), Certified NetWare Engineer (CNE) and Enterprise 
Certified NetWare Engineer (ECNE). 

Most important for the Subcommittees' consideration is that our programs are all founded on 
performance-based testing. A candidate cannot become certified simply by attending classes. 
Actual job skills must be proven in a secure and controlled testing environment. We believe 
strongly that the only thing that really matters is that an individual have the requisite skills to 
perform the job, regardless of the educational path by which the skills were gained. Our 
customers feel the same way. For this reason, Novell has developed several different 
avenues for individuals to obtain our industry recognized designations. 

The Novell Authorized Education Centers (NAECs) program is an alliance between Novell 
and its education partners, which include distributors, resellers, OEMs, consultants, 
independent private training organizations, and national retailing organizations. Through this 
program Novell is able to channel its training expertise to some 1,000 training centers 
throughout the United States and overseas. In order to qualify to become a NAEC, an 
organization must meet stringent education standards, including: up-to-date curriculum 
requirements, instructor certification standards, and possess and maintain proper facilities, 
hardware, and state of the art software. Additionally, each center must submit periodic 
student and course evaluations to us so that we can be sure the students are receiving the 
highest level of instruction. The bottom line is customer satisfaction. To assure this we 
guarantee our education and training program. After all our reputation is on the line and 
that is something we take very seriously. 

The Novell Education Academic Partner (NEAP) program is a partnership effort between 
Novell and institutions of higher education and high schools to teach matriculating, degree- 
seeking students the skills and knowledge necessary to use, maintain and support Novell 
products and networking technology. A NEAP partner must be accredited by an organization 
approved by the Council on Post-Secondary Accreditation (COPA). 

We also have developed a Computer Based Training (CBT) program for those who are 
unable or prefer not to take courses at a NAEC or NEAP. This consists of a series of 
computer-based self-study courses, videos and workbooks. These independent study 
products permit individuals to learn at their own speed and at their convenience. For the 
most part, this approach appeals to experienced network professionals that desire to enhance 
their level of competence. 

Through these three avenues, over 275,000 individuals had been trained in the United States 
by the end of our last fiscal year - September 30, 1993. Another 95,000 students have 
received training outside the U.S. In the past two years, the number of students taught and 
the number of certifications obtained has more than tripled. At the end of the last fiscal year 



138 



25,500 individuals had earned the CNE designation; 9,500 had earned the CNA ; and 960 had 
earned the CNI (Certified NetWare Instructor) designation. 

Among the list of Federal government agencies that have used NAECs are: the Bureau of the 
Mint, Department of Agriculture, Department of Commerce, Department of Defense, Social 
Security Administration, Internal Revenue Service, United States Air Force, the United 
States Treasury and the Veterans Administration. 

The success of these and other skill-based education programs has begun to get the attention 
of policy makers. The Goals 2000 legislation passed this past March calls for the creation of 
a National Skills Standards Board. These standards are envisioned to be used by employers 
to "assist in evaluating the skills levels of prospective employees, "by training providers and 
educators to "determine appropriate training services to offer, "by workers to "obtain 
certifications of their skills, pursue career advancement, and enhance their ability to reenter 
the workforce," and by government to "evaluate whether public funded training assists 
participants." 

This brings us to consideration of H.R. 4040. We applaud the Administration's intent to 
consolidate, streamline and fortify the nation's retraining programs. We hope we have helped 
convince the Subcommittees that we, and other information technology industries, enjoy a 
demand for trained personnel which can contribute significantly to our national goals of 
retraining good workers in industries which are in decline and indeed reducing 
unemployment, whatever the cause may have been. I will give just four examples: 

• A 27-year-old mechanic in Bakersfield, California was disabled due to a back injury. He 
had only a high school diploma. After acquiring his CNE, he was hired as a computer 
technician. 

• A Hispanic male in his late twenties was laid off from IBM in New York. He relocated to 
Tampa and worked during the day at an amusement park and as a waiter to fund his CNE 
night classes. After certification, he was hired by a federal contractor for the U.S. Postal 
Service, at a higher salary than he made at IBM. 

• A displaced female electronics technician from the Sacramento Army Depot was selected 
for CNE training. With her background and the certification, she was hired by a private 
company as a systems consultant. 

• A 50-year-old electrician/plumber, out of work , because of company downsizing, 
completed his CNE training and is now employed as a network manager at a local 
hospital. 

These are good jobs. The unfortunate thing is that many of those most in need of such 
opportunities may never get a chance at them unless Congress makes sure that training like 
that we have described is made available more widely under the aid provisions of federal job 
training legislation. Currently, the majority of these positions are filled by customers who 
are buying, in our case, the networking products. They designate the persons, generally 
current employees, who will receive the networking training and pay the instructional and 
materials fee. A few private sector training centers accept students from the general public, 
but the cost of instruction is a factor. 

And there are advantages not only to trainees but to the government in securing the 
participation of these centers in the programs established by the legislation. In just a couple 
of weeks of intensive training at these and similar providers, workers can acquire the skills 
for certification. This not only increases the rate of completion of the course, but greatly 
reduces the cost to the unemployment compensation fund or, under this bill, of income 
support during training. 



139 



The bill's authors attempted to accommodate training providers other than full-range 
educational institutions in Section 154(b), which provides alternate eligibility criteria for 
inclusion in the program. This provision directs governors to develop an alternative 
eligibility procedure which will — 

"establish minimum acceptable levels of performance for these providers based on 
factors and guidelines developed by the Secretary [of Labor], after consultation with 
the Secretary of Education. Such factors shall be comparable in rigor and scope to 
those provisions of part H of such title of such Act that are used to determine an 
institution of higher education's eligibility to participate in programs under such title 
as are appropriate to the type of provider seeking eligibility under this subsection and 
the nature of the education and training services to be provided." 

Certainly we support to the federal government being assured of instructional quality at 
training centers receiving federal funds, and we believe Section 1 54(b) is pointed in the right 
direction. However, we have several concerns: first, the state-by-state process could easily 
lead to inconsistent requirements for provider participation across the country, in a field in 
which student certifications (the product of those same providers) are currently recognized 
nationwide by employers. Second, the "factors and guidelines "to be developed by the two 
Secretaries may well end up encompassing many requirements more reflective of the 
traditional educational mindset than of the realities of the private marketplace inhabited by 
employers. Finally, the process of formulating these factors and then seeing them 
incorporated into state procedures by governors is at least a two, if nofa three or four step, 
process. It could well take four or five years by normal administrative action standards. Of 
course this would greatly disadvantage the workers this legislation is intended to reach. But 
just as importantly, it raises in our minds real concerns about the capacity of any such 
cumbersome mechanism to cope with training standards in an industry in which new versions 
of key products come out annually and product designs more than three or four years old 
have no relevance to the marketplace. 

We encourage the Subcommittees to look at these issues carefully. We urge you to keep the 
qualification burden to a minimum, not only to attract more providers into the program, but 
to maintain our ability to continuously adjust the curriculum and standards to reflect new 
advances in technology, which occur at a rate undreamt of ten years ago. We stand ready to 
work with you to address these problems during the legislative process, to make this 
legislation truly useful to unemployed and displaced workers who want to move from the 
eddies to the crest of the wave of the information age. 

I would be pleased to answer any questions you may have. 



140 

Chairman Ford. Mr. Doyle. 

STATEMENT OF FRANK P. DOYLE, EXECUTIVE VICE 
PRESIDENT, GENERAL ELECTRIC CO. 

Mr. Doyle. Thank you, Mr. Chairman. Thank you for asking me 
to testify. 

I want to convey in this issue a genuine sense of urgency. I think 
there is one. I would like to encourage and endorse the clear under- 
standing of the fundamental change in the American economy that 
the Reemployment Act reflects. I am also here because we at GE 
have had extensive and successful experience in working with the 
Department of Labor, local JTPA and EDWAA systems, labor 
unions, workers and community leaders on behalf of dislocated 
workers, and I think that experience is relevant and can be helpful. 

I endorse the core features of the Reemployment Act. This legis- 
lation, like most legislation, has things in it that I would change. 
However, in my judgment, those are heavily outweighed by the 
positive initiatives that it embodies. 

One of the most important and most urgent is the recognition 
that the structure of unemployment in this country has changed 
permanently since the mechanisms designed to deal with these is- 
sues were put in place decades ago. 

The design of the current system was to deal with normal cycli- 
cal changes. Such a design does not serve anyone well in a time 
of continuing structural change. I think one of the crudest illusions 
that can be held out to workers is that the restructuring of Amer- 
ican industry is a one-time event. Nothing could be further from 
the truth. It will continue. 

The other change that leads to my sense of urgency is the fact 
that the restructuring process is now impacting a full range of 
American workers, many of whom have never experienced job un- 
employment before. 

We recognize that the pervasive anxiety and concern of the aver- 
age American worker about the future of their job affects economic 
performance at all levels. It is urgent therefore that the dislocated 
worker system be consolidated and reformed and be made more 
user friendly and that it be done at the earliest possible time. 

One of the clear comparative advantages of the American econ- 
omy has been its flexibility. The central goal I would argue guiding 
this legislation should be how to shorten the period of unemploy- 
ment and move people to meaningful new work in the shortest pos- 
sible time. If we do this, the new system can, in fact, pay for itself. 

Let me now turn to our own experience. Even though GE had 
been involved in restructuring efforts for nearly a decade and had 
pioneered layoff practices now considered standard, early notice, 
benefit continuation, lump sum settlements, we nevertheless orga- 
nized a thorough reassessment of our practices in 1989 and that 
assessment covered other nations and other companies as well in 
this country. 

We tested the GE employment transition model at three major 
locations. Thereafter, we modified it and have since used it at 20 
locations and have served over 20,000 workers in the past 4 years. 
That model has been a solid success. It was developed with the 



141 

close cooperation of the Department of Labor, our labor unions and 
other organizations. 

The primary principles of our model are: Adequate advance no- 
tice; effective communication to both departing as well as the re- 
maining workforce; the organization of career transition centers 
with a core of proven services as is developed in this legislation; 
ongoing employee and labor involvement and assuring the services 
were effectively delivered in cooperation with our business leaders; 
a commitment to outcomes, transitioning the largest number of 
possible workers to do work at a high percentage of previous wages 
and benefits. 

The model included individual assessment and career planning, 
extensive personal counseling, job search, job development and job 
placement assistance, customized retraining programs, the involve- 
ment of family and an entrepreneurial fund. The results — 65 per- 
cent of those who participated in our model have found work and 
the remainder is still being trained; 75 percent were placed within 
12 months. 

The starting rates on new jobs approximated 80 percent of the 
relative high wage and benefit packages that people enjoyed before 
the layoffs. Though placement levels still are not as high as we 
would like, they were achieved over a prolonged recession period. 
So the strengths of this legislation from my perspective are the fol- 
lowing. 

First and foremost is the recognition that our economy has 
changed and our transition system must change with it. We cannot 
wait because people are being impacted by it everyday. The consoli- 
dation of programs is an excellent start but I would urge that it 
go even further. 

Our long-term objective should be a system of benefits based on 
the effect of dislocation, not our present approach of tying eligi- 
bility and benefit levels to the often hard to determine cause of dis- 
location. 

Finally, I would like to address the financing question. Employ- 
ment taxes do have a real negative effect on job generation. There- 
fore, it makes no sense to increase them. However, I believe the 
business community could support the retention of the 0.2 percent 
FUTA tax to help finance the new system especially if it is tied to 
real improvements in the efficiency and effectiveness of the pro- 
gram it funds. 

This is important legislation. We urge its enactment. 

[The prepared statement follows:] 



142 



TESTIMONY BY 

FRANK P. DOYLE 

EXECUTIVE VICE PRESIDENT 

GENERAL ELECTRIC COMPANY 

FAIRFIELD, CONNECTICUT 

HOUSE WAYS AND MEANS COMMITTEE 

JULY 12, 1994 

First, my thanks for inviting me to testify on this issue. There are three reasons 
that I am pleased to be personally presenting this testimony: 

1. I want to convey a sense of genuine urgency on the need to deal with the 
issue of the consolidation and expanded flexibility of the nation's dislocated 
worker and unemployment insurance systems. 

2. I'm here to encourage and endorse the clear understanding of the fundamental 
change in the American economy that the Re-employment Act reflects. 

3. I'm also here because General Electric Has had extensive experience - perhaps 
more than most - in working effectively with the Department of Labor, the 
local JTPA and EDWAA Systems, labor unions, workers and community 
leaders on behalf of dislocated workers. That experience, I believe, may be 
valuable to the consideration of this legislation. 

I endorse the core features of the Re-Employment Act. This legislation - like most 
legislation - has things in it that I would change. However, in my judgment, those 
are heavily outweighed by the positive initiatives that it embodies. One of the most 
important - and most urgent - is the recognition that the structure of 
unemployment in this country has changed permanently since the mechanisms 
designed to deal with these issues were put in place decades ago. 

The design of the current system was to deal with "normal" cyclical changes. Such a 
design simply does not serve anyone well in a time of sweeping - and continuing - 
structural change. I think that one of the crudest illusions that can be held out to 
workers is that the restructuring of American industry is a one-time event. Nothing 
could be further from the truth. It should be self-evident that the restructuring of 
American industry is an on-going process. As a practical matter that means that 
millions of Americans will, over the next decade and beyond, go through one or 
more transitions to new employment. 

The other change that leads to my sense of urgency is the fact that in earlier years 
many of the people who were impacted by dislocations were those who had lived 
with the "normal" cyclical ups and downs of the economy. Therefore, the nature of 
the problem was more muted. Today the restructuring process is impacting the full 
range of American workers, many of whom had never before experienced 
unemployment. We in GE recognize well the pervasive anxiety and concern of the 
average American worker about the future of their job - and their economic 
viability. It is ur gent therefore, that the dislocated worker system be consolidated, 
reformed, made much more "user friendly" - and that it be done at the earliest 
possible time. 

One of the clear comparative advantages of the American economy has been its 
flexibility. Central to maintaining that comparative advantage will be to have in 
place an effective transition system for America's workforce as they move from one 
job to another - at the earliest possible time. That should be the central goal, I 
would argue, guiding the legislation: how to shorten the period of unemployment 
and move people to meaningful new work in the shortest possible time. The Re- 
Employment Act would move decisively in the direction of accomplishing that 
assuming, of course, effective implementation. 



143 



Let me now turn to our own experience. Even though GE had been involved in 
restructuring efforts for nearly a decade and had pioneered layoff practices now 
considered standard, such as early notice and benefit continuations, we organized a 
thorough reassessment of our layoff practices in 1989. Our study included an 
assessment of what other companies were doing, a review of the government's 
literature and research and an analysis of what countries in Europe and Southeast 
Asia were doing. 

We concluded from that analysis that improvements could be made and that a new 
approach could make a difference in the transition to new work. 

We first tested the "GE Employment Transition Model" in layoffs at three major 
locations. Thereafter we modified it modestly and have since used it at 20 
locations. It has served well over 20,000 workers in the past four years. 

That model has been a solid success. A model that was developed and implemented 
in close cooperation with labor unions, our workers, the U.S. Department of Labor, 
local JTPA and EDWAA organizations and community leaders. 

The primary principles of our model are: 

Adequate advance notice 

Effective communications to both the departing as well as the remaining 
workforce. 

The organization of career transition centers with a core of proven services 
I'll describe in a minute. 

Ongoing employee/labor involvement and assuring the services were 
effectively delivered in cooperation with our business leadership. 

- A commitment to outcomes - transitioning the largest number possible of 
workers into new work at a high percentage of the previous wages and 
benefits. 

The key components of the model include: 

Individual assessment and career planning 

Extensive and personal counseling 

Effective job search, job development and job placement assistance 

Customized retraining programs consistent with the jobs available in the 
area. 

On-the-job training in selected situations 

- The involvement of the family at appropriate points to assure the kind of 
support the worker needs as they transition to new work. 

- The initiation of a "GE Employee Venture Fund" and entrepreneurial 
training initiative for selected individuals who are prepared to go into self- 
employment. 

- Close coordination with our Preferential Hiring and internal job 
availability. 



144 



We've recently completed an assessment of the four-year use of the model. The 
results are better than expected. Please understand these results occurred in areas 
where the job market and the layoffs were particularly challenging, including more 
rural locations like Utica, NY and Pittsfield, MA, as well as urban areas in New 
Jersey, Illinois and Pennsylvania. 

We found that: 

o 65% of those who participated in our model found new work (the 
remainder are still being served). 

o 75% of those were placed within 12 month:, or less. 

o The new jobs approximated 80% ot the previous wages and benefits, on 
average. 

The model is not perfect, of course. We are revising the model to enhance its 
effectiveness, aimed at achieving even better outcomes. 

The results are reflected in the number of letters that we have received from those 
affected by layoffs. The thrust of nearly every letter has been how extremely 
valuable the services have been - and how critical those services were during a time 
of enormous emotional and persona! anxiety. 

In short, we have seen, firsthand, a substantial increase in the positive results and the 
success of transition to new work that can be achieved. 

Let me, then, summarize some of the lessons that we have learned that we believe 
this legislation takes advantage of: 

1. A well structured, well organized and well managed set of services, that are 
tailored to the needs of the individual workers and specific to the 
opportunities available in that community, can substantially shorten the 
period of unemployment and increase the success of large numbers of 
workers in making the transition to new work. 

2. Too much of the current laid off worker and unemployment system does 
not support that goal. The unemployment insurance system, for example, 
basically dictates that one must become totally unemployed before any 
compensation is available. The fact that they are disqualified the minute 
they secure even part-time work is perverse. Further, having separate 
programs for TAA, NAFTA, Clean Air, or Defense downsizing creates a 
web of tangled rules, regulations, eligibility which, often, are confusing. 

3. We have learned that where we set up transition centers to unsnarl all of 
these issues for the workers and manage all the paperwork, we can make 
the system "user friendly." Left on their own too many workers get put 
off, confused or disheartened by the system. 

4. A strong partnership between the workers/unions, business, the federal, 
state and local governmental agencies is an essential factor to success. 

So the strengths of this legislation, from my perspective, are the following: 

1. First and foremost is the recognition that our economy has changed - and 
our transition system must change with it. That the change in the system 
simply cannot wait. 



145 



2. The longer we wait to make the changes in the system the more damage 
we do to the economy - and to far too many individual workers who 
could be helped with a more effective, user friendly, and flexible system. 

3. The consolidation of the programs is an excellent start - but I would urge 
that it go even further. Our long-term objective should be a system of 
benefits based on the effect of dislocation, not our present approach of 
tying eligibility and benefit levels to the often hard to determine cause of 
dislocation. Another overriding goal should be to have what this legislation 
calls for: a truly flexible, user friendly, broadly accessible and supportive 
system for shortening to the least possible time the length of 
unemployment. 

Therefore, the pulling together of a number of the programs and establishing a 
single point of contact for dislocated workers is one of the more critical elements in 
this legislation. 

Finally, I'd like to address the financing question. Employment taxes have a very 
real negative effect on job generation. Therefore it makes no sense to increase them. 
However, I believe the business community will support the retention of the .2% 
FUTA tax to help finance the new system. Since it has been in place for so long, I 
genuinely doubt that a single day of careful business planning has gone into the 
concept that this tax will be going away. The use of an appropriate amount of 
general revenues for a truly effective new system will pay dividends many times 
over. 

This is important and timely legislation. Unless and until the nation puts in place 
effective transition mechanisms for dislocated workers, the concern about jobs will 
erode our confidence, distort the debate on trade and our international 
responsibilities, and make change the enemy rather than our nation's best friend. 

I'd be happy to respond to your questions. 



146 

STATEMENT OF JOHN H. ZIMMERMAN, SENIOR VICE PRESI- 
DENT, MCI COMMUNICATIONS CORP., AND ALSO ON BEHALF 
OF THE NATIONAL ALLIANCE OF BUSINESS 

Mr. Zimmerman. Chairman Ford and Chairman Matsui and 
other members, I appreciate the opportunity to testify regarding 
the Reemployment Act of 1994. 

I am John Zimmerman, a senior vice president for the MCI Com- 
munications Corp. and a former member of the SCANS Commis- 
sion which was established by the Department of Labor to study 
the skills necessary for our country's workforce. 

MCI and many other business organizations support the public 
policy principles embodied in the Reemployment Act which has 
been introduced as H.R. 4040. We hope to work closely with this 
committee to produce a meaningful piece of legislation this year. 

The MCI chairman, Bert Roberts, also serves as the chairman of 
the National Alliance of Business, and I am also speaking for this 
organization, its board, and its national membership. 

The administration is correct in asserting that a new reemploy- 
ment system is needed for our country. Business is committed to 
helping the administration and the Congress enact a bill this year, 
a bill that should have broad bipartisan support. 

The once stable fortresslike American economy is in a new era 
of constant technological change, a pervasive restructuring and of 
contracting businesses, and that results in moving between jobs. 
Every year, about 2 million full-time American workers are dis- 
placed. 

A new Federal policy is needed to address the resulting problem 
of worker adjustment. A new system should reflect our enlightened 
understanding of why reemployment and skill development have 
become central to the economic success of America. 

We must recognize the competitive advantage that a skilled 
workforce will give our Nation in the global marketplace. We must 
recognize the need to develop new and additional skills in our dis- 
placed workers so that they can reenter our workforce with the 
necessary skills to make the most of the opportunities that are 
available. Workers without the necessary skills will be denied these 
opportunities. 

The foundation of the current Federal unemployment and train- 
ing system goes back decades when there was an entirely different 
set of economic realities. Before, workers had only to wait out busi- 
ness cycle downturns and then go back to their jobs. Today, most 
Americans do not get their old jobs back after they have been dis- 
placed. 

During the last 2 years, 77 percent of all laid-off workers were 
permanently laid off. That is the highest percentage in the last 30 
years. 

Today's system is not able to meet this new challenge. Unem- 
ployed workers struggle to understand the system and then they 
find it irrelevant, bureaucratic and confusing. We commend the ad- 
ministration for focusing on this problem and responding to this 
problem with the Reemployment Act. 

We support the general principles embodied in the bill. In par- 
ticular, several principles are important to highlight. 



147 

First, the consolidation of programs. At a minimum, six current 
programs for dislocated workers will be consolidated. The provi- 
sions in the bill for encouraging States to establish one-stop career 
center systems is critical to the bill's success. The one-stop concept 
will integrate many, many more education and training-related 
programs into a comprehensive integrated workforce development 
system. 

The bill's consolidation of programs goes in the right direction, 
better services, simpler access and less duplication. The com- 
prehensive, integrated workforce investment svstem being proposed 
under the bill is the forerunner of the kind of system that is going 
to be needed if we are efficiently going to implement a welfare to 
work program on the scale that is being proposed by the adminis- 
tration. 

A second principle is increased State and local authority to ad- 
just for unique and economic conditions. State and local officials 
must have sufficient authority to tailor services, administrative 
procedures and delivery systems. 

A third principle is market-driven systems that deal with the 
skill demands of the modern workplace. 

Another principle is business leadership. State and local 
business-led workforce investment boards can help ensure the rel- 
evance of these programs to future jobs in the economy. 

Now I will comment on the financing issue. We commend the ad- 
ministration for looking at new ways in which the unemployment 
system can be designated to meet the needs of our workers. 

Our business support includes a willingness to explore new ways 
of financing a reemployment system and this includes exploring op- 
tions such as earmarking the use of the current 0.2 percent FUTA 
surtax for this purpose. There are several principles we think 
ought to be considered as items of concern. 

We are concerned about increased taxes, but we recognize the 
value of maintaining the current tax level. We are concerned about 
the possibility of new entitlements, but we feel that with the caps 
described by the Secretary of Labor this issue has been dealt with. 

In closing, America needs a comprehensive system to identify ca- 
reer opportunities in our workforce and to develop the skill levels 
of our unemployed to seek these opportunities. The result will be 
a more highly skilled workforce for our Nation, one which will 
strengthen our competitive position in the global marketplace. 

Business supports the President's call to build a reemployment 
system for America. We urge Congress to pass this bill. Our Nation 
must have it. 

Thank you and I welcome your questions in the question period. 

Chairman Ford. Thank you very much. 

[The prepared statement follows:! 



148 



TESTIMONY OF 

JOHN H. ZIMMERMAN 

SENIOR VICE PRESIDENT 

MCI COMMUNICATIONS CORPORATION 

BEFORE 

SUB-COMMITTEES OF THE WAYS & MEANS COMMITTEE 

ON THE REEMPLOYMENT ACT OF 1994 

JULY 12, 1994 



Mr. Chairman, I appreciate the opportunity to testify at this hearing before the House Ways and 
Means Human Resources and Trade Subcommittees regarding the Reemployment Act of 1994. 

I am John Zimmerman, a Senior Vice President for the MCI Communications Corporation and 
a former member of the SCANS Commission which was established by the Department of Labor 
to study the skills necessary for our country's workforce. 

MCI and many other business organizations support the public policy principles embodied in the 
Reemployment Act which has been introduced as HR 4040. We hope to work closely with this 
committee to produce a meaningful piece of legislation this year. The MCI Chairman, Bert 
Roberts, also serves as the Chairman of the National Alliance of Business and I am also 
speaking for this organization - its Board, and its national membership. 

The Administration is correct in asserting that a new reemployment system is needed for our 
country. Business is committed to helping the Administration and the Congress enact a bill this 
year. A bill that should have broad bi-partisan support. 

The once stable fortress-like American economy is in a new era of persistent foreign 
competition, of constant technological change, of pervasive restructuring and of contracting 
businesses. This results in more workers than ever before moving between jobs. Every year, 
about 2 million full-time American workers are displaced. 

A new federal policy is needed to address the resulting problem of worker adjustment. A new 
system should reflect our enlightened understanding of why reemployment and skill development 
have become central to the economic success of America. We must recognize the competitive 
advantage that a skilled workforce will give our nation in the global marketplace. We must 
recognize the need to develop new and additional skills in our displaced workers so that they can 
re-enter our workforce with the necessary skills to make the most of the opportunities available. 
Workers without the necessary skills will be denied these opportunities. 

The foundation of the current federal unemployment and training system goes back decades when 
there has was an entirely different set of economic realities. Before, workers had only to wait 
out business cycle downturns and then go back to their jobs. Today, most Americans do not get 
their old jobs back after being displaced. During the last two years, 77 percent of all laid-off 
workers were permanently laid-off — the highest percentage in the last 30 years. 

Today's system is not able to meet this new challenge. Unemployed workers, struggle to 
understand the system, then find it irrelevant, bureaucratic, and confusing. The Department of 
Labor correctly characterized the problem this way in their early consultation paper on this bill: 



"The typical experience of most American workers needing assistance from this system is one 
of confusion and frustration. In the process of applying for and collecting Unemployment 
Insurance, the worker finds a system that places more emphasis on the documenting that he or 
she is going through than on helping applicants plan and pursue a rational strategy for 
reemployment. It is often easier to obtain help in filling out the required application forms 
correctly than to receive guidance about growth industries in the local area or to initiate sensible 
job search approaches." 



149 



We commend the Administration for focusing on this problem and responding to this problem 
with the Reemployment Act. We support the general principles embodied in the bill. In 
particular, several principles are important to highlight: 

•First, consolidation of programs. At a minimum, six current programs for dislocated workers 
will be consolidated. The provisions in the bill for encouraging states to establish one-stop 
career center systems is critical to the bill's success. The one-stop concept will integrate many 
more education and training-related programs into a comprehensive, integrated workforce 
development system. The bill's consolidation of programs goes in the right direction — better 
services, simpler access, and less duplication. 

The comprehensive, integrated workforce investment system being proposed under this bill is 
the forerunner of the kind of system that will be needed to effectively implement a welfare-to- 
work program on the scale being proposed by the Administration. Action on the Reemployment 
Act this year will enable states to get an early start on re-engineering, or building, an effective 
service delivery system that will eventually include welfare recipients and prepare them as well 
for higher-paying, higher-skilled jobs. 

•Second, increased state and local authority to adjust for unique economic circumstances. 

State and local officials must have sufficient authority to tailor services, administrative 
procedures, and delivery systems in ways that meet the unique circumstances of their populations 
and economies. This should not be a rigid, federally controlled system, although uniform 
standards for performance should be established to set universally high expectations. 

•Third, market-driven services. Training and other services should be driven by the skill 
demands of the modern workplace. The quality of training and services available under this 
program must produce workers with a high level of economic relevance that will minimize future 
dislocations and expand job opportunities for them. 

•Fourth, business leadership in the system. The leadership role for business in the governance 
structures proposed at the state and local levels is an important principle to maintain. State and 
local business-led Workforce Investment Boards can help ensure the relevance of these programs 
to future jobs in the economy. The boards must have substantial authority to oversee and shape 
the design of local service delivery systems. They must have authority to ensure effective results 
by measuring performance and outcomes from the system. 

We recognize that many of the design principles in this bill are primarily under the jurisdiction 
of other committees. However, they are in the bill pending before this committee and need to 
be considered broadly by the Congress. 

Now, I will comment on financing. 

We commend the Administration for looking at new ways in which the Unemployment Insurance 
system can be designed to meet the needs of workers and employers more effectively. Clearly, 
in an increasingly dynamic labor market, there is a need for a stable source of funding that 
ensures access to reemployment services for those workers who need substantia! skill 
development. This is the time to begin rethinking how employer and employee contributions 
to the unemployment insurance trust funds can best be used to accelerate the return to 
employment for displaced American workers. 

Our business support includes a willingness to explore new ways of financing a reemployment 
system, including exploring options such as earmarking the use of the current .02 (two-tenths) 
percent FUTA surtax for this purpose. 

We support the experimental uses of the regular unemployment insurance system proposed in 
the bill which are intended to shorten a person's duration of unemployment. These include job 
sharing with a partial UI subsidy, grants from UI benefits for business start-ups or self- 
employment, and bonus payments for early reemployment. 



150 



As we look at long-term financing options, there are several issues that concern us. We have 
discussed these with the Administration. We believe that they share our concerns. Our issues 
of concern are: 

•No increased taxes. The bill must not increase current Federal Unemployment Tax Act 
(FUTA) payments. Although the existing .02 (two-tenths) percent temporary surtax, imposed 
in 1977 and extended several times through 1997, would be extended, the net result of the bill 
must be no increase in taxes. Business would not support increased FUTA taxes. 

•No new entitlement. The Administration proposal limits services according to available 
resources that are subject to the checks and balances of annual appropriations from general 
revenues. Income support for those persons in long-term training would also be limited by 
capped amounts of funds that would be available in a retraining income support trust fund. The 
legislation must clearly define who is eligible - and for what - in a manner that would eliminate 
any potential for establishing a new entitlement program. Business would oppose a new 
entitlement. 

• A limit on extended income support to those persons who need training. In addition to 
clearly defining eligibility for dislocated worker services under the program, the conditions 
under which a person receives benefits should be narrowly defined to ensure that the goal of 
shortening periods of unemployment is kept paramount. We would not want to inadvertently 
add incentives for workers to just collect extended income support under this system. Persons 
needing income support must have an objective skill assessment that determines the need for 
training. The income support would be provided only for successful participation and only for 
the duration of the training program. Further income support would be provided only to the 
extent that funds are available in the special trust fund being proposed. 

This legislation sets the stage to explore more comprehensive reforms and new uses of the 
unemployment insurance system over the next few years. The goal should be a system based 
on individual reemployment strategies that will shorten the duration of unemployment, provide 
skill development where necessary, and ease workforce transitions. 

To expedite committee action on reemployment legislation this year, we believe that several 
options should be considered by Members. These options would also expand business support 
by minimizing business concerns regarding the current proposal. 

First, Establish a commission to study restructuring the unemployment insurance system into 
a new, comprehensive reemployment system for the 21st century. A commission will help 
employers and public officials thoroughly understand the implications of a new reemployment 
system and how it should be financed. Business would strongly support and participate in such 
a commission. Congress should ask the commission to make recommendations on changes 
needed in UI, on different uses of these funds to finance a new reemployment system, and on 
projected future costs or savings under a new system. The advantage of such a commission, 
with substantial business participation, is that consensus and credibility can be built broadly 
within the business community for needed changes in the unemployment insurance system. If 
employers understand the financial impact of any proposed changes, they will be more willing 
to consider different uses of the unemployment insurance trust funds to help the reemployment 
of American workers. I can report to you that when the National Alliance of Business Board 
of Directors discussed the proposed Reemployment Act, they gave their unanimous support to 
this idea. 

Second, separate short and long term financing. The .02 (two-tenths) percent FUTA surtax 
could be extended until the commission makes its report with specific recommendations about 
the longer-term use of UI funds to support such a system. A temporary extension, rather than 
a permanent extension as proposed by the Administration, would expand business support for 
the bill, and would allow a reasonable time to explore the use of a permanent extension. 

In closing, America needs a comprehensive system to identify career opportunities in our 
workforce and to develop the skill levels of our unemployed to seek these opportunities. The 
result will be a more highly skilled workforce for our nation - one which will strengthen our 
competitive position in the global marketplace. 

Business supports the President's call to build a reemployment system for America. We urge 
Congress to pass a bill this year. Our nation must have it. 



151 
Chairman Ford. Ms. Lloyd. 

STATEMENT OF DENISE LLOYD, MEMBER, BOARD OF 
TRUSTEES, NATIONAL SMALL BUSINESS UNITED, AND 
FOUNDER, D.H. LLOYD & ASSOCIATES, WASHINGTON, D.C. 

Ms. Lloyd. Mr. Chairman and members of the committee, thank 
you for this opportunity. 

My name is Denise Lloyd. I am founder of D.H. Lloyd & Associ- 
ates, a small business and insurance agency based in Washington, 
D.C. I am an active member of National Small Business United, 
where I serve on the board of trustees. I am also a past president 
of the D.C. Chamber of Commerce. We at National Small Business 
United very much appreciate this opportunity to be here. 

NSBU represents over 65,000 small businesses in all 50 States. 
Our association works with elected and administrative officials in 
Washington to improve the economic climate for small business 
growth and expansion. 

We have been asked to testify on H.R. 4040, the Reemployment 
Act of 1994. We have been supportive of the policy principles em- 
bodied in the proposed legislation, and a strong advocate for the 
far-reaching reform of the Nation's worker training and education 
system. 

According to our surveys, one in five small businesses ranks the 
lack of qualified workers as one of the most significant challenges 
to the future growth and survival of their businesses. But the con- 
tinuing unemployment rate indicates that there is not a lack of 
personnel overall. The problem comes in matching particular skills 
to particular jobs. In some instances, there are significant skill 
deficits in the national workforce. In other circumstances, however, 
there are no easy avenues for qualified workers and employers to 
identify one another. Much to its credit, the Reemployment Act 
seeks to rectify both of these significant problems. 

The United States enters the next century amid predictions of a 
labor shortage which will hinder business and drive up higher- 
skilled wages, but this labor shortage will not just be a shortage 
of bodies in absolute terms. Specifically, it will take the shape of 
a shortage of qualified labor. Many researchers predict that re- 
quired job skills will become increasingly more complex and change 
at a faster rate than the labor force will be able to acquire these 
new skills, at least given the current training program. While there 
are, and will continue to be, more highly skilled professionals than 
ever before, the number of unskilled workers is also increasing. 

In many important respects, it is the information flow between 
workers and employers that is the key to addressing these prob- 
lems. Workers must discover what skills are in demand and where 
and how the skills would be acquired. Employers need to find out 
how to link up with the workers who possess the skills they need. 
We believe that a well-designed system which addresses these is- 
sues stands to benefit the small business community as much or 
more than any other single constituency. 

Small businesses have paid their taxes to support the many and 
various unemployment and training programs which currently 
exist, but stacks of paperwork, complex regulations, and general 
lack of knowledge all conspire to negate the ability of small busi- 



152 

nesses and their employees to take advantage of the programs 
their tax dollars support. As an illustration of training and infor- 
mation gap mentioned before, recent years have seen a marked in- 
crease of structural unemployment, now accounting for 16 percent 
of the total unemployment. At the same time these individuals re- 
port an inability to find work, small employers are reporting an in- 
ability to find qualified employees. There is clearly a major dis- 
connect of skills and information that needs to be addressed. 

Regarding the proposed solution, the Clinton administration has 
proposed a major overhaul for our worker training and income sup- 
port programs, embodied in H.R. 4040. Though we would like to 
work with you and others on details to make this an even better 
plan, we are in general agreement with the administration on the 
essential elements for a successful reemployment initiative. 

This initiative proposes a framework of changing our current 
training system into one which supports our long-term objectives. 

Specifically, we strongly support the concept of consolidating the 
many disparate worker training programs into a more seamless 
package. In fact, we would recommend that the consolidation be 
carried even further than has been proposed by the administration. 
Maximum consolidation will produce maximum benefits, both in 
terms of fiscal responsibility and displaced worker assistance. 

The concept of the one-stop career center is very exciting to small 
businesses. We envision these one-stop centers as filling the infor- 
mation void we have mentioned before. Small businesses would 
have a single point of contact into the dislocated worker commu- 
nity, enabling all these individuals to discover opportunities in 
small businesses as easily as they hear about openings in larger 
corporations. Of course, workers would also stand to benefit greatly 
from such systems without having to search far and wide for oppor- 
tunities, information and services. 

The other major pillar of the proposal is the retraining of income 
support, H.R. 4040, which would allow qualified individuals to re- 
ceive unemployment income extension for up to 1 year if enrolled 
in an approved education training program. This income support is 
funded primarily through a permanent extension of the 0.2 percent 
FUTA surtax that has been scheduled to expire in 1997. Politically, 
it is unlikely that this surtax would ever be allowed to expire, so 
its extension will not be a "real" tax increase. 

Traditionally, there has been a general wariness in the small 
business community of any new program that taxes employment. 
Payroll taxes are the most damaging taxes that can be levied on 
small businesses and serve as a strong disincentive to hiring and 
to business growth. 

While it is important to cap, as H.R. 4040 does, the spending on 
retaining income support and the amount of funds in the trust 
fund, created by the 0.2 percent payroll tax, that cap would be easy 
enough to change by future Congresses. We are eager to find fur- 
ther ways to assure restrained growth in new payroll tax-financed 
programs. 

Chairman Ford. Thank you, Ms. Lloyd. 

[The prepared statement follows:] 



153 



Statement of Denise Lloyd 

D. H. Lloyd & Associates, Washington, D.C. 

Before the Human Resources & Trade Subcommittees 

of the House Ways & Means Committee 

On Behalf of National Small Business United 

Regarding the Reemployment Act of 1994 

July 12, 1994 



Mr. Chairman: 

My name is Denise Lloyd, and I am founder of D. H. Lloyd and Associates, a small 
business (an insurance agency) based here in Washington, D.C. I am an active member 
of National Small Business United, where I serve on the Board of Trustees. I am also 
a past President of the D.C. Chamber of Commerce. We at National Small Business 
United very much appreciate the opportunity to be here. 

National Small Business United (NSBU) represents over 65,000 small businesses in all 
fifty states. Our association works with elected and administrative officials in Washington 
to improve the economic climate for small business growth and expansion. We have 
always worked on a bi-partisan and pro-active basis. In addition to individual small 
business owners, the membership of our association includes local, state, and regional 
small business associations across the country. 

We have been asked today to testify on H.R. 4040, the Reemployment Act of 
1994. NSBU has been supportive of the policy principles embodied in the proposed 
legislation, and a strong advocate of far-reaching reform of the nation's worker training 
and education system. 

According to our surveys, one in five small businesses ranks the lack of qualified 
workers as one of the most significant challenges to the future growth and survival of 
their business. But the continuing unemployment rate indicates that there is not a lack 
of personnel overall. The problem comes in matching particular skills to particular jobs. 
In some instances, there are significant skills deficits in the national workforce; in other 
circumstances, there are no easy avenues for qualified workers and employers to identify 
one another. Much to its credit, Reemployment Act seeks to rectify both of these 
significant problems. 

I. THE PROBLEM 

The United States enters the next century amid predictions of a labor shortage 
which will hinder business and drive up higher-skilled wages. But this labor shortage 
will not just be a shortage of bodies in absolute terms; more specifically, it will take the 
shape of a shortage of qualified labor. Many researchers predict that required job skills 
will become increasingly more complex and change at a faster rate than the labor force 
will be able to acquire these new skills, at least given the current training system. While 
there are~and will continue to be-more highly skilled professionals than ever before, the 
number of unskilled workers is increasing as well. 



154 



In many important respects, it is the information flow between workers and 
employers that is key to addressing this problem. Workers must discover what skills are 
in demand and where and how those skills can be acquired. Employers need to find out 
how to link-up with the workers who possess the skills they need. We believe that a 
well-designed system which addresses these issues stands to benefit the small business 
community as much or more than any other single constituency. 

By now, I hope that everyone understands the fundamental role that small 
businesses play in creating new jobs and in employing about half of the private sector 
workforce. But in many important respects, small businesses are the last dangling link 
in the employment food chain. Most small businesses cannot afford to run their own job 
training programs for their employees, so they must accept the skills that their employees 
bring to their jobs. Most small businesses cannot afford to hire search firms for key 
employees, or to recruit nationally, on college campuses or otherwise. So, they must rely 
on their local job markets and the individuals who somehow find out about their 
companies for their labor base. In almost all cases, small businesses must choose their 
critical employees from the "left-overs" of the large corporate community. While there 
are certainly many excellent employees who prefer to work in the often less structured, 
usually more nurturing small business environment, the ability of these employees and 
employers to find one another is dramatically lacking. 

Small Businesses have paid their taxes to support the many and various 
unemployment and training programs which currently exist, but stacks of paperwork, 
complex regulations, and general lack of knowledge all conspire to negate the ability of 
small businesses and their employees to take advantage of the programs their tax dollars 
support. 

On a more global front, leading economists tell us that the major factor which will 
determine whether the U.S. can maintain its high standard of living is the quality and 
productivity of its workers. Without these qualities, jobs and industry will simply flow 
to those countries where labor is cheapest. It is clearly in the larger national interest to 
increase job skills and productivity. 

As an illustration of both the training and information gap mentioned before, recent 
years have seen a marked increase in structural unemployment, now accounting for about 
16 percent of total unemployment. At the same time that these individuals report an 
inability to find work, small employers are reporting an inability to find qualified 
employees. There is clearly a major disconnect of skills and information that needs to 
be addressed. 

H. THE PROPOSED SOLUTION 

The Clinton Administration has proposed a major overhaul of our worker training 
and income support programs, embodied in H.R. 4040. Though we would like to work 
with you and others on details to make this an even better plan, we are in general 
agreement with the Administration on the essential elements for a successful 
reemployment initiative. This initiative proposes a framework for changing our current 
training system into one which supports our long-term objectives. 



155 



Specifically, we strongly support the concept of consolidating the many disparate 
worker training programs into a more seamless package. In fact, we would recommend 
that the consolidation be carried even further than has been proposed by the 
administration. Maximum consolidation will produce maximum benefits, both in terms 
of fiscal responsibility and displaced worker assistance. 

The concept of the one-stop career centers is very exciting for small businesses. 
We envision these one-stop centers as filling the information void we have mentioned 
before. Small businesses would have a single point of contact into the dislocated worker 
community, enabling all of these individuals to discover opportunities in small businesses 
as easily as they hear about openings in larger corporations. Of course, workers would 
also stand to benefit greatly from such a system, without having to search far and wide 
for opportunities, information, and services. 

We are also impressed with the strong role that the business community will play 
at the local level in shaping and overseeing their own re-employment initiatives. The 
Administration's proposal calls for the business leaders to play a dominant role on the 
workforce investment boards, which would become the driving force in most 
communities' reemployment efforts. This strong and positive involvement from the 
business community is critical to the ultimate success of the effort. 

The other major pillar of the proposal is the retraining income support. H.R. 4040 
would allow qualified individuals to receive unemployment income extensions of up to 
one year if enrolled in an approved education and training program. Persons eligible for 
this support must have been permanently laid-off, have worked for the same employer 
for at least three years, have exhausted all unemployment compensation benefits, and 
have enrolled in training by the 16th week of the lay-off. It is important to find ways to 
facilitate training, especially for those with no employment-based income, but we must 
also find ways to guard against future expansion of what could become an expensive 
program funded through payroll taxes. 

This income support is funded primarily through a permanent extension of a 0.2% 
FUTA surtax that had been scheduled to expire in 1997. Politically, it is unlikely that 
this surtax would ever be allowed to expire, so its extension will not be a "real" tax 
increase. If not used for this positive purpose, it would almost certainly be used for 
another end. Economically and politically, we believe that the extension is an appropriate 
commitment to a new reemployment system that truly supports the employment needs of 
small businesses. Traditionally, there has been a general wariness in the small business 
community of any new program that taxes employment. Payroll taxes are the most 
damaging taxes that can be levied on small businesses and serve as a strong disincentive 
to hiring and to business growth. While it is important to cap, as H.R. 4040 does, the 
spending on retraining income support at the amount of funds in the trust fund (created 
by the 0.2% payroll tax), that cap would be easy enough to change by future Congresses. 
We are eager to find further ways to assure restrained growth in new payroll-tax-financed 
programs. 

m. CONCLUSION 

National Small Business United sees a strong need for real reform and 
consolidation of the nation's worker training system. We are pleased and excited about 
the shape and direction of the Administration's reemployment proposal, and look forward 
to its moving forward. As the legislation moves ahead, we would welcome the 
opportunity to make more specific comments and provide additional input on the needs 
of small businesses. Thank you for inviting us to testify. We appreciate the opportunity 
to have been here this afternoon. 



156 

Chairman Ford. Mr. Doyle, we all know that General Electric 
has had some experience with worker dislocation. Let me ask you, 
from some of the experiences that General Electric had with dis- 
located workers, what public programs and agencies were helpful 
toGE? 

Could you tell us what agencies have been very helpful to the 
company as well as to the dislocated worker? 

Mr. Doyle. I think it started from the top. We got good support 
and additional training moneys from the discretionary funds of the 
Department of Labor. 

Interestingly enough, the most effective help was local and in the 
communities and came from such places as the often maligned Em- 
ployment Service. It would have been gratifying, I think, to see 
Employment Service people in doing the professional work they 
were trained to do, coming in early, working through lunch, staying 
after, counseling people on how to find new jobs, helping them pre- 
pare resumes, analyzing what kinds of jobs were available in the 
area and what they had to do to qualify for them. 

The agencies of government are not called upon in an orderly 
and disciplined way. We found that when we called upon them, 
they did very good work for us so we got good results and good 
placement effects. 

I would say the government has been effective when it is in part- 
nership with the private sector. I think the problem of the smaller 
employer who can't mount a major transition center such as ours 
is real and I think the legislation would be very helpful in that re- 
gard. 

Chairman Ford. As you evaluate the situations you have seen 
and look at them with the Reemployment Act that is before the 
Congress now, do you see any changes or modifications that we 
ought to take into consideration? 

Mr. Doyle. Yes. I think the reemployment bill and our successful 
centers have a lot of things in common. I think we would benefit 
from further consolidation of benefits because we often have the 
situation of people displaced for different reasons and getting dif- 
ferent benefits and I would correct that. 

I would also entertain the idea of further experimentation with 
the phasing down by allowing people some partial unemployment 
payments when they accept lower paying jobs or go on to training 
jobs to encourage earlier acceptance of a changed situation. 

Frequently the jobs that they go to are going to be lower paying 
when they start even though they have good prospects going for- 
ward of possible gains. I think the issue of a more flexible use of 
the unemployment system, such as the experiments that have been 
undertaken in New Jersey and a few other places, could become a 
permanent part of the legislation and would help shorten the pe- 
riod of unemployment which I consider to be in human and eco- 
nomic terms an important measurement that we should place upon 
ourselves. 

Chairman Ford. We have heard members of the committee make 
reference to the fact that the business community would be in op- 
position to or could not support the surtax at 0.2 percent. It is one 
of the major offsets in this bill that the administration has pro- 
posed. 



157 

Tell us, what are other businesses going to say? I know you 
speak for General Electric only, Mr. Doyle. Mr. Zimmerman, I as- 
sume you speak for MCI only as it relates to the surtax. 

Can we find others to support the surtax of 0.2 percent to finance 
this bill? 

Mr. Zimmerman. I will speak to that. 

The National Alliance of Business has invited corporations who 
feel very positive in support of the Reemployment Act of 1994 to 
go on record as such and a number of companies have done that; 
Xerox, IBM and there is a long list and those names, I will be 
happy to provide those corporations. So this is not just one-corpora- 
tion support. 

I think you will find broad support because I think corporations 
by and large are willing to maintain a level, not increase a level, 
of FUTA taxes, if in fact they get a return for their dollar. 

[The following was subsequently received:! 



84-377 0-95-6 






158 



BUSINESS SUPPORT FOR THE REEMPLOYMENT ACT OF 1994 

(As of July 1, 1994) 



MCI Communications Coiporation 

IBM Corporation 

Xerox Corporation 

General Electric Corporation 

Allied Signal Corporation 

AT&T 

Siemens Corporation 

Harman International Industries, Inc. 

K-Tron International, Inc. 

Andersen Consulting 

UNUM Corporation 

Ingersoll-Rand Company 

Solomon Brothers 

GTE Corporation 

Champion International Corporation 

Entergy Corporation 

National Alliance of Business 

National Small Business United 

The Council of Growing Companies 

The New England Council 

American Business Conference 



159 

Chairman Ford. That is important, maintaining the level, not in- 
creasing the level. 

Mr. Zimmerman. That is correct. Because this surtax has been 
paid since 1977 by corporations. This is not a new tax. 

Ms. Lloyd. I also think that the National Small Business United 
would also — we feel that we are paying this tax anyway and as a 
small business, we do not have the ability to go to universities to 
seek out or to hire major firms to seek people. We have to usually 
get what is left over from the large companies and attract those in- 
dividuals who want to work in a small environment. 

As a small businesswoman, I would gladly pay the tax if it gave 
me access to qualified people or even people willing to be trained 
for a new position. I think that with the membership of 65,000, I 
think we are speaking on their behalf. 

Chairman Ford. Would other members like to respond? 

Mr. Morin. If the moneys are really earmarked and protected for 
the area of retraining, every day of my life we deal with people say- 
ing what else can I do? Where else can I go? What other skills do 
I need? 

There are testing instruments. There is a lot of digging in one 
must do. If these moneys are earmarked for that, I don t think that 
would be a problem at all. It would be a breath of fresh air, 
frankly. 

Chairman Ford. Mr. Matsui. 

Mr Matsui. I want to thank all five of the members of the panel. 
I appreciated your testimony. I do appreciate the fact that you rec- 
ognize the need for financing of these various programs particu- 
larly the energy support program that the Secretary is promoting. 

I think that is a very important factor in this whole effort, be- 
cause as he mentioned in his testimony, in case you were not here 
for that, it gives people an opportunity for a longer-term period of 
training if they want an education or to go beyond where they 
might happen to be. So I think that is an important factor and the 
fact that you all are supporting that effort is a major plus in mov- 
ing this legislation. 

Two questions, and I make one other observation. One of the 
dangers, I think, that we face is that if the 0.2 percent in the next 
5 years is not used for this purpose and there is a connection, the 
FUTA tax and job training income support for those that are re- 
cently laid off could be used for other purposes. 

For example, if we should go to war in a regional effort, we may 
need additional revenues. Although there is an opportunity to 
waive the budget, that $1 billion could come in handy. So we could 
use that money for whatever purpose we want because money is 
fungible and we have a unified budget. So it is important that we 
try to keep it in the context of reemployment type efforts. 

Given the fact that you support it, would you go to the wall to 
support, say, a program as offered by the Secretary of Labor today 
assuming that we are in the crunch and we want to move this leg- 
islation this year — would you encourage your CEOs and get the 
Business Roundtable, your alliance and groups that you represent 
to really work this issue? 

I think that is going to be important because there are so many 
priorities that we are facing in the next 2 months. It is very easy 



160 

for groups to come to Washington and say "This is a priority. We 
support it." and then when it comes time to work the floor when 
we nave a vote and we have to get 218 Members to support it or 
60 in the Senate with the filibuster problem, oftentimes it is dif- 
ficult to get particularly people in the private sector to make phone 
calls, bring chief financial officers to Washington and say "This is 
a very important piece of legislation for all of us." 

Perhaps the two gentlemen who represent large businesses could 
respond. Any others who would want to respond, I would appre- 
ciate it. 

Mr. Zimmerman. I am anxious to be the first to respond. 

That question has already been asked and committed to by a 
number of corporations that are affiliated with the National Alli- 
ance of Business. You can count on our support and you can count 
on us stimulating other support as well. 

So the answer is a very firm positive yes. 

Mr. Doyle. I would only add that I think certainly GE and the 
large corporations that we deal with and the small as well — we 
really do feel two things. One is that it is economically beneficial 
to move people to new work. 

Two, we feel that unless we deal with the social consequences of 
the changes that our companies are undergoing, the flexibility that 
gives us advantage, frankly, in world competition may be taken 
away from us. 

So there is a price to be paid and I think to some degree we have 
to pay it. In a cold and calculating way, I will tell you I think that 
we should be able to get enough back out of the system by shorten- 
ing the periods of unemployment which if you analyze the cost of 
the whole process that is the bulk of the cost and if we can shrink 
that and reduce it 1 week or 2 weeks, we have done something dra- 
matic in economic terms and can pay for this program many times 
over. 

Mr. Zimmerman. I agree with everything that Frank said. 

I think that we also have to look not only at the economic, which 
is extremely important, but at the societal impact. If our workforce 
is going to consist of jobs that day by day are more and more de- 
manding of a higher skill level we have got to make sure that our 
citizens have those skill levels so that they can reach those oppor- 
tunities. 

If we don't, we are denying them the opportunities to be a partic- 
ipant in our workforce and a contributor to our society and it is 
shame on us if we deny them those opportunities. 

Mr. Matsui. One of the debates during the NAFTA discussions 
last year was that we would perhaps be getting higher-skilled jobs 
if NAFTA would have gone through, which it did, but we would be 
losing low-skilled jobs, and that is a questionable proposition, but 
at the same time, I think many people felt that low-skilled jobs 
would be lost given the labor wage rates and those things in Mex- 
ico. 

One of the frustrations was the fact that there was no effort to 
assure people that we would train people into these higher-skill 
jobs. I think your commitment will go a long ways in other trade- 
type agreements and even technology advances that we will have 
in the future. So I want to thank all of you for your testimony. 



161 

Mr. Romine. If I could add one point, from the private sector per- 
spective, if we are going to ask the private sector to fund these re- 
training programs, I think it is very critical that we take a close 
look at the retraining programs that the private sector itself has 
created and make sure that those are included in these things that 
the private sector will be funding. 

Acting Chairman Matsui. I think that is a legitimate observa- 
tion. 

Mr. Morin. I think the partnership that Mr. Doyle talked about 
between industry and government is so critical because often peo- 
ple get tainted with the idea of being a government trainee. Com- 
panies that don't have clear sponsorship in this can have a really 
difficult time placing their people. 

My proposal was to have the government even provide tax incen- 
tives for some sort of stipend to industries who are providing these 
excellent programs in terms of having people retrained. That is a 
little caveat. 

Chairman Ford. Thank you. 

Mrs. Johnson. 

Mrs. Johnson. I appreciate the panel's good testimony and I am 
in strong agreement with the underlying principles in this bill, but 
I raised the issue with the Secretary. 

This bill is supplanting things that the private sector is already 
doing. In your testimony, Mr. Morin, you gave a concrete example 
of the fact that that is going on now. I don't want to overemphasize 
this point because the six programs that are being consolidated 
here address a very small sliver of the unemployed and a very 
small sliver of the 86 percent who were unemployed in this last re- 
cession with no hope of going back to their job because these are 
only people whose unemployment resulted directly from Federal 
policy changes and trade policy changes. Nevertheless, it is a wor- 
thy effort. 

It is based on the right principles, but I do want to point out that 
it is a narrow slice. I think for that reason, we have to really look 
at how we avoid supplanting, how we avoid paying for things that 
the private sector is already doing and how can we more effectively 
use the services that are in the private sector and are doing a bet- 
ter job in my experience than we are doing in the public sector. 

I would be interested in comments both on the better job issue 
and how do we avoid supplanting, how do we get a better partner- 
ship that doesn't use our limited dollars to pay for things the pri- 
vate sector companies are already doing well? 

Mr. Morin. I think that there could be a chance — the bill could 
be maintained and be exercised and have a part of it where the 
government would be an auditor of a company already doing many 
of these programs and still provide moneys to the company so that 
they may carry out programs of support rather than taking on the 
responsibility of a career center on their own and have companies 
send all employees to that career center. 

Mrs. Johnson. We might require that the centers be jointly con- 
tracted with a private sector company and one of the public bodies? 

Mr. Morin. You could do that or moneys go direct to the com- 
pany, utilizing the efficiency of the company, working with people 



162 

who are unemployed and have them retrained rather than having 
a big center. 

Mrs. Johnson. Mr. Romine, you bring up the issue that you are 
the kind of sophisticated, high-standard training center that we 
can't get to at all. Have you studied the bill or do you have a rec- 
ommendation as to how we make sure that your kind of training 
center is part of these larger training centers? 

Mr. Romine. That is a process we are trying to engage in now, 
to be able to do that. We have been working with the Labor De- 
partment as well. On the issue of supplanting, it is clear that these 
programs are valued by the private sector. That is where the fund- 
ing is coming from in order to support them. 

The thing that is a little discouraging is those who could perhaps 
best take advantage of these programs and the retraining. The pro- 
grams aren't structured very well to address their needs and that 
is something we would like to work with you toward. 

Mrs. Johnson. Thank you. I appreciate that. 

Mr. Zimmerman, you make the point that there should be in- 
creased State and local authority and I agree with you, a lot more 
State and local authority. You make the point there must be suffi- 
cient authority to tailor services, administrative procedures and de- 
livery systems in ways that meet the unique circumstances of their 
populations and economies. 

Have you read the bill? Do you think there is specific local-State 
latitude in the legislative language of this bill? 

Mr. Zimmerman. I believe it is very adequately addressed in the 
workforce investment council concept. It is provided for in the bill. 

I have had discussions with the people that worked in some of 
the drafting. That was the intent. 

I guess the short answer is yes, that is the whole purpose of 
building the whole idea of workforce investment council into the 
bill. 

Mrs. Johnson. I am glad to hear that. How does this legislation 
differ from other legislation in a way that would make it more mar- 
ket driven in terms of job services? 

Mr. Zimmerman. In part, it is the discussion that we just had; 
by bringing business more into it so that there is a greater attune- 
ment with the market. 

Second, the bill also provides under, I believe title IV, for the col- 
lection of data so that there is a greater awareness of the market. 
If you take this and put it into a business situation, that is nothing 
but market research and that would be very, very important to un- 
derstand where the opportunities are so that you are training for 
the opportunities rather than training and developing just for 
training and development's sake. 

Mrs. Johnson. Mr. Doyle, can you comment on how this is writ- 
ten in a way that is different from other programs? 

Mr. Doyle. I think less to that question, I do think that there 
is an unfilled need in the marketplace and that is where we have 
large concentrations of employees we can put together very effec- 
tive centers that do work. 

We do make placements as you know in your home district we 
were able to do that. Where we begin to fall down and where we 
think the government has a clear and important role are the places 



163 

where we do not have large concentrations of employees and for 
employers who aren't big enough to sustain their own centers. 

So I think you do need market driven and the private sector does 
it and will continue to do it but I do think there is an unfilled need 
in the marketplace that can be done most effectively by govern- 
ment with some consolidation of the center-type development and 
helping people with placement. 

Mrs. Johnson. You don't think the private sector would send its 
people to those centers instead of doing it themselves? 

Mr. Doyle. I can't imagine them doing it because there is a loss 
of effectiveness if you don't do it onsite. It is seamless with the 
workplace. We have had the result of having to employ part-time 
employees to replace those folks who have found jobs before we 
wanted to stop the operation. So you can get that kind of blending. 

I think large companies running those kinds of centers just blend 
them into their operations and I don't think supplanting is a real 
issue. 

Mrs. Johnson. Thank you. 

Chairman Ford. Mr. Levin. 

Mr. Levin. Thank you, Mr. Chairman. 

I for one have been encouraged by the last 15 or 20 minutes of 
discussion because I think that we can fall into an easy polariza- 
tion here and it would be very harmful. I think we need to be very 
sensitive to the role of the private sector, but we have to be careful 
about talking glibly about supplanting. 

In the Secretary's testimony, he refers to a 1988 study that found 
only 1 percent of the long-term unemployed had attended training 
programs by the time their eligibility for jobless benefits expired. 

Let's say that that study is 1,000 percent off and it is not 1 per- 
cent, but 10 percent. And I don't think the study would be off any- 
thing like that. 

It would still leave a tremendous gap would it not? And Mr. 
Morin, I was worried at first when you kind of set up the private 
sector versus the public sector. I question, for example, if I might 
say so, your comment on page 2 that a clear majority of the For- 
tune Top 1000 corporations currently pay for career transition serv- 
ices to help employees at all employment levels faced with job 
loss — some of them do a very good job and I have seen, in addition 
to the Big Three, a transition center in the district of another cor- 
poration. But of the people who are being laid off today in 
downsizing, have the vast majority of them received career transi- 
tion services? 

Mr. Morin. We have built a $200 million company on it, yes; 
downsizing blue collars 

Mr. Levin. But $200 million with all due respect. 

Mr. Morin. I am talking about one company. It is actually closer 
to $750 million for the overall industry, sir. 

Mr. Levin. OK. Seven hundred fifty million, I mean just look at 
the number of permanent layoffs, separations, in the last year. 
Delta is going to lay off 3,500, 4,000 more people. 

Mr. MORIN. They are retiring 4,900 in a voluntary program, 
which we are assisting them on. They have another 10,000 that 
they are working on, which will be done in group programs. 



164 

Mr. Levin. Well, Mr. Morin, voluntary separations are often peo- 
ple taking some lump sum. They are in their early fifties. They in- 
tend to stay in the workforce, right? 

Mr. Morin. Some do and some don't. 

Mr. Levin. Some do. So I think if you add up — and I am not 
minimizing the importance of the private sector at all, and I think 
we need to look for partnership, but when you look at the number, 
the millions who are permanently separated in this country, and 
talk about a $750 million industry, it is clear there is a tremendous 
vacuum. 

Mr. Morin. Well, the top corporations, you know, they employ 
tremendous numbers of people, but there are a lot of people not 
covered by outplacement or support systems. And of course you are 
talking about several millions of people, 5 million people that have 
been laid off in the last 3 years in the middle management ranks. 
About 2 million have not received any support at all. I am saying 
the top 1,000 corporations have made very good efforts to try and 
assist many, many people. 

Mr. Levin. Mr. Doyle's response as well as the others, and yours, 
were helpful. I would like to see the support for your statement 
that a clear majority of the Fortune Top 1,000 corporations cur- 
rently pay for career transition services to help employees, and I 
take it you mean virtually all employees. 

Mr. Morin. They do provide services, all levels. 

Mr. Levin. OK. I would like to see the substantiation for that. 

Mr. Morin. OK. We can provide that. 

[The following was subsequently received:] 



165 

DRAKE BEAM MORIN, INC 
July 28, 1994 



The Honorable Sander M. Levin 
Committee on Ways and Means 
The U.S. House of Representatives 
106 Cannon House Office Building 
1st and Independence Avenue, SE 
Washington, DC 20515 



Dear Congressman Levin: 

This letter responds to your request for additional information at the time of my appearance before 
the Subcommittees on Human Resources and Trade, July 12, 1994, concerning the Reemployment 
Act of 1994. 

You requested support information that a majority of Fortune 1000 corporations pay for career 
transition services. The 1993 American Management Association Survey on Downsizing and 
Assistance to Displaced Workers revealed that 78% of all firms that downsized offered at least some 
form of outplacement assistance to at least some discharged workers. Specifically, 250 of the 
responding firms are in the Fortune 1000 class; of these firms, 55.6% reported downsizings and 87% 
of those downsizing offered outplacement assistance. Based on these figures, one can infer that if 
all Fortune 1000 firms downsized, 80% would offer some form of outplacement assistance to some 
of their employees. Attached is a copy of Eric Greenberg's, Director of Management Studies at the 
American Management Association, letter which provides additional details. The outplacement 
assistance provided varies from full professional assistance to brief courses in resume writing. 

A key component of the Administration's Reemployment Act of 1994 is training and/or retraining. 
As our Country's labor markets continue to change due to international competition and technology 
innovations, the need for training and/or retraining will be significant. Drake Beam Morin, Inc. is 
fully supportive of our Government's efforts in these areas and looks forward to working with the 
Department of Labor to ensure that reemployment assistance, as well as the training/retraining 
component, is successful for our citizens. The economic viability of these individuals is paramount 
to the future of our Country. 

I wish to thank you for the opportunity to testify before the Subcommittees on Human Resources and 
Trade. 



Very Truly Yours, 

> 1 






William J. Morin / Ci 

Chairman and CEO 



1828 L STREET N.W.. SUITE 600 • WASHINGTON, DC 20036 • 202-466-6090 



166 



AMERICAN MANAGEMENT ASSOOAJTOlN 



Roearch Kepons 



T>ily 28, 1994 



Ms. Sondra Gillice 
Senior Vice President 
Drake, Beam & Moran.lnc, 
1828 L Street N.W. , Suite 600 
Washington, D.C. 20036 



Dear Ms. Gillicc: 

The American Management Association's 1993 survey on downsizing and 
outplacement was our seventh annual survey in this area. The 870 
participating companies comprise an statistically accurate sampling of 
AMA's 7,000 corporate member companies, which in toto employ one- 
fourth of the American workplace. Our findings do not accurately 
depict practices of all American corporations, most of which gross less 
than $10 million annually; 90% of AMA member firms gross more than $10 
million annually. Also, while 20% of American corporations are in the 
manufacturing sector, 50% of AMA member firms are manufacturers. 
Thus , our findings reflect practices at larger firms , and tilt towards 
the manufacturing sector. 

Otic hundred and sixty-four (164) respondents to our 1993 survey 
gross more than $500 million annually, which puts them in the Fortune 
500 class in terms of annual sales. Of these, 90, or 54.9%, reported 
workforce reductions in the survey period of July 1992-June 1993. Of 
those 90 firms, 78, or 86.7% of those that downsized (47.6% of all 
respondents of that size) offered outplacement assistance to at least 
some discharged workers. 

Two hundred and fifty (250) respondents gross more than $250 million 
annually, which puts them in the Fortune 1000 class, again in terms of 
annual sales. Of these, 139, or 55.6%, reported workforce reductions 
in the period . Of those 139 firms, 121 . or 87 ■ 1% of those that downsized 
(48.4% of all respondents of that size) offered outplacement assistance 
to at least some discharged workers. 

We perform this survey annually in mid-year, and we are currently 
running the numbers for the 1994 survey. A preliminary look at these 
new findings shows very similar results in terms of the percentage of 
companies that downsized in the most recent period (July 1993- June 
1994), and a slightly higher incidence of rendering outplacement 
assistance . This confirms the ongoing trend we have monitored since 
1988: an ever-greater number of large firms offer outplacement 
assistance in some form to at least some departing workers, and an 
increasing number of them offer outplacement assistance to all their 
departing workers. 

I hope these figures are helpful, and I will be pleased to supply more 
data if you wish . 




Studies 
ERG : ge 



167 

Mr. Levin. OK So you are saying if you take everybody who was 
permanently laid off in the last 3 years by Fortune Top 1,000 cor- 
porations, that all of the employees in a clear majority of those 
firms had career transition services, including retraining? 

Mr. Moren. What I am saying there is that those companies of 
the top 1,000 have provided in some format 

Mr. Levin. Oh, in some format. 

Mr. MoRIN. They were not all giving everybody total service. 

Mr. Levin. How about retraining? 

Mr. Moren. Excuse me? 

Mr. Levin. How about retraining? 

Mr. Moren. Retraining is a big hole. Retraining is one of the big- 
gest issues that we have out there. Not retraining, we are talking 
about job search assistance, job counseling, career guidance coun- 
seling. 

Mr. Levin. But not retraining? 

Mr. Morin. There are — sometimes they refer people to other 
agencies, sometimes it is pretty spotty on retraining per se. 

Mr. Levin. Mr. Doyle, my time is up, I am sorry to exceed it, but 
finish off, Mr. Doyle. 

Mr. Doyle. I do think — our practice is to offer specific retraining 
when we can, and every employee who is permanently laid off at 
GE gets a minimum of eligibility for a $5,000 grant for retraining 
that can be spent any time in the 3 years following separation for 
purposes of training for a new job situation. So you get everything 
from specific tailored training, down to for those who want to take 
training that we don't provide, financial assistance. 

Mr. Levin. You do a good job. You think a clear majority of the 
Fortune Top 1,000 have a program comparable to GE? 

Mr. Doyle. Unlike others, I can only speak for GE. On the other 
hand, I do say that our surveys, and I can't cite them specifically, 
suggest that most of our peer companies have some form of disloca- 
tion assistance that deals with the retraining issue. 

Mr. Levin. Some form? 

Mr. Doyle. Yes. 

Mr. Levin. And those are your peer companies, but not the 

Mr. DOYLE. I would speak with more authority on the Fortune 
100, rather than the 1,000. 

Mr. Leven. I think that would be a wiser group to select to use 
this to apply against. 

Mr. Moren. I will stand by it, because we provide those kind of 
services. 

Mr. Levin. OK If you could submit the evidence. I think it would 
be helpful. Anyway, I think your testimony has been helpful in 
moving along tnis issue. 

Thank you very much. 

Chairman Ford. Mrs. Kennelly. 

Mrs. Kennelly. No questions. 

Chairman Ford. We would like to thank the panelists for ap- 
pearing today. Thank you very much for your testimony. 

The committee would like to call the next panel. On it is Andrew 
Richardson, president of the Interstate Conference of Employment 
Security Agencies and commissioner, the West Virginia Depart- 
ment of Employment Programs; Louis Jacobson, Ph.D., senior econ- 



168 

omist, Westat, Inc.; Paul Lodico, coordinator for the Mon Valley 
Unemployed Committee; Fran Bernstein, legislative advocate of the 
National Employment Law Project; and Anthony Carnevale, chair- 
man of the National Commission for Employment Policy. 

Also, I am going to call up Jay Baiter, the president and chief 
executive officer of VocAid, along with James Cabrera, cochairman 
of the Regulatory Affairs Committee and vice chairman of Drake 
Beam Morin. 

Take those two end seats, please. I am going to ask you to go 
first, Dr. Jacobson, but I am waiting on one other witness. That 
witness probably thought that he or she was at the end. He is com- 
ing up. Dr. Jacobson, you may proceed. 

STATEMENT OF LOUIS S. JACOBSON, PH.D., SENIOR 
ECONOMIST, WESTAT, INC., ROCKVILLE, MD. 

Mr. Jacobs. Thank you, Mr. Chairman. I am Louis Jacobson, 
senior economist at Westat, Inc. in Rockville, Md. 

I am honored to have this opportunity to discuss the relevance 
of recent dislocated worker research to the Reemployment Act. In 
brief, research suggests that the central problem in reducing the 
costs of dislocation is offsetting the large permanent reductions in 
earnings that average about $6,000 a year after workers find new 
steady jobs. 

Additional research suggests that rigorous long-duration training 
can substantially reduce the lifetime losses of over $80,000 faced by 
high tenured dislocated workers, but only for fewer than 15 percent 
of that group. 

Moreover, those who benefit most from retraining are likely to be 
relatively well-off without it. Analysis of TAA programs suggests 
the training accompanied by transfer payments is unlikely to boost 
earnings, but is likely to induce workers to take training to receive 
the transfers. 

This is costly to taxpayers and by delaying the return to work 
may make participants worse off. Thus a key implication of avail- 
able evidence is that the success of the Reemployment Act hinges 
on its ability to appropriately target retraining, by requiring work- 
ers to develop individualized reemployment plans under which 
training would be funded only if it was sufficiently rigorous to 
boost earnings and likely to be successfully completed. 

But a far more effective, less expensive, and more equitable plan 
to ensure that dislocated workers have adequate access to training, 
would be to use a need-based system, such as the current Pell 
grant and Stafford loan programs. 

To substantially reduce the losses of most dislocated workers, I 
would recommend expanding the type of wage insurance offered in 
the bill to workers over age 55. By paying a portion of the dif- 
ference between prior wages and wages at new jobs, wage insur- 
ance could eliminate devastating losses and create strong incen- 
tives for recipients to earn as much as they can. But either wage 
insurance or training with stipends covering all dislocated workers 
would cost about $7 billion a year. 

Even though the wage insurance would make workers feel more 
secure at a cost of about $100 per person, the total price may be 
too high. In contrast, research suggests that reorganizing current 



169 

programs designed to help workers quickly return to work would 
dramatically improve the programs without increasing cost. Job 
search assistance has proven to be highly effective, while short- 
term training has not. 

But in the past, Federal guidance was overly restrictive, requir- 
ing half of EDWAA funds oe spent on retraining, and restricted 
workers' choice of curricula and institution. The Reemployment Act 
has potential to appropriately balance different types of assistance, 
to far better weave the array of services into an integrated whole 
through use of one-shop career centers, and to improve counseling 
by creating a system of honest brokers with a task of providing ad- 
vice about what services should be used, separated from the re- 
sponsibility to provide the services. 

I strongly believe, however, that only the UI/ES system can serve 
as an honest broker, because it does not provide expensive services 
and thus can avoid conflicts of interest in ways the community col- 
lection and PICs cannot. In addition, Congress has already as- 
signed to the UI/ES the task of referring dislocated claimants to 
appropriate services. 

Finally, the bill's provisions to improve labor market information 
are insufficiently focused on acquiring the type of information most 
needed by dislocated workers, yet developing a high quality infor- 
mation system would dramatically increase the effectiveness of re- 
employment programs by overcoming two crucial omissions in the 
legislation. 

The first omission is not ensuring program performance is accu- 
rately monitored. And the second is not attaching sufficient impor- 
tance to overcoming workers' unrealistic expectations about paid 
available jobs. Faulty perceptions, not lack of training, often cause 
workers to needlessly prolong their job search. 

Thus, in conclusion, I suggest the most important step that the 
committee can take to improve the bill is to require a system be 
put in place to, one, accurately measure the effectiveness of each 
local assistance program, two, determine the types of jobs workers 
are likely to find after prolonged search, and three, give this infor- 
mation to dislocated workers at the appropriate times. I believe 
this is technically possible using available UI/ES administrative 
data. 

Moreover, the cost of the system would be low relative to its ben- 
efits. Once again, thank you for this opportunity to present the im- 
plications of my research findings, and I actually do have to dash 
to catch a plane, but I could stay for 1 minute to answer a question 
or two. 

Chairman Ford. And your full statement will be made a part of 
the record and we thank you very much, Dr. Jacobson. 

[The prepared statement follows:] 



170 



TESTIMONY ON THE REEMPLOYMENT ACT OF 1994 BEFORE THE SUBCOMMITTEE 

ON HUMAN RESOURCES AND THE SUBCOMMITTEE ON TRADE OF THE COMMITTEE 

ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES 

by Louis S. Jacobson, Senior Economist, Westat Inc. 
July 12, 1994 



My colleagues, Bob LaLonde of the University of Chicago and Dan Sullivan of the Federal 
Reserve Bank of Chicago, and I are honored to have this opportunity to discuss our dislocated worker 
research and its relevance to the legislation before this committee. 1 This testimony covers four 
topics: (1) the economic consequences of job loss; (2) options for reducing long-term losses; (3) 
options for quickly getting workers reemployed; and (4) the implications of this analysis for 
improving the legislation before you. 



Summary of Key Conclusions 

In brief, our research suggests that job loss creates large, permanent, earnings reductions 
averaging $6,000 per year from the time workers locate stable new jobs to retirement. A key 
problem is that current programs cannot hope to offset losses of the magnitude observed . 
Considerably more resources than presently available are required to substantially offset such large 
losses. Moreover, the option favored in the bill— retraining— even if generously funded is unlikely to 
substantially reduce long-term losses for most dislocated workers. 

In contrast to the past, this administration does not make extravagant claims for the benefits of 
training and recognizes that expensive training will aid only a small subset of dislocated workers. 
The bill proposes to target training by requiring development of individual reemployment plans, 
where hopefully, counselors will only approve training that is sufficiently rigorous to substantially 
boost earnings, and likely to be successfully completed. 

Based on the experience of Trade Adjustment Assistance (TAA), we are skeptical that this 
targeting mechanism will work in practice. The assignment process is likely to break-down because 
entering training is the only way for dislocated workers under age 55 to secure income support 
beyond that provided by UI. It would be far more equitable to use wage-insurance to place a floor 
below which losses borne by all dislocated workers cannot fall. At present the bill only offers that 
alternative to older workers and only for a limited period. The central advantages of wage-insurance 
are that it: (1) provides the greatest benefits to workers with the largest losses who also are least 
likely to benefit from retraining, and (2) minimizes overall costs by creating incentives for workers to 
earn as much as they can. 

To secure resources for income support to the neediest workers we suggest using both loans 
and grants to facilitate retraining as is done in the Pell/Stafford education programs. A combination 
of needs-based grants and loans should ensure that those dislocated workers who are most likely to 
benefit from training will be able to complete training programs, while simultaneously free funds to 
equitably protect all dislocated workers from the most devastating losses. The bottom line, however, 
is that any program which substantially reduces the huge long-term losses borne by dislocated workers 
will be very costly per-capita, and therefore, require a major educational effort to make such 
programs politically palatable. 

In contrast, low-cost programs can be counted on to help dislocated workers rapidly find new, 
permanent, jobs. But in the past there was too heavy reliance on expensive short-term training and 
not enough resources devoted to various forms of inexpensive job search assistance. To its credit, the 
administration's bill has the potential to dramatically improve reemployment services for dislocated 
workers. More discretion is given to tailor programs to meet clients' needs and better integrate 
existing services though one-stop career centers. Perhaps most important, incentives are created to 
use "honest-brokers" located at career centers to counsel clients and monitor program performance. 

■ uC ouiiiiiiiStratiGit 5 bill <iiSG COTZcCii'y iCCCgriiZcS tin. iiiipGruiriC& Oi pfOviuing auCLjumc limn [iiain.ni 

to workers and service-providers. 



1 This testimony reflects our own views. The institutions for which we work encourage the free 
expression of ideas, but we are not acting as representatives of those institutions. 



171 



The bill's selection process for choosing honest-brokers, however, is needlessly complex and 
unlikely to guarantee that brokers will be free of powerful conflicts of interest. We urge Congress to 
assign the honest-broker role to each state's Employment Service (ES). Despite widely held views to 
the contrary, the ES has proven effective in providing low-cost adjustment services, and unlike other 
government institutions, the ES leaves selection of expensive services to the discretion of its clients. 
Of central importance, there is no substitute for having accurate information about what will happen, 
if workers do not adopt an adequate adjustment plan, and the effectiveness of individual services. 
That information can be obtained at low cost using existing UI and ES administrative data similar to 
the data used in our research. Because of its responsibility to make UI payments, monitor job search, 
profile claimants and refer them to mandatory service the UI/ES system also is perfectly positioned to 
quickly transmit accurate information to workers, and objectively monitor the provision of expensive 
competing services. 

Thus, we strongly recommend that Congress require development of a system through each 
state's UI/ES agency to monitor the effectivene ss of local services and disseminate accurate 
information about what would happen with and without intervention . Our view is that development of 
such a system is the single most important improvement in the bill . Congress also should provide the 
over-sight, funds, and technical advice (through the US Department of Labor) needed to build a high- 
quality tracking system. 

Developing a high-quality information delivery system would dramatically increase the 
effectiveness and reduce costs of the reemployment program by overcoming two crucial omissions in 
the legislation: (1) not providing a precise plan for accurately monitoring program performance, and 
(2) not attaching sufficient importance to overcoming workers' unrealistic expectations about the job 
market. Faulty perceptions, not lack of training, often cause workers to needlessly prolong their job 
search to the point getting hired at any decent job becomes extremely difficult. The following 
sections discuss the above points in greater detail. 



The Economic Consequences of Job Loss 

Bob LaLonde, Dan Sullivan, and I analyzed detailed employment histories of roughly 6,500 
workers with six or more year of tenure who lost jobs in Pennsylvania from 1980 through 1986 and 
compared their earnings to 14,000 similar workers who did not lose their jobs. Our basic findings 
were that: 

1 . Losses averaged $50,000 over the period beginning three years prior to separation and ending 
six years after job loss. 

2. In the fifth year after displacement losses averaged $6,000 (about 25 percent of pre-dislocation 
earnings), and we saw no indication that loss would subsequently diminish. Thus, we estimated the 
discounted earnings reduction due to job loss at $80,000 for the average dislocated worker. 

3. About 10 percent of the loss occurred prior to final separation from distressed firms mostly due 
to temporary layoffs. 

4. About 15 percent of the total loss occurred in the two years immediately following job loss. 

5. About 75 percent of the loss, therefore, occurred after workers found new, steady, jobs. 

6. There was considerable variation in the size of the loss experienced by high-tenure dislocated 
workers, but the majority experienced large, persistent, earnings losses regardless of industry, firm 
size, age, sex, or strength of the local economy. 

7. Almost without exception workers with the largest long-term losses exhausted UI benefits and 
failed to locate jobs after six months of unemployment. 

Our centra! conclusion was that involuntary separation from a long held job is very costly to 
most dislocated workers. Apparently, there is some aspect of the employment relationship that makes 
workers much more valuable to their current firm than to any other firm. Thus, when high-tenure 
workers are forced to leave jobs, they lose a substantial fraction of their earnings power. 2 Our 



2 Economists have several explanations for why involuntarily breaking bonds between workers and firms 
are costly. The most common explanation is that the skills acquired on-the-job tend to be specific to their 
present employer, and therefore, more valued by the current employer than by other firms. A second 
explanation is that firms promote from within, pay premiums, and backload compensation to reduce turnover 
and maintain the integrity of work groups. Such firms often only hire workers into low-paying entry-level 
positions. A related explanation is that the quality of the job match can only be assessed by trying out a given 
worker. Since the characteristics that make a good match maybe idiosyncratic to the worker and firm it may 
take a long time for a worker to find the "right" job and firms may only offer entry level positions to new hires. 



172 



analysis is consistent with other studies of job loss. What distinguishes our work from others is that 
we coupled an estimating procedure that accurately compared earnings from up to twelve years prior 
to job loss to as many as seven years after job loss with a sample that was large enough to obtain 
definitive evidence for a wide variety of workers. 3 

This work confirms that the widespread fear of job loss so evident during the Nafta debates is 
anchored in reality. Although "only" about 2 million workers are displaced in any given year out of 
a labor force of 110 million, the probability of job loss at some point in a worker's career is quite 
high. Equally important, when and where job loss will occur is difficult to predict, and therefore, it 
posses a serious threat to workers in almost every industry and region. 4 The widespread uncertainty 
about how long workers can keep their jobs suggests that the benefits of reducing the costs of job loss 
will not fall on a narrow segment of society. The high probability that, if job loss occurs it will be 
very costly, makes it appropriate to examine the adequacy of our social safety-net for helping workers 
cope with dislocation. 

Our research suggests that three different types of aid are needed to address different sources 
of earnings losses: 

1. Income supplements during temporary layoffs that occur prior to job loss, as well as during 
periods of unemployment immediately following permanent separation. 

2. Assistance in locating new jobs and coping with job loss in the period immediately following 
displacement. 

3. A means to offset large, permanent, reductions in earnings that follows the return to steady 
work. 

The next section discusses the most difficult problem: offsetting large, permanent, earnings 
reductions. We then discuss strategies to help dislocated workers rapidly find new, stable, jobs, and 
to provide income support during periods of unemployment. 



Options for Reducing Long-Term Earnings Losses. 

In our monograph for the Upjohn Institute, The Cost of Worker Dislocation , we draw on our 
work and that of others to conclude that we have the means to offset most, if not all, of the costs of 
job loss, but the price of those programs would be far higher than that of existing programs. The 
administration's bill takes on the difficult task of finding a way to minimize earnings losses with a 
limited budget. The largest proposed funding increase is to expand retraining. Thus, we first discuss 
the retraining option. We then discuss a more effective approach to offsetting large, persistent losses- 
- wage-insurance. 

A. The Retraining Option. The conventional wisdom is that retraining is the appropriate 
mechanism to offset the large, permanent, loss that would otherwise persist even after a new, steady, 
job is found. Retraining is seen as an attractive option because college attendance raises lifetime 
earnings of participants. We do not doubt that post-secondary schooling dramatically raises the 

earnings of some workers, nor would we dispute the importance of making schooling available to 
workers likely to benefit from such training. What is subject to legitimate debate is the number and 
characteristics of dislocated workers likely to show large benefits from retraining. 

In particular, most evidence about the returns to schooling is for students in their early 
twenties, and therefore, far younger than most dislocated workers. Even positive evidence on older 
"non-traditional" students is not necessarily relevant as job loss may have been a minor factor in 
motivating older students to enter school. What little direct evidence there is on the returns to 
providing dislocated workers the type of flexible, long-lasting, training offered by post-secondary 



Our research did not sort out the relative importance of these or other explanations. 

3 Data limitations prevented us from examining how losses varied with workers' education level. Other 
studies suggest, however, that high-tenure workers with the least amount of schooling have by far the largest 
losses. 

' In the period we examined, steel and associated industries in western Pennsylvania suffered enormous 
employment reductions. Today, we observe substantial job loss in defense industries in California and other 
states. Tomorrow, severe reductions could strike almost any industry in any section of the country. Also, it 
often is overlooked that even in prosperous industries, such as semi-conductors or entertainment, individual 
firms suffer severe reverses that lead to substantial permanent layoffs. 



173 



education institutions suggests that schooling is valuable for some dislocated workers, but has little 
value for the majority of dislocated workers. 

Perhaps the most compelling evidence comes from a free tuition program offered by the 
Community College of Allegheny County (CCAC) from late 1983 through early 1985. Every 
Allegheny county resident who was unemployed from 1981 through early 1985 was eligible for the 
program that also incorporated extensive outreach and counseling components. About $1 million of 
county funds and $3 million of Federal funds were spent on the program. Of the more than 150,000 
eligible workers, 12,000 participated in the counseling component and about 8,200 took at least one 
CCAC course. 

The preliminary findings of central importance are that: (1) about one-eighth of the entrants 
only took non-credit courses designed to help them adjust to job loss or build basic skills; (2) about 
one-third withdrew from credit-bearing courses or received only failing grades before completing two 
semesters; (3) about one-third received high grades and quickly found relatively high-paying jobs, and 
(4) about one-fifth remained enrolled full or part time for two or more years, and we suspect, often 
substantially improved their earnings. This evidence suggests that CCAC offered courses that had the 
potential to raise earnings and assist a rapid return to work. But only a small fraction of dislocated 
workers with large losses chose to take even one course, and many entrants were unable to master the 
material taught. Perhaps most disturbing is that the long-term earning losses of the workers with low 
grades were exceptionally large. 

Additional evidence comes from studies of the Trade Adjustment Assistance (TAA) program. 
These studies are particularly relevant because the reemployment act's training provisions closely 
resemble TAA's. Unlike CCAC, TAA provided income support as well as covered the direct training 
costs. The evidence from my own analysis of TAA-training in Missouri and similar work covering 
twelve states by Corson and Decker suggests that from 1981 through 1988. when training was 
voluntary, only a small fraction of TAA recipients took advantage of the training option. Further, 
training was usually begun when the 52 weeks of regular UI plus TAA payments were just about 
exhausted, and ended when the 26 weeks of additional payments available to workers in training were 
used-up. Most disappointing of all, the trainees failed to show appreciable long-term earnings gains. 

Starting in October 1988 TAA benefit receipt was conditioned on entering training before UI 
was exhausted or receiving a waiver stating suitable training was unavailable or not needed. 
According to the Corson-Decker study about half of TAA recipients received waivers. At the same 
time, the rule changes caused many more TAA recipients to take training far sooner than previously, 
but the returns to training remained low. In addition, there was a very low take-up rate for long- 
duration training. Most TAA recipients who took training left the program before exhausting income 
support. Prior to 1989 TAA-trainees received 74 weeks of unemployment payments, after 1988 
TAA-trainees received about 55 payments on average. 

It is possible that TAA recipients did not take training, delayed entering training, or selected 
inappropriate programs because TAA did not provide sufficient counseling or testing, and the income 
support was insufficient. But we believe that those potential defects were of little importance. The 
experience with TAA is similar to that of the largest and most widely respected Federal training 
program- post-secondary schooling provided under the GI Bill. Again, we do not doubt that the GI 
Bill substantially raised the earnings of participants. Indeed, the only two studies that measured the 
effectiveness of GI-Bill-supported training found that earnings of Vietnam-Era veterans were increased 
by between six and ten percent on average. What we question is the effectiveness of the GI Bill in 
raising the earnings of veterans most similar to today's dislocated workers. 

The most obvious differences between high-tenure dislocated workers and Vietnam-Era 
veterans are that the vets typically had their education plans disrupted by military service, had not 
established civilian careers prior to entrance into the military, and were young, in their early-to-mid 
twenties, when they left the military. Each of these factors makes college attendance appealing and 
effective. Also, almost all of the positive effect on earnings came from attendance at two-year and 
fuui-ycai colleges. Yet, a high percentage of Gi Biii participants who graduatea from two-year or 
four-year college already had substantial college credits prior to leaving the military, and had high 
academic-test scores. Further, although about 60 percent of veterans used some GI Bill benefits, on 
average benefits were received for only about 16 months. This suggests that even among young 



174 



veterans many did not attempt to add to their human capital and many left programs after relative 
short stays. 5 

Finally, the GI Bill raised annual earnings by about $2,500 on average, but it did not offset 
the cost imposed by serving in the military in the first place. It is likely that graduation from a four- 
year college would be necessary to boost annual earnings by anything close to $6,000, the average 
loss of a dislocated worker. 

In summary, there is consistent evidence that: (1) large investments in education are required 
to substantial increase earnings, and (2) few dislocated workers with, or without, income support are 
likely to make those investments. 6 Many dislocated workers have marketable skills, and those who 
do not, often lack the educational background needed to successfully complete relevant programs. 
The bottom line is that while some dislocated workers will benefit from increasing access to 
retraining, the majority will not. Even more distressing, those workers who are likely to experience 
the largest losses also appear to be the least likely to benefit from retraining. Indeed, without 
effective new safeguards, many more workers are likely to enter training to obtain the transfer 
payments than because they believe training will substantially boost earnings. 7 

The administration's bill may create sufficient safeguards by vastly improving the counseling 
services provided to dislocated workers. A key element is development of individualized 
reemployment plans under which training would be funded only if it was sufficiently rigorous to make 
a difference, and likely to be successfully completed. An alternative strategy that would be far 
simpler to implement would be to follow the principles behind Pell Grant and Stafford Loan program. 
Those means-tested programs provide sufficient funds to cover out-of-pocket expenses at inexpensive 
schools, and permit borrowing at below market interest rates to cover more expensive schools plus a 
portion of living expenses. Like the GI Bill, the Pell/Stafford program assumes that individuals not 
attending school full-time should be able to earn substantial sums. Thus, benefits are far less 
generous for part-time attendees. By sharing the cost with participants the program encourages use of 
the funds only by individuals who believe the training will be of substantial value. 8 



! The two relevant studies primarily focused on measuring the average increase in earnings. They broke- 
down the returns by type of training institution. But unfortunately, did not break-down the returns by the 
number of years of training received. Thus, we do not know failure rates, or whether most of the benefits went 
to graduates or others students with high grades. 

6 The importance of income constraints as an impediment to entering long-term training programs is 
unclear. Because most "non-traditional" students combine work with school, and have access to loans lack of 
income support may be a minor factor. It is possible that the primary impediment to completing such programs 
is lack of adequate high school preparation. Considerably light could be shed on the issue by examining 
changes in the use and returns to the GI Bill in response to benefit changes. Use rises when benefits are 
increased, but little is Known about the returns to the "marginal" veterans who would not have participated 
without the increase in benefits. 

7 The General Accounting Office and the Department of Labor's Inspector General severely criticized the 
TAA program for not more assiduously monitoring the types of training taken, and controlling the granting of 
training waivers. These criticisms have far more substance than those made about abuses of the GI Bill for 
using benefits for frivolous activities. Perhaps the GI Bill was more effective than TAA because veterans 
benefits were severely reduced if participation was less than full-time, while TAA did not require full-time 
school attendance. 

8 There is strong indirect evidence that Pell Grants and Stafford Loans were effective in providing 
dislocated workers access to high-quality retraining programs. From 1986 through 1992 over 75,000 dislocated 
workers a year received Pell Grants and Stafford Loans under special provisions that based awards on projected 
future earnings, rather than past earnings. About 10 percent of those workers entered four-year colleges and 30 
percent entered intensive vocational programs at proprietary schools. In both cases grants covered only a small 
fraction of the average costs. Thus, those workers must have been confident that the schooling would pay-off to 
risk substantial amounts of their own money. The remaining 60 percent of dislocated workers used federal aid 
to attend two-year colleges. Much of that training was short-term and the aid offset all the direct costs since 
even full-time, full-year tuition was only about $1,500 per student. Thus, it is less clear that those students 
were making the types of investments required to substantially boost earnings. Finally, it is worth noting that 
although more dislocated workers were retrained under the Pell/Stafford program than under JTPA Title-Ill 
programs in the late 1980s, the 1992 reauthorization of the Higher Education Act omitted the special provisions 
aiding dislocated workers. Consideration should be given to restoring the special provisions and permitting 
dislocated workers with major family responsibilities to qualify for larger loans than presently available. 



175 



A key rationale for use of a means-tested loan program is that workers most likely to benefit 
from additional schooling already have substantial academic or vocational skills, and therefore, are 
likely to have relatively high earnings even without additional training. In contrast, the workers who 
face the most severe earnings declines, such as most assembly line workers, are unlikely to gain much 
from training. Thus, substituting loans for grants should free resources to help the most needy. Our 
overall conclusion is that retraining should be an option available to dislocated workers, but (1) it 
should be expected to assist a minority of workers, and (2) safeguards are needed to make sure 
training resources are used appropriately. 



B. The Wage-Insurance Option. Because we felt that training is not a panacea, LaLonde, 
Sullivan, and I searched for other means to effectively offset large, persistent losses. The primary 
alternative to requiring that individuals boost their human capital is to provide cash payments. 
Figuring out a way to distribute payments to minimize costs and maximize work incentives was 
difficult. We eventually came to the conclusion that "wage-insurance" is the most promising 
alternative. The example cited in our monograph would pay 40 percent of pre-dislocation earnings to 
workers earning 30 percent of prior earnings. The benefits would be reduced by 4/7ths of dollar for 
each dollar earned above the 30 percent threshold. Thus, the subsidy would go from 40 percent to 
zero as earnings rose from 30 to 100 percent of pre-dislocation levels. 

One very attractive feature of wage-insurance is that it would make large payments to the 
workers least able to adjust without assistance, and at most, small payments to those who are 
relatively well off. Costs also would be minimized because a wage subsidy creates incentives for 
dislocated workers to rapidly return to work and earn as much as they can. In contrast, most state UI 
systems reduce benefits by one dollar for each dollar earned above a disregard of about $75 per 
week. A key problem with wage-insurance (or any other effective means of substantially reducing 
large losses) is that it would be expensive.' We estimate that a satisfactory subsidy could be made 
available to dislocated workers with six or more years of tenure at a per capita cost of about $20,000. 
Given that roughly 350,000 high-tenure workers lose jobs each year the annual cost of the program 
would be about $7 billion. 

The political system ultimately must decide whether wage-insurance should be adopted, and 
the amount of protection provided. However, we would like to see the decision based on an objective 
appraisal of the costs and benefits of wage-insurance and relevant alternatives. We believe that on 
reflection the increase in security offered by wage-insurance may be sufficiently highly valued by 
workers to justify the cost. 10 

Also, we support ensuring that workers who can benefit from retraining obtain that 
treatment, but a crucial unresolved problem with the bill, is that the expected gains from retraining 
are not sufficient to justify requiring aJ! workers with large losses to enter training programs in order 
to receive income support. Thus, regardless of how much is spent to offset the long-term losses of 
dislocated workers, we would prefer a system that includes need-based transfer payments to place a 
floor below which losses would not fall, made in a way that encourages workers to earn as much as 
they can. 



Aiding a Rapid Return to Work. 

In contrast, to the proposal's provisions to broaden retaining, the administration's plan to help 
dislocated workers quickly find satisfactory new jobs is likely to be inexpensive and has the potential 



' For example, following the logic of the administration's proposal, a program that provided four 
semesters of full-time schooling at a community college would cost about $3,000 in tuition, plus $15,600 in 
transfer payments for a worker with somewhat below average pre-dislocation earnings. (78 weeks of UI 
payments of $200 per week.) 

10 Wage-insurance should reduce fears of large earnings reductions for at least half of the 1 10 million US 
workers— those likely to hold long-lasting jobs at some point in their careers. Thus, one way to think about the 
program's value is to ask whether the increase in feelings of security among steadily employed Americans from 
knowing their earnings would not fall below roughly 20 percent of current levels is at least equal to the per- 
person annual cost of about $100. We suggest setting the floor at about 20 percent because we suspect that 
workers most fear cataclysmic earnings reductions. Thus, they would prefer an insurance system limited to 
reducing huge losses to a manageable size at a relatively low cost, to a system covering all losses at an 
enormous increase in price. 



176 



to be highly effective. There is powerful evidence that a high-quality system to offset short-term 
losses and greatly speed the return to work can be crafted from existing programs. That system 
would include providing: 

1 . Regular Unemployment Compensation (UC) for up to six months. 

2. Extended UI Benefit for an additional six to nine months during economic downturns when 
finding jobs is particularly difficult. 

3. UI benefits for partial unemployment that create incentives to take jobs by allowing claimants 
with low earnings to keep a much higher percentage of their benefits. (This is equivalent to using UI 
funds as a wage-subsidy and also would eliminate the need to pay firms to provide on-the-job 
training.) 

4. A range of different types of job search assistance (JSA), including: (a) direct job placement, 
(b) job development, (c) counseling and testing, and (d) instruction on how to search for work. 

5. Short-term training aimed at removing deficiencies in basic skills that make job placement 
difficult. For example, improving literacy and the ability to use word processors. 

The Advisory Commission on Unemployment Compensation has prepared recommendations 
directed at improving the extended benefit program, and other aspects of their work should touch on 
other improvements states should make in their regular UI program (points 1 and 2). The bill also 
encourages states to alter their regular UI program to foster a more rapid return to work (point 3)." 



My comments will focus on the bill's highly innovative proposals to improve job search 
assistance and short-duration training (points 4 and 5). In particular, there is unambiguous evidence 
that most forms of job search assistance (JSA) are cost-effective in aiding dislocated workers to 
rapidly return to work, but the take-up rate for short-term retraining is too low to have much of an 
effect. These conclusions primarily rest on two large random-assignment experiments- The New 
Jersey Unemployment Demonstration, and the Texas Worker Adjustment Demonstration. 

In both demos dislocated workers applying for assistance were randomly assigned to receive 
JSA alone, JSA and retraining, or excluded from both treatments. JSA alone, mainly instruction on 
how to effectively search for work, reduced joblessness by about nine weeks on average, and thereby 
increased earnings. Only about 15 percent of the workers offered training took training. The training 
reduced short-term earnings by prolonging joblessness, and had little long-term effects on earnings. 
Thus, training did not materially improve on the positive outcomes achieved by JSA alone, but was 
over four times more expensive. 

My non-experimental research on the US Employment Service (ES) with Arnold Katz of the 
University of Pittsburgh suggests that direct placement services also are highly cost effective for 
dislocated workers. Each direct placement of a UI exhaustee in Pennsylvania reduced the ES user's 
spell of unemployment by about 13 weeks on average. Placement of a worker collecting UI reduced 
the user's jobless spell by about 2 weeks. A referral not leading to placement reduced the ES user's 
joblessness by about six weeks for exhaustees, and one week for other claimants. Each referral to a 
job by the Washington State ES reduced UI payments by about 1.25 weeks and saved about $200. 
Given that it costs the ES about $180 to make a referral, the savings in UI payments alone were 
sufficient to justify retaining a 0.2 percent payroll tax that funded a special state program to enhance 
ES services. 

Indirect evidence bearing on the efficacy of job search assistance comes from my work with 
LaLonde and Sullivan described earlier. Our analysis showed that losses of dislocated manufacturing 
workers were cut in half if they found new manufacturing, rather than service, jobs. Although 
workers staying in manufacturing may have had more relevant skill than those who did not stay, we 
could discern no difference between the two groups. Thus, this evidence provides a plausible 
explanation for why helping workers locate jobs where they can best apply existing human capital can 
be at least as effective in boosting earnings as programs attempting to add new skills. 

The administration's plan to revamp basic adjustment services is headed in the right oirection 
because it takes most of the above research findings into account. It clearly recognizes that the rapid 



" Much to its credit, the Department of Labor has thoroughly tested the effectiveness of lump-sum 
bonuses, and other suggested changes. The bill also allows trainees to earn an amount equal to half their UI 
benefits before stipends are reduced dollar for dollar with additional earnings. We believe that it would be 
worthwhile to test a broader range of changes in partial benefit formulas to create short-duration wage-subsidies 
for all UI claimants. 



177 



delivery of inexpensive services can make a major difference. At least implicitly, it also recognizes 
that existing policy has starved the ES for funds, and focused too much of EDWAA's resources on 
costly short-term retraining of dubious value. Establishing a more appropriate balance among 
different types of assistance is long overdue, and is likely to be widely applauded by practioners 
whose strong views about what services are most efficacious have largely been ignored. 

In addition, the administration's proposal clearly appreciates the value of intelligently weaving 
the array of programs into an integrated whole through use of one-stop career centers and other 
means. Similarly, the proposal recognizes the central importance of establishing honest-brokers to 
provide reliable information about what would happen in the absence of any intervention and the 
difference various interventions would make through use of career centers. 

In my view the revolutionary aspect of the administration's approach is the focus on giving 
each client discretion to choose an appropriate adjustment strategy. In the past, Federal requirements 
overly restricted clients' options. Under EDWAA, operators were told to spend half their funds on 
retraining. PICs generally selected contractors, and assigned clients to the services the agency 
deemed most appropriate. EDWAA's mandating high minimum levels of retraining services was an 
unfortunate example of federal policy-making that was not adequately backed by relevant evidence. 
The kev to improving program effectiveness is to rely on accurate information about the value of 
alternative actions, rather than suppositions. Also of great importance is improving the dissemination 
of relevant information to workers needing help. 

My experience working with Washington State officials to improve state-initiated dislocated 
worker programs convinces me that the crucial impediments to adjustment stem from inadequate 
information- job seekers having unrealistic expectations about the labor market, and difficulty 
locating suitable vacancies. It is precisely those problems that can be effectively addressed by 
existing low-cost strategies such as counseling, testing, job placement, and job search workshops. 

The effectiveness of those programs, however, is limited by the quality of the information 
about what strategies work best. I have no doubt that clients would develop better adjustment plans, 
take advantage of effective services, and shun ineffective programs, if they knew how their own 
actions would effect outcomes. Similarly, service providers would improve programs if they knew 
what services worked best for different individuals. Thus. I see the primary task of any new program 
as ensuring that accurate information about the value of alternative actions is produced and effectively 
disseminated. 

To its credit the new bill incorporates two crucial conceptual elements required to improve 
information flows: 

1. Providing a single-point of contact to disseminate the information. 

2. Creating an honest-broker by separating the tasks of providing advice about what services 
should be used from the responsibility to provide the actual services. 

I believe, however, that inadequate attention is given to a third crucial concept: 

3. Giving the honest-broker the responsibility to monitor program performance and the tools to 
advise clients what would happen with and without various interventions. 

I am deeply concerned that the lack of a ppropriate detail in the plan to improve information 
collection places the entire effort at risk. In the past public agencies have accepted performance 
measurement systems that have not adequately resolved thorny technical design problems, and it is 
likely that poorly designed systems lead to worse outcomes than having no measurement system at all. 

Existing information collection efforts are of value, and the bill recognizes that better 
information is needed. But despite its excellent intentions, the administration's plan would not 
fundamentally improve the current situation. A new approach is required to give dislocated workers 
and all branches of government the information they need to make wise decisions. Thus, if I could 
make one improvement in the bill I would spell out a mechanism to provide the information needed 
by individual workers and iocai agencies to buiid effective adjustment plans ana improve program 
performance. 

A new approach is needed to develop information tailored to the specific needs of individual 
workers with different personal characteristics and local sources of aid. Only a system tailored to 
individual needs and options would substantially reduce errors stemming from workers' or agencies' 
faulty assumptions about what works best, and thereby, materially improve the quality of adjustment 
plans. In addition, such a system would permit accurate cross-program comparisons to be made for 



178 



the first time. This should make it unnecessary for us to speculate about crucial issues such as the 
value of retraining versus other forms of assistance. 12 

I recommend basing the system on the readily available longitudinal histories of the work, UI 
claims, and program participation of individual workers my colleagues and I used to examine the 
effect of dislocation in Pennsylvania, the ability of the ES in Pennsylvania and Washington to assist 
dislocated workers, and the efficacy of TAA supported training in Missouri. Existing data on what 
happens to dislocated workers in individual labor markets who did, and did not , participate in 
different specific programs can be used to assess the effectiveness of those specific programs for 
workers with different characteristics. Use of those data also would facilitate demonstrating to 
dislocated workers the importance of rapidly returning to work, and what assistance should be used to 
further that goal. 

Although considerable work would be needed to ensure that accurate inferences are drawn 
from the data, the cost of that work would be relatively low. In addition, there is now a golden 
opportunity to reduce data collection costs by integrating the tracking of services with an existing 
mandate to profile individual UI claimants and refer those needing reemployment assistance to 
appropriate service providers. 

The UI/ES system possesses the raw data needed to achieve the crucial aims of the 
administration plan— allowing government to act as an honest-broker supplying accurate information 
to dislocated workers about how various actions they take, or fail to take, will effect long-term 
outcomes. For that reason alone it would make sense to assign the honest-broker role to the state 
UI/ES system. 13 Moreover, the UI/ES system is perfectly positioned to deliver that information 
because almost every dislocated worker with large losses receives UI benefits, usually for long 
periods. Thus, the UI/ES system comes in contact with those workers during the crucial early 
months of joblessness. In addition, the UI/ES system has responsibility to monitor the job search of 
UI claimants, help claimants find work, and perhaps most importantly, only provides services costing 
about $200 per claimant. 

In contrast, the other service providers discussed in the bill as possible honest-brokers- the 
operating arms of the PICs and community colleges— directly provide expensive services and/or 
directly contract for such services. It is hard to see how such organizations can be completely free of 
conflicts of interest. Separating referral and evaluation from the provision of services appears to be 
essential to establishment of a truly independent gate-keeper. Thus, it is doubtful that any agency, 
other than the ES, can successfully fill the honest -broker role. 

Moreover, the bill takes an oddly inconsistent view on the value for a single point of entry by 
suggesting there should be competition among one-stop career centers. It would make much more 
sense to have a single unified entity (with considerable ability to respond to special local needs) 
provide basic counseling services and monitor the quality of services. A relevant analogy is the 
stability created in the US banking system by the supervisory role played by the Federal Reserve 
system. As in the banking industry, the appropriate place for competition is in the delivery of 
services, not monitoring of performance. 

Providing accurate information and permitting clients to chose an appropriate strategy is 
critical to improving the current system. Development of such a system would make it unnecessary 
to have a government entity, including work-force boards, make key resource allocation decisions. 
Rather the reverse is far closer to the truth- without accurate information and consumer choice any 



1 An improved performance measurement system also should finally resolve spirited debates over the 
comparative merits of different treatments offered by JTPA, TAA, and ES programs. Those debate were 
impossible to resolve because we lacked consistent performance measures across those programs. For example, 
JTPA entered-employment rates (which counts placement from any source as a positive outcome) often were 
compared to ES placement rates (which only counts the taking of jobs to which clients were refprrrA hy th<» PS 
as a positive outcome). Obviously, ES performance would appear far better if based on the JTPA measure 
rather than its own much more stringent measure. 

15 The JTPA system has used UI/ES administrative data to track performance of participants, but those 
tracking systems have lacked crucial information about a comparison group of dislocated workers who did not 
participate in training programs or similar workers who did not lose jobs. Moreover, the data have primarily 
been used at the Federal level. It makes little sense to decentralize to the local level data collection and 
processing. Rather each state should develop a single data system, and insure the information is appropriately 
disseminated. 



179 



governmental agency would most likely fail to act in the best interests of its clients. Existing 
institutions are capable of providing excellent services and competing for clients, but the central 
problem today is inadequate guidance to clients. As a result, expensive services are over-used and 
inexpensive strategies too often ignored. 

In conclusion, I strongly believe that we owe it to those actually dislocated and those who fear 
dislocation to do the best job we can in putting in place a safety-net of programs that will minimize 
the cost of job loss with whatever level of funds are available. I can think of no more important steps 
than ensuring that dislocated workers: (1) understand the benefits and costs of a full range of specific 
alternative strategies, (2) are given accurate information at the appropriate time, and ultimately (3) 
have the discretion to chose the strategy that is right for them. 

Finally, the bill we are discussing today is exceptionally important because it can substantially 
reduce the suffering caused by economic change. I believe that it is appropriate for the government 
to aid dislocated workers because the losses are so large and so wide spread. But far more than 
compassion is involved. Fairness dictates that compensations be paid when changes induced by 
government actions cause harm. Perhaps most important, reducing the costs imposed on dislocated 
workers and the widespread fear of job loss is an essential component to reducing resistance to a wide 
variety of productive changes that will make American workers more competitive and wealthier in the 
long run. 



REFERENCES 



Angrist, Joshua. 1993. "The Effect of Veterans Benefits on Education and Earnings." Industrial 
and Labor Relations Review 46, 4: 637-652. 

Bloom, Howard S. 1990. "Back to Work: Testing Reemployment Services for Displaced Workers." 
Monograph, W.E. Upjohn Institute for Employment Research, Kalamazoo. MI. 

Corson, Walter et al. 1989. "The New Jersey Unemployment Insurance Reemployment 
Demonstration Project: Final Evaluation Report." Mathematica Policy Research, Inc. Princeton, 
NJ. 

Corson, Walter et al. 1992. "International Trade and Worker Dislocation: Evaluation of the Trade 
Adjustment Assistance Program." Mathematica Policy Research, Inc. Princeton, NJ. 

Jacobson, Louis, Robert LaLonde, and Daniel Sullivan. 1993. "The Costs of Worker Dislocation." 
Monograph, W.E. Upjohn Institute for Employment Research, Kalamazoo. MI. 

Jacobson, Louis. Robert LaLonde, and Daniel Sullivan. 1993. "Earnings Losses of Displaced 
Workers." The American Economic Review, 83, 4: pp. 686-709. 

Jacobson, Louis, Robert LaLonde, and Daniel Sullivan. 1993. "Long-term Earnings Losses of High- 
Seniority Displaced Workers." Economic Perspectives, 17, 6: pp. 2-20. 

Jacobson, Louis. 1993. "Making Workers Feel Secure: Trade Adjustment Assistance in an 
Uncertain World." Monograph, W.E. Upjohn Institute for Employment Research, Kalamazoo, MI. 

Jacobson, Louis. 1994. "The Effectiveness of the US Employment Service." Report for the 
Advisory Commission on Unemployment Compensation. Westat, Inc. Rockville, MD. 

Leigh, Duane E. 1990. "Does Training Work for Displaced Workers? A Survey of Existing 
Evidence." Monograph, W.E. Upjohn Institute for Employment Research, Kalamazoo, MI. 

Murphy, Kevin m. and Finis Weich. 1989. "Wage Premia tor College Uraduates: Kecent (Jrowth 
and Possible Explanations." Educational Researcher 18, 4: 17-26. 

O'Neill, Dave M. 1977. "Voucher Funding for Training Programs: Evidence from the GI Bill." 
The Journal of Human Resources 12: 425-445. 

U.S. Department of Veterans Affairs. 1994. Unpublished administrative data-participation and 
payment summaries. Washington, DC. 



180 

Chairman Ford. Ms. Bernstein. 

STATEMENT OF FRAN BERNSTEIN, LEGISLATIVE ADVOCATE, 
NATIONAL EMPLOYMENT LAW PROJECT, INC. 

Ms. Bernstein. Good afternoon, chairman. My name is Fran 
Bernstein. I am the legislative advocate for the National Employ- 
ment Law Project, a legal services corporation support center spe- 
cializing in employment issues that affect low-wage workers, the 
poor, and the unemployed. 

My organization offers legal and technical support on job training 
and the unemployment compensation program to hundreds of legal 
services offices throughout the country. 

We appreciate the opportunity to present our views on the Reem- 
ployment Act of 1994, H.R. 4040. We believe the Reemployment Act 
offers an important opportunity to challenge stereotypes that low- 
wage workers are best served by the welfare system or by no sys- 
tem at all, rather than by programs established to benefit dis- 
located workers. 

Specifically, as proposed, the act fails to recognize the current re- 
alities of the workforce by focusing on extended job tenure and 
other factors that will undermine the goal of making this a com- 
prehensive reemployment system. 

The focus of my testimony will be on the unemployment com- 
pensation system and how it relates to the initiatives proposed in 
the Reemployment Act. The act now requires eligibility for regular 
unemployment benefits in order to receive retraining income sup- 
port. This requirement underscores the need for congressional and 
Department of Labor action to reform the unemployment system 
toward restoring it to its former effectiveness. For example, in 
1992, only 34 percent of unemployed workers received unemploy- 
ment benefits, ranging from a shocking low of 20 percent in Vir- 
ginia, to 60 percent in Alaska, the lowest level of coverage during 
any recession since the end of World War II. 

This decline in recipiency rates affects all the unemployed, but 
it has a disproportionately harsh effect on our clients because low- 
wage earners often fail to meet most State's earnings and weeks 
worked requirements. And, wage replacement rates are so low that 
our clients often qualify for food stamps and AFDC while they are 
receiving unemployment. 

We suggest many other needed changes to the unemployment 
system in our written testimony. In particular, we urge Congress 
to immediately reform the Federal/State extended benefits program 
as recommended recently by the Advisory Council on Unemploy- 
ment Compensation. Moreover, fundamental differences among the 
States' unemployment laws lead to the anomalous result of a work- 
er with the identical work history and unemployment compensation 
claim as a worker in another State being denied access to retrain- 
ing income support from a Federal program, because he has the 
misfortune of living in a State with strict unemployment eligibility 
rules. Assuming that unemployment eligibility remains a gate- 
keeper to retraining income support in the Reemployment Act, 
Congress and the Department of Labor must act quickly to remedy 
those inequities. 



181 

Further, the requirement of identification through worker 
profiling will unfairly penalize low-wage workers and prevent them 
from accessing intensive reemployment services in the Reemploy- 
ment Act. Despite significant attachment to the workforce, these 
workers will not meet the strict EDWAA dislocated worker defini- 
tion or the lengthy job tenure requirements grafted onto the worker 
profiling system under recent Department of Labor guidelines. 

Moreover, the Reemployment Act's arbitrary eligibility require- 
ment of 3 years' employment with the most recent employer for re- 
training income support, will exclude fully one-half of dislocated 
workers and an even larger percentage of unemployed workers who 
do not meet the current dislocated worker definition. 

This tenure screen ignores several studies which have concluded 
that no one predictor exists of those who are likely to exhaust un- 
employment benefits, and is another example of the Reemployment 
Act's exclusionary two-tiered approach to eligibility for the services 
and income support contained in the bill. 

Clearly related to the Reemployment Act's arbitrary eligibility 
rules is the inadequacy of the current financing provisions to meet 
the goals of this legislation. We support the permanent extension 
of the 0.2 percent FUTA surcharge, and we also support a modest 
increase in the Federal taxable wage base, which was passed by 
the Human Resources Subcommittee in 1991, but failed to become 
law. We discuss financing issues also in more detail in our written 
statement. 

Finally, a link needs to be made to job creation in Federal em- 
ployment policy. The foundation of economic security is not train- 
ing, but work. We believe the Secretary of Labor's analysis of a 
mismatch between skills and available jobs tells only part of the 
story. To achieve full employment, more jobs must oe created in 
both the public and private sectors. 

In conclusion, thank you for this opportunity to offer our views 
on this very important legislative initiative affecting poor, low- 
wage workers. We look forward to working with you to ensure that 
the Reemployment Act realizes its promise of creating a truly com- 
prehensive reemployment system. 

I would be happy to answer any questions. Thank you. 

Chairman FORD. Thank you very much. 

[The prepared statement follows:] 



182 



STATEMENT OF FRAN BERNSTEIN 

LEGISLATIVE ADVOCATE 

THE NATIONAL EMPLOYMENT LAW PROJECT, INC. 

The'National Employment Law Project, Inc. (NELP) appreciates this opportunity to present our 
views on the Reemployment Act of 1994, H.R. 4040, to the Subcommittees on Human Resources and Trade 
of the Committee on Ways and Means. 

NELP is a support center of the Legal Services Corporation specializing in employment issues that 
affect low-wage workers, the poor and the unemployed. We offer research and litigation support on job 
training and the unemployment compensation program to hundreds of Legal Services offices around the 
country providing free direct representation to eligible clients. Before submitting this testimony, we 
consulted with the Employment Task Force, a nationwide group formed by NELP of 250 Legal Services 
advocates, labor representatives and community groups that have day-to-day involvement with 
unemployed workers and the current training system. 

Our clients are generally low-wage workers employed in nonunionized industries, depending 
wholly on federal and state laws for protection. They are disproportionately people of color, women, 
immigrants, migrant and seasonal workers, people with limited English-speaking ability and other groups 
who have historically faced significant barriers to employment and problems of access to government 
programs. 



We welcome the Administration's initiative to substantially improve the current job training 
services and delivery systems. We also welcome the Reemployment Acfs recognition that many 
unemployed workers need extended income support to complete meaningful, long-term retraining 
programs towards achieving career goals and economic self-sufficiency. It is in that spirit that we offer 
our critique of the current proposals. 

I. The Realities of the New Workforce: 



As proposed, the REA fails to recognize the current realities of the workforce by 
focusing on extended job tenure and other factors that undermine the effectiveness of 
the program. 

The nature of the workforce is changing rapidly. Manufacturing jobs are disappearing while the 
low-wage service sector continues to grow. Employers' use of contingent workers - those who do not 
fit the old model of full-time, full-year employees — has grown dramatically in the last 15 years to now 
constitute approximately 25% of the entire workforce and this percentage is rising. 

This has resulted in a more complicated mix in the workforce than the traditional distinction 
between "dislocated" and "disadvantaged" workers. For example, many formerly well-paid industrial 
workers have lost their jobs and are now earning a fraction of their former wages in the service sector. 
Our clients also include those who never received the education and training required for well-paying jobs 
and are currently living in poverty even through they work full-time. A 1992 Census Report found that 
one in five full-time workers have fallen beneath the poverty level for a family of four, representing a 50% 
increase since 1979. 

This reality leads us to conclude that all unemployed workers who are permanently separated 
from their job, no matter what the reason for their status, should be offered the full airay of readjustment 
assistance offered to dislocated workers in the Reemployment Act. This legislation should reject shunting 
low-wage workers into a second-tier system with those eligible for welfare-to-work programs (or no 
programs at all). 

II. Eligibility for Title I Intensive Services and 

Title II Income Support 

The budget-driven criteria for limiting eligibility for intensive reemployment services 
and retraining income support will unfairly exclude many deserving workers. 

The REA requires unemployment compensation (UC) eligibility and three years' tenure with the 
most recent employer for eligibility for the income support provisions in the bill. Additionally, 
identification through a State "worker profiling" system, a program now being instituted in the states to 
identify those UC recipients who are likely to exhaust regular compensation, is a basis for eligibility for 
intensive services. 



183 



On their face, these requirements do not correlate with the selection ol those individuals most in 
need of long-term training. Rather, because this bill contains only a fraction of the $5 billion originally 
envisioned by the Department of Labor, it is adopting arbitrary cut-offs to training and income support. 
Examples of those who would be disproportionally excluded are the working poor who have short )oh 
tenures through no fault of their own and temporary workers who may not meet UC wage eligibility 
requirements even though they worked full-time for much of a year. 

A) UC Reform 

Comprehensive reforms of the unemployment compensation system are necessary to 
ensure that the UC eligibility criteria in the bill is fair to all unemployed workers. 

We agree with the Administration that displaced workers need both income support and 
readjustment services, tailored to the individual's needs, to successfully make a transition to new 
employment. While UC is an important component, we cannot support the Reemployment Act's reliance 
on UC eligibility as a prerequisite for services without fundamental changes in that system far beyond 
the measures contained in the current bill. In fact, its adoption will screen out many deserving claimants, 
particularly low-wage workers, who do not qualify for UC. And, because each state has its own UC 
eligibility criteria, similarly-situated workers could be found eligible in one state and ineligible in another. 
The GAO identified this inequality when analyzing the UC eligibility requirement in the NAFTA-TAA 
program. The U.S. General Accounting Office, Dislocated Workers: Proposed Re-employment Assistance 
Program (November 1993, HRD-94-61) 

The nation's entire UC system has long been in need of meaningful, comprehensive reform. The 
GAO reports that over the past decade, federal and state restrictions on this program have resulted in 
record low levels of coverage and wage replacement, significantly diminishing unemployed individuals' 
ability to remain above the poverty line. The U.S. General Accounting Office, Unemployment Insurance: 
Program's Ability to Meet Objectives jeopardized (September 1993, HRD-93-107). This disturbing trend 
strongly impacts the largest growing segments of the workforce, including low-wage and contingent 
workers, women and people of color. 

The following statistics are illustrative. In 1992, only 34 percent of unemployed workers received 
UC benefits (ranging from a shocking low of 20.7 percent in Virginia to 60 percent in Alaska), the lowest 
level of coverage during any recession since the end of World War II. A worker who was employed for 
35 hours per week throughout the year and earned the 1988 average hourly wage of $4.42 would fail the 
earnings test for UC eligibility in at least half the states. 

Women are particularly hard-hit by the states' "race to the bottom" to limit eligibility and expand 
disqualification requirements. Although women workers are 45 percent of the unemployed, they are 
estimated to be only about one-third of UC recipients. This is not surprising given that women constitute 
two-thirds of the part-time workforce and most states disqualify part-time workers from receiving UC. 
Perhaps most disturbing, among women-maintained families in which the householder was employed for 
at least three months and then experienced unemployment, almost three times as many families turned 
to welfare as received UC. 

At a minimum, if UC eligibility remains the gatekeeper of eligibility for retraining income support 
in this bill, USDOL and Congress should immediately promote necessary reforms in that system. The 
changes proposed in the Reemployment Act - the "short-time compensation program", the "reemployment 
bonus program" and the extension of the Self-Employment Assistance Program - simply do not address 
this system's fundamental problems. 

Instead, we recommend five important changes that would focus on the working poor, women 
and other displaced workers who are impacted by structural changes in the economy and are poorly 
served by the current UC system. 

1) First and foremost, Congress should immediately reform the federal-state Extended Benefits 
program as recommended by the Advisory Council on Unemployment Compensation (Advisory 
Council). The Advisory Council noted in its Report and Recommendations released in February 1994 that 
long-term unemployment has steadily increased, leading it to conclude that the Extended Benefits program 
"must be expanded if the system is to deal effectively with the changing nature of unemployment". (Page 
7) Specifically, we support the Advisory Council's recommendation that the Extended Benefits program 
pay 13 weeks of additional benefits in any state that suffers a total unemployment rate of 6.5 percent. In 
addition, the portion of the federal matching funds should be increased to 75 percent and /or the new 
optional trigger formula should be mandated. 

2) Nationwide, the solvency of state trust funds must be protected. A federal benchmark to 
measure state solvency would decrease the pressure to restrict access to UC and to reduce benefits. 



184 



3) Next, we urge federal adoption of the "moveable" base period system of calculating 
monetary eligibility for UC benefits which would increase the eligibility rates for low-wage, part-time 
workers and others with more limited incomes. Under this approach — already adopted in 
Massachusetts, Minnesota, Ohio, Rhode Island, Washington, Maine, and Vermont — when a claimant has 
earned insufficient wages in four of the last five calendar quarters to qualify for coverage, the State 
promptly redetermines the claim based on the wages earned in the fifth, or 'lag" quarter, which is the 
quarter before the claim is filed. This is made possible through advances in technology that allow States 
to promptly process wage information, thus eliminating any need for a gap between the end of the 
claimants base period and the beginning of the benefit year. 

4) Additional federal criteria that take into account the increasing number of underemployed, 
part-time and intermittent workers must be developed and applied to all state programs. The current 
inequities are clear. Many temporary workers who earn enough money throughout a year to surpass the 
monetary eligibility requirements are disqualified for having worked an inadequate number of weeks. 
And, part-time workers who eam just above the minimum wage and who work throughout the year 
would fail the earnings test in half of the states. 

5) We also urge federal standards that address the negative impact of the UC program on 
claimants with significant family responsibilities and compelling "personal" circumstances that result 
in a denial of coverage in many states. We recommend the adoption of the 1980 National Commission's 
proposals: 1) that the "availability for work", "work search", "misconduct" and "voluntary quit" 
requirements in state unemployment compensation laws recognize exceptions of compelling family and 
personal considerations, such as child care responsibilities or caring for the immediate medical needs of 
a family member; and 2) that the law recognize part-time work as a basis to receive unemployment 
benefits, including limits on work-search rules that now require full-time employment. 

B) REA Tenure Screen 

The requirement of three years' tenure with the most recent employer will arbitrarily 
screen out most workers who are deserving of training and income support. 

A recent CBO study found that one-half of dislocated workers were employed for less than three 
years at the time of their unemployment. U.S. Congressional Budget Office, Displaced Workers: Trends 
in the 1980s and Implications for the Future (February 1993). Although this study found that longer- 
tenured workers generally fared worse in getting new employment, those with less education, older 
workers, women and minorities also were less likely to be reemployed then were those with more 
education, younger workers, men and whites, respectively. For instance, in the 1980s, the average spells 
of joblessness for blacks were nearly twice as long as for whites. (Lori G. Kletzer, "Job displacement: black 
and white workers compared" Monthly Labor Review, July 1991, p. 17.) And, interestingly, a USDOL 
study found a correlation between especially short job tenure and the increased likelihood of exhausting 
unemployment benefits. Clearly, no one predictor exists of those who are likely to exhaust UC. We do 
know, however, that a lengthy tenure screen will limit the eligibility of minorities, women, and other 
groups with lower than average job tenure. (Sar A. Levitan and Stephen L. Mangum, The Displaced vs. 
The Disadvantaged: A Necessary Dichotomy? Center for Social Policy Studies, May 1994, p. 43.) 

In its analysis of equitable distribution of income support in the study cited above, the CBO 
questioned the fairness of providing income support to "some unemployed workers who exhaust their 
unemployment compensation but not to others who face similar problems". (Page 37) Instead, 
individualized assessment of the need for retraining and income support will direct resources to those 
who will most likely benefit from these services. 

C) "Worker Profiling" 

Congressional action is needed to ensure that the new worker profiling system does 
not further isolate low-wage workers and others from REA and the unemployment 
system. 

Identification through "worker profiling" is a prerequisite to eligibility for the Reemployment Acf s 
intensive reemployment services and reemployment bonus program. The worker profiling program, 
authorized by the Unemployment Compensation Amendments of 1993, is designed to serve claimants who 
"will be likely to exhaust regular compensation and will need job search assistance to make a successful 
transition to new employment." In the only legislative history on the specific provisions of the profiling 
system, Senator Riegle emphasized during the Senate floor debate that there is a need to "explore the real- 
life results of our new profiling system, to help those of us in Congress ensure that this program is fair 
and equitable to all claimants." Congressional Record, S14599 (October 28, 1993). 

Contrary to this clear legislative intent, USDOL has begun implementation of the program and 
adopted policies to further isolate low-wage workers and many other groups from the UC system. 
Specifically, by applying the Economic Dislocation and Worker Adjustment Assistance (EDWAA) 



185 



eligibility requirements to the profiling program so that only those claimants who have been permanently 
separated from a particular industry or occupation will be eligible, the USDOL will exclude many 
deserving groups who work in the expanding low-wage service sector industries. And, many women and 
low-wage workers will be excluded from the profiling program due to the model's bias in favor of lengthy 
job tenure even though, as discussed above, this is no more a predictor of likelihood to exhaust 
unemployment than several other factors. As recommended by the AFL-CIO in its previous testimony 
to the Subcommittee on Labor-Management Relations, Congress should take action to ensure that this 
program conforms with the legislative intent. 

In addition, we are concerned that worker profiling will become an additional obstacle for receipt 
of UC. Failure to participate in reemployment services -without "justifiable cause" will result in loss of 
benefits. The USDOL has not yet issued federal guidelines on justifiable cause. Given the proven 
inclination of many states to limit UC eligibility, USDOL must establish federal requirements. We believe 
justifiable cause should include, at a minimum, the inability to obtain dependent care, transportation, or 
other supportive services when those services are necessary to enable participation in a job search 
assistance program and other compelling family circumstances. 

D) Unwarranted Restrictions on Income Support 

The requirements for receiving retraining income support must reflect good 
reemployment policy and appropriate flexibility. 

Specifically, the requirement of enrollment in training by the 16th week after becoming 
unemployed will result in many otherwise-eligible individuals losing income support. The NAFTA-TAA 
program, on which many features of title 1 in the Reemployment Act were modeled, has experienced these 
and other problems according to preliminary reports from the field. At a minimum, where trainings are 
not available or not appropriate, waivers should be allowed. 

Additionally, the GAO, in its analysis of the proposed NAFTA-TAA program, concluded that "job 
search activities should be valid substitutes for classroom training in considering participants' eligibility 
for income support." The U.S. General Accounting Office, Dislocated Workers: Proposed Re-employment 
Assistance Program, (November 1993, GAO/HRD-94-61) This is in keeping with a customer-driven 
system when individualized assessment of reemployment needs are paramount. 

Finally, the 26 or 52 weeks of support allowed in the bill (depending on job tenure) is insufficient 
to complete a two year basic community college degree. The opportunity to attain this degree 
corresponds with the Administration's goal that workers who are changing careers should be given ample 
time to complete meaningful training. 

III. Funding the Programs 

We are concerned that the current financing provisions for the REA are inadequate to 
meet the goals of this legislation. 

The Reemployment Act proposes to finance its programs through using the current TAA 
entitlement funds for all the consolidated dislocated worker programs, permanently extending the .2 
percent FUTA surcharge and tranfering that money to a Retraining Income Support Account, and yearly 
requests for discretionary funds in the budget process. There are several problems with this funding 
scenerio. 

First, because the current TAA and NAFTA-TAA programs are funded an uncapped entitlements, 
trade-impacted workers served by these programs are justifiably opposed to giving up assured income 
support for underfunded capped entitlements and insecure discretionary money. 

The second problem we foresee is that total spending for the bill is "back-loaded" in the final years 
of this decade, with spending for 1995 $1.7 billion compared to a projected $3.2 billion in 1999. More 
troubling is that none of the entitlement income support is available in the first year, and more than one- 
half of the mandatory spending is in the last two years of the bill (1999 and 2000). 

The proposed financing mechanism are another concern. Although we support the permanent 
extension of the .2 percent FUTA surcharge, we fear tha' funding for the regular UC system, the 
Employment Service, and the Extended Benefits program - those programs that currently use these funds 
- will suffer as a result. 

This concern is heightened given USDOL's projections on the status of the FUTA account over the 
next five years which reflect overly-optimistic assumptions about the economy. These assumptions 
include a falling unemployment rate and no recession between 1994 and 2000. Under these assumptions, 
the Extended Unemployment Compensation Account is not expected to bear the costs of any significant 



186 



Extended Benefits payments for this time period and UC administrative costs are level. If a recession 
occurs, however, these programs will have inadequate funds for our existing economic security programs. 

Clearly, additional revenues are necessary to fund adequately all of the current and proposed 
reemployment and income support programs. A modest increase in employers' financial contribution to 
training the nation's workforce would even the playing field between those employers who already spend 
a significant percentage of their payroll on skill-upgrading and the vast majority of employers who have 
the short-sighted view that investment in education and training is not profitable. As Secretary Reich 
noted in his recent testimony on the Reemployment Act before the Senate Finance Committee, the .2 
percent FUTA surtax reflects employer payment of only $11.00 per worker per year. An additional 
modest increase in the unemployment taxable wage base for payroll would not be an immediate financial 
hardship for most employers and in the long-run all employers would benefit from a better educated and 
skilled workforce. 

IV. One-Stop Career Centers 

The One-Stop Career Center model presents important opportunities for streamlining 
and generally reforming service delivery. 

Although we support improved access to services through consolidation and coordination, many 
features of this service delivery model need re-examination. In their recent analysis of the Reemployment 
Act, Levitan and Mangum observed that "|m]ost important to the concept of the one-stop shop is not the 
one-stop but what is on the counter at the shop. . . . The key is the assurance that wherever one stops, 
access to all relevant services is available." (Levitan and Mangum, The Displaced vs. The Disadvantaged: 
A Necessary Dichotomy?, p. 40) 

A) Rejection of PICs 

The One-Stop Career Centers must reject the JTPA model to successfully deliver high- 
quality services. 

Public participation and accountability problems pervade the current JTPA private industry 
council (PIC) structure. A recent NBC Dateline segment exposed the failure of many PICs to establish 
successful job training systems. For example, the Philadelphia PIC was shown to be unresponsive to 
community input and unaccountable to those they are supposed to be serving. In fact, its failure to allow 
labor, community-based organizations, and Community Legal Services access to their two year plan and 
its refusal to give these groups an opportunity to comment on the proposed plan resulted in the State Job 
Training Coordinating Council rejected the Philadelphia PICs plan. Unfortunately, the Philadelphia 
experience is the norm and not the exception. 

Instead, the REA should establish a One-Stop Career Center governance structure that is open, 
accountable, and which mandates community involvement. To ensure broad participation, the WIB 
should not be an employer-dominated body. Rather, mandated employer representation on the WIBs 
should be no more than one-third, with community-based organizations and organized labor afforded 
additional representation. And, efforts should be made to ensure that the WIBs reflect the gender and 
racial composition of the service area. 

B) Rejection of Privatization/Conflicts of Interest 

This legislation should not allow privatization of employment and training services 
and should minimize potential conflicts of interest. 

We are opposed to privatization of employment and training services without significant 
safeguards not presently included in the Reemployment Act. The scandalous history of proprietary trade 
schools funded under the Pell Grant and Guaranteed Student Loan programs is only one example of 
relying on for-profits to provide services to low-income populations, particularly the most vulnerable who 
have less education and limited-English speaking skills. Indeed, the Nunn Report (Senate Rep. 102-58) 
identified investigations of proprietary school student loan fraud totaling billions of dollars. 

We understand that the Administration agrees that proprietary trade schools should be prohibited 
from operating One-Stop Career Centers and from being involved in UC claims taking. We urge Congress 
to adopt this position as well. In addition, we urge additional safeguards where for-profits are 
reemployment service providers. Specifically, these organizations should be screened to ensure that they 
have not been the subject of an investigation or found to have engaged in unscrupulous or illegal activities 
in the past. 

We are also concerned that the Reemployment Act allows One-Stop operators to provide direct 
education and training services. These functions should be mutually exclusive unless particular 
circumstances require a One-Stop operator to provide services, for instance in some rural areas. In this 
circumstance, "front end" safeguards must be adopted to minimize potential conflicts of interest. 



187 



C) "Customer Satisfaction" Through Participant Rights 

In order to ensure true "customer satisfaction", participants must be given the 
opportunity to complain formally if they are dissatisfied with any aspect of the system. 

Meaningful "participants' rights" is conspicuously absent for One-Stop "customers In contrast 
to the UC system, TAA, the JOBS component of the Family Support Act, and JTPA, there is no provision 
for participant grievance, hearing, or appeal rights. 

The TAA's Trade Readjustment Allowance program offers the best model by allowing for a full 
and fair hearing challenge to unfavorable determinations, followed by the opportunity for administrative 
and judicial review. The Reemployment Act should specifically include the right to a "fair hearing" to 
enforce participant rights. 

Finally, the Perkins Act offers a good model for a participatory planning process, one that is 
lacking in this bill. This front end input is critical for developing programs that will meet the statutory 
goals. In comparison, back-end customer feedback, surveys, etc. as proposed in the legislation will be of 

limited value. 

D) Performance Standards 

Specific and mandatory performance standards are a critical component of a successful 
education and training system. 

The performance standards "factors" listed in the Reemployment Act, although useful, need to be 
strengthened to ensure that we do not repeat the failure of the JTPA title II program both to set 
challenging measures of performance and to implement those already enacted. And, the REA's proposed 
standards of "[pllacement, retention and earnings of participants in unsubsidized employment" should be 
viewed as only the starting point in establishing performance standards. Our experience with the JTPA 
program leads us to conclude that Congress must adopt specific and mandatory performance standards 
which at least include identification of "long-term economic self-sufficiency" and "increased educational 
attainment and occupational skills" as important measures. (1992 Amendments to the JTPA title II 
program) 

E) Waivers 

The Reemployment Act should be cautious about granting waivers which could limit 
current protections. 

A large array of federal and state law waivers are available in the Reemployment Act. Although 
particular waivers could result in enhanced services for participants, waivers must not be used to limit 
the rights of and services to the individuals who are the intended beneficiaries of the programs. 

We especially oppose any waivers of the requirements of Title III of the Social Security Act 
requiring the payment of unemployment benefits when due, and the provision requiring a fair hearing 
when unemployment benefit claims are denied. These provisions contain critical protections of claimants' 
rights and must not, under any circumstances, be subject to waiver. 

The burden must be placed on the proponents to establish a bona fide need for the waiver, rather 
than a presumption in favor of waivers. And, interested organizations must be given advance notice of 
all waiver requests and an opportunity to comment. 

V. Job Creation 

Without available jobs, education and training are a hollow promise of a better future. 
Job creation must appear again on the legislative agenda. 

The Reemployment Act contains no link between education and training services, on the one hand, 
and federal job creation efforts on the other. The foundation of economic security is work, not training. 
The Secretary of Labor's analysis of a "mismatch" between skills and available jobs tells only part of the 
story. 

To achieve full employment, more jobs must be created both in the private and public sectors. 
Recent improvements in overall job growth, while welcome, are inadequate to deal with the need. 
Currently, 7.8 million persons are officially unemployed, another 4.8 million want full-time jobs but have 
to settle for part-time work, and one-half million are so discouraged they have given up their job search. 

This is hardly the time, as some are speculating, for the Federal Reserve Board to raise interest 
rates. Indeed, the latest employment statistics are devoid of evidence of wage inflation. A mix of 
monetary and fiscal policies, including public sector job creation and investment in social needs, will be 
vital to ensuring a context in which the promise of training can be realized. 



The National Employment Law Project, Inc. thanks you again for this opportunity to offer our 
views on this very important legislative initiative affecting poor and low-wage workers. We look forward 
to working with you to ensure that the Reemployment Act realizes its promise of creating a truly 
comprehensive reemployment system. 



188 

STATEMENT OF PAUL A. LODICO, COCOORDINATOR, MON 
VALLEY UNEMPLOYED COMMITTEE, HOMESTEAD, PA. 

Mr. Lodico. My name is Paul Lodico. I am a cocoordinator of the 
Mon Valley Unemployed Committee. The Mon Valley Unemployed 
Committee is a grassroots organization of over 7,000 unemployed 
and dislocated workers that was born as a result of the massive 
layoffs in the steel industry in southwestern Pennsylvania during 
the early 1980s. 

The need for good jobs was the first concern of our members 
then, and it is now, but our day-to-day focus is on survival, pri- 
marily, unemployment compensation and retraining. Over 100,000 
workers in our region were certified as potentially eligible for trade 
adjustment assistance benefits. We became intimately familiar 
with the program in the late 1980s, and since then our involvement 
with affected workers has included helping over 10,000 of them 
with individual and group appeals. 

We know that trade adjustment assistance stands among the 
best of retraining programs in terms both of the choices allowed to 
workers and the benefits provided. We are also painfully aware of 
the need for improvements in the functioning of that program, and 
the need to provide income support and more choice for training 
and other benefits to other dislocated workers. 

H.R. 4040 in many ways improves on the current situation. Un- 
fortunately, in other ways, it steps backward. Many of our points 
that we would make are well expressed in the testimony of our 
friends from the labor movement, and from the National Employ- 
ment Law Project, so we will make only three points today. 

First, something has to be done about the requirement to be in 
training within 16 weeks. From the point of view of workers who 
just lost their jobs, finding out that they are required to be in 
training within 16 weeks, some portion of which will already have 
lapsed by the time they hear of the requirement, will appear to 
them as an almost insurmountable barrier, except for those few 
who already know that they want retraining, know what they want 
to be trained for, know where they want to train, and have that 
training institution have a program that will be starting within the 
required 4 months. 

In other words, very few people will have this situation. For most 
dislocated workers, it just won't work. This means they face the 
choice of picking some program, almost any program, that starts 
within 16 weeks, or face losing their eligibility for income support 
entirely. If you must use 16 weeks, then by all means have it start 
at the time the affected worker has completed the development of 
their reemployment plan with their career counselor. 

Furthermore, you must find some way of allowing workers who 
are not yet ready for retraining to test their skills in the current 
labor market before opting to retrain. Faced with the now or never 
choice, too many workers will choose retraining just to avoid the 
loss of their income support. That is bad for workers and bad pub- 
lic policy. 

Two, an appeals process similar to that in trade adjustment as- 
sistance is absolutely essential. We have helped over 10,000 indi- 
vidual trade-impacted workers with appeals. In many of these 
cases, benefits were granted. Thus we know firsthand the need for 



189 

an adequate appeals process. In this program, too, there will be the 
need for a worker denied benefits to have an opportunity to speak 
back to make their case. 

Three, once again drawing on our experience, we urge that there 
be sufficient funding. In the early 1980s, many of the unemploy- 
ment offices in our region, they put up signs, "TAA out of money." 
Workers who had lost their jobs now saw their hopes of retraining 
dashed. 

In the spring of 1987, our State ran out of TAA funds again. This 
time we were able to get the State to appropriate funds while we 
got a busload of workers and came down here to get a Federal sup- 
plemental appropriation. We understand that this year's spending 
cap on training for trade-impacted workers has already been 
reached. Don't offer a dream of a new future through retraining, 
only to snatch it away through inadequate funding. 

To conclude, it is all about good jobs. Our members and other 
dislocated workers will do whatever it takes to get them. And if 
this involves retraining, then empower them by giving them the re- 
sources to do so, for they have the will. 

Chairman Ford. Thank you very much. 

[The prepared statement follows:] 



84-377 0-95-7 



190 



STATEMENT OF PAUL A. LODICO 
MON VALLEY UNEMPLOYED COMMITTEE 



The Mon Valley Unemployed Committee is a grassroots 
organization of more than 7,000 unemployed and dislocated workers that 
was born as a result of the massive layoffs in the steel industry in 
Southwestern Pennsylvania during the early 1980's. The need for good 
jobs was first concern on our minds then, as it is now. But our day to day 
focus is on survival issues, primarily unemployment compensation and 
retraining. 

Over 100,000 workers in our region were certified as potentially 
eligible for Trade Adjustment Assistance benefits. We became intimately 
familiar with the program in the late 1980's and since then our 
involvement with affected workers has included helping over 10,000 of 
them with individual and group appeals. 

We approach and understand these programs from our members 
point of view, that is how they impact workers lives and affect their 
choices. We appreciate the value of unemployment compensation as the 
major program of financial assistance for people when jobs are lost. We 
also know that Trade Adjustment Assistance stands among the best of 
retraining programs in terms both of the choices allowed to the affected 
workers and the benefits provided. 

We are also painfully aware of the need for improvement. H.R. 4050 
in many ways improves on the current situation, unfortunately in other 
ways both large and small it falls short. Many of the points we would 
make are included in the testimony of our friends from the labor 
movement and from the National Employment Law Project. 

Here I will limit my remarks to three areas. 1) The requirement to 
be in training within 16 weeks. 2) The lack of an appeal process. 3) 
Funding for the program. 

1) From the point of view of workers who just lost their jobs, 
finding out that they are required to be in training within 16 weeks, some 
portion of which will already have elapsed by the time they hear of it, will 
appear as an almost insurmountable barrier except for those few who 
know that they want retraining, know what field they wish to study, know 
where they wish to go to school and that school has a start time for the 
program they are interested in that is within the permitted time. For most 



191 



dislocated workers this just won't happen which means they face the 
choice of picking some acceptable program that starts within their alloted 
16 weeks or loosing their eligibility. If 16 weeks has some magical appeal 
and you must use it then by all means have it start from the time the 
affected worker has completed the development of their reemployment 
plan with their career counselor. 

2) An appeal process similar to that in TAA is absolutely essential. 
We have helped over 10,000 individual trade impacted workers with 
appeals. In many of them benefits were granted. Thus we know first hand 
the need for an adequate appeals process. 

3) Once again drawing on our experience, wc urge that there be 
sufficient funding. In the early eighties when unemployment was at its 
peak in our region signs were pt up in the packed unemployment offices 
saying "TAA out of money". Workers who had recently lost their jobs, 
now saw their hopes for retraining dashed. In the Spring of 1987 our state 
ran out of funds for training again. This time we were able to get the state 
to allocate funds and a busload of workers came to Washington to urge a 
federal supplemental appropriation. We understand that this year's 
spending cap for training for tarde impacted workers has already been 
reached. Don't offer the dream of a new future through retraining only to 
snatch it away through inadequate funding. 

To conclude, it is all about good jobs. Our members, and other 
dislocated workers, will do whatever it takes to get them. If this involves 
refraining, then empower us by giving us the resources to do so, for we 
have the will. 



192 

STATEMENT OF ANTHONY CARNEVALE, CHAIRMAN, NATIONAL 
COMMISSION FOR EMPLOYMENT POLICY 

Mr. Carnevale. Thank you, Mr. Chairman. I am Anthony 
Carnevale. I am chairman of the National Commission for Employ- 
ment Policy. The National Commission for Employment Policy is 
charged by the Congress to identify the employment goals and 
needs of the Nation, and to assess the quality of Federal programs, 
and, in response to those needs, and it is that particular charge 
that I come here in response to today. 

The Reemployment Act in the final analysis is really a historic 
piece of legislation. It represents a very profound shift in Federal 
employment training policy. In the 1930s, we debated — the Con- 
gress debated at some length the need to build infrastructure to 
provide labor market information and employment services to all 
Americans as a result of the memories of the lingering Great De- 
pression. In the 1940s, a second debate occurred in which similar 
issues arose resulting in the Employment Act of 1946, which com- 
mitted the Nation to full employment. 

Thereafter, between 1946 and the early 1950s, the institutions 
were really not built because the economy ran so well that main- 
stream Americans didn't need them. And by the 1960s, we began 
turning what resources we had, employment services and public job 
training programs and the like, toward the uses of poor Americans 
who were not part of the economy. We weren't worried about the 
mainstream worker. 

Beginning in 1972, we started coming full circle with dislocation 
in a major set of American industries. We began to learn that it 
was difficult to choose between the suffering of the poor and the 
dislocated worker. Poor people tended to start out, end up poor. 
Dislocated workers rarely ended up poor, and still don't, but they 
suffer from how far they have to fall and they still do fall. That 
is, they are subject to earnings losses and other kinds of suffering 
in their personal and family lives. 

This bill is really the beginning of an attempt to build an em- 
ployment and training system for all Americans at a time when we 
have little money to do so, and at a time when our capacity and 
knowledge about how to do so is really fairly primitive, and I think 
it should be considered in that context. 

I think the Commission views the bill very positively as a begin- 
ning. It is a bill that squares with much of what is going on in the 
States in this same venue, that is, an attempt to build a system 
for all workers. And will, I think, leverage State activity and be 
helpful in most States. 

It is a bill I think that is unfairly criticized for not consolidating 
more programs. It consolidates six or so. But it does consolidate 
programs for dislocated workers and most people who worry about 
consolidation and study it would advise that the best way to con- 
solidate is around missions, that is, not all training programs in 
the Federal budget are for the same purpose. 

And at least in this mission, the programs are consolidated in 
this bill, with the hope that we can consolidate programs for the 
poor and welfare recipients and welfare reform discussion and so 
on as we move through the various missions to which training is 
attached. 



193 

Having said that, one of the points that I think needs to be made 
is that there is much more that could be done now to aid in consoli- 
dation and encouraging effectiveness among Federal programs, all 
153 of them. And the most obvious thing that we can do is to build 
a set of performance standards around those programs that are 
common among them. 

Currently, the problem with Federal training programs in truth 
is we don't know if they train or not. Oftentimes the numbers we 
use to assess the impact of training is really assessing experiences 
that have very little to do with learning, and that is why there is 
very little learning impact. 

And so it seems to me that the first thing we need to do is to 
set a common core of services among these programs, which in fact 
exist. They all train, they all provide job search assistance, they all 
provide counseling, and to build a management information system 
much along the lines of those in private sector institutions that 
allow us to find out what in fact the system in all the programs 
is doing and allows us to compare the effects across programs. 

One final comment about this bill, again beyond its current pur- 
poses, it is a bill that does not, as has already been stated, serve 
all the people who need services in America. It is a bill that is re- 
markably fair with respect to serving minorities and females, I 
might add, but serves relatively few low-income Americans under 
the current eligibility provisions, more than the old dislocated 
workers programs did, but still not very many, tends to be biased 
against the south. 

Thank you, Mr. Chairman. 

[The prepared statement follows:] 



194 



STATEMENT OF ANTHONY CARNEVALE , CHAIRMAN 
NATIONAL COMMISSION FOR EMPLOYMENT POLICY 
ON THE RE-EMPLOYMENT ACT OF 1994 

Chairman Ford and Chairman Matsui, on behalf of the National 
Commission for Employment Policy (NCEP) , I welcome this 
opportunity to speak on the Re-Employment Act of 1994. 

For those who may not be aware, the National Commission for 
Employment Policy is charged with the following missions: 

(1) identify the employment goals and needs of the Nation, 
and assess the extent to which employment and training, 
vocational education, institutional training, vocational 
rehabilitation, economic opportunity programs, public 
assistance policies, employment-related tax policies, labor 
exchange policies, and other policies and programs under 
this Act and related Acts represent a consistent, integrated 
and coordinated approach to meeting such needs and achieving 
such goals; 

(2) develop and make appropriate recommendations designed to 
meet the needs and goals described in clause (1) ; 

(3) examine and evaluate the effectiveness of federally 
assisted employment and training programs (including 
programs assisted under [JTPA], with particular reference to 
the contributions of such programs to the achievement of 
objectives sought by the recommendations made under clause 

(2); 

(4) advise the Secretary [of Labor] on the development of 
national performance standards and the parameters of 
variations of such standards for programs conducted pursuant 
to JTPA; 

(5) evaluate the impact of tax policies on employment and 
training opportunities; 

(6) examine and evaluate major Federal programs which are 
intended to, or potentially could, contribute to achieving 
major objectives of existing employment and training and 
related legislation or the objectives set forth in the 
recommendation of the Commission, and particular attention 
shall be given to the programs which are designed, or could 
be designed to develop information and knowledge about 
employment and training problems through research and 
demonstration projects or to train personnel in fields (such 
as occupation counseling, guidance, and placement) which are 
vital to the success of employment and training programs; 
(7) (A) identify, after consultation with the National 
Council on Vocational Education, the employment and training 
and vocational education needs of the Nation and assess the 
extent to which employment and training, vocational 
education, rehabilitation, and other programs assisted under 
this and related Acts represent a consistent, integrated, 
and coordinated approach to meeting such needs; and 

(B) comment at least once annually, on the reports of the 
National Council on Vocational Education, which comments 
shall be included in one of the reports submitted by the 
National Commission pursuant to [JTPA] and in one of the 
reports submitted by the National Council for Vocation 
Education pursuant to part D of title IV of the Carl D. 
Perkins Vocational Education Act. 

(8) study and make recommendations on how, through policies 
and actions in the public and private sectors, the Nation 
can attain and maintain full employment, with special 



195 



emphasis on the employment difficulties faced by the 
segments of the labor force that experience differentially 
high rates of unemployment; 

(9) identify and assess the goals and needs of the Nation 
with respect to economic growth and work improvements, 
including conditions of employment, organizational 
effectiveness and efficiency, alternative working 
arrangements, and technological changes; 

(10) evaluate the effectiveness of training provided with 
Federal funds in meeting emerging skill needs; and 

(11) study and make recommendations on the use of advanced 
technology in the management and delivery of services and 
activities conducted under [ JTPA] . 

As you can see the NCEP has been evaluating and analyzing the 
nation's employment and training system since its inception, and 
we have a keen interest in this proposed legislation. 

The Re-Employment Act (REA) takes a number of bold steps 
toward addressing the needs of job seekers in the United States. 
Ultimately, we believe the country needs a universal program of 
labor market services for all workers who face unemployment. 
With that goal in mind, the REA is the foundation, if not the 
conclusion, of necessary efforts to rebuild the employment 
transition programs which have eroded so badly in recent years. 

The REA represents a useful starting point for this 
rebuilding effort primarily because the public-private 
partnerships envisioned by the REA are essential building blocks 
of national re-employment policy. The REA also represents a 
valuable effort to support the public-private efforts which 
currently exist. Such efforts have emerged to address workers' 
needs across many industries and in many states. We support 
federal action to encourage new relationships and innovative 
responses to economic change. 

I would like to highlight the best aspects of this bill and 
suggest directions for additional work, either through amendments 
or through future legislation. 

Progress toward a New Re-Emplovment System 

The experience and research of Commission staff suggest that 
some aspects of the REA speak directly to known, substantial 
deficiencies in current re-employment systems. As well as 
addressing significant problems, the Act reenforces some of the 
best trends in current state practice. 

On a positive note, the Commission would like to highlight 
the following: 

(1) The REA does not force abrupt, dramatic change on any 
states. Many states are currently pursuing one-stop initiatives 
(Title II, S1964 and HR4050; Title III, S1964 and HR4040) . At 
its best, the REA seeks to reenforce positive state-level 
efforts: better coordination of agencies, innovative employment 
assistance programs, on-site transition centers, public-private 
partnerships. Such efforts are currently underway in Wisconsin, 
Washington, Oregon, Michigan, New York, Indiana, Pennsylvania, 
and other states. 



(2) The effort to improve information available to workers, 
employers, and agencies (Title III, S1964 and HR4050; Title IV, 
S1964 and HR4040) is long overdue. The skeptical question, 



196 



"Training for what?", can only be countered with accurate, timely 
information about needed skills and future employment options. 
The REA also brings needed attention to the issue of customer 
awareness of service quality. By proposing clear performance 
measures by which workers and agencies can evaluate programs, the 
REA acknowledges a long-felt need for better information and 
evaluation of performance. 

(3) The "supportive services" (Title I, Sec. 119 (f ) , in 
all four bills) provided for those who receive intensive services 
are not likely to prove expensive given the target population, 
but we believe they are essential to the success of any re- 
employment policy for those individuals who do need such help. 

In the St. Louis Metropolitan Re-Employment Project, support 
services were a valuable component but represented only six 
percent of total program costs. As an indication of the 
importance of support services, the 1993 evaluation of the 
Migrant and Seasonal Farmworker Program specifically recommended 
raising that program's 15 percent cap on support services. 
Within this category, the specific requirement of transportation 
assistance could prove very important in rural areas, as evidence 
by recent research on displaced copper miners in Tennessee. Like 
welfare reform, re-employment policy must acknowledge the various 
social and personal barriers to participation in re-employment 
planning. 

(4) The REA is being unfairly criticized for combining too 
few training programs, partly because of the recent General 
Accounting Office study citing the administrative problems 
associated with 154 training programs. One way to consolidate 
programs deliberately and effectively is according to their 
common missions. Although the REA combines a narrow range of 
programs, the programs which are included represent the core 
policies affecting dislocated workers. 

We share the belief that broader program consolidation and 
greater universal coverage are desirable goals, but the 
Commission believes the REA represents a substantial step in that 
direction and a useable structure for additional consolidation. 
We are not convinced that the REA should be put on hold while the 
issue of further consolidation is studied. Instead, we see the 
consolidation incorporated into the REA as a down-payment on 
future action. In particular, the NCEP believes programs for the 
economically disadvantaged can be integrated into the REA context 
in the future, provided that the gateway to the system accounts 
for the unique needs of those populations. Indeed, preliminary 
finding by Commission staff show that a substantial number of 
low-income workers are likely to eligible for both intensive 
services and for income support during training under the REA. 
It is troublesome that the funding sources are different for 
different categories of workers, based on prior job tenure, for 
the first years of the program. Obviously, regardless of the 
source, it is critical that sufficient funds be available to meet 
demand. But the fact that eligibility is expanded is a positive 
step that must not be lost in the debate. 

(5) The Act includes some noteworthy efforts to give 
workers the maximum opportunity to participate in programs. For 
example, the REA provides for intensive services when a client 
fails to find work using basic services (Title I, Sec. 119 (c)(1) 
in all four bills) . Some will claim this point of entry is too 
vague. The Commission would defend the breadth of that entry 
point as a valid recognition of the uncertainties of the 
reemployment process. When the REA becomes law, the Commission 
will advocate Department of Labor program letters encouraging 
broad use of this point of entry to intensive services. 



197 



One area where workers may be unduly constrained, however, 
is the requirement that they enter training within 16 weeks of 
layoff. This is clearly intended to reduce the likelihood of 
benefit exhaustion and to encourage early enrollment. However, 
the NCEP is concerned that the effort to find work, deal with 
personal disruption, and design a training program may rapidly 
consume the allotted enrollment window. Recent focus groups of 
defense workers which Commission staff attended support this 
concern. 



Positive Steps and Necessary Next Steps 

The REA is the most recent effort in a long history of 
attempts to build rational employment transition systems to 
account for economic change. With that in mind, the Commission 
believes the effort must be seen as part of a continuous process 
of evaluation and improvement. The REA should not be oversold as 
the only necessary response to difficult employment transitions, 
nor should it be seen as too small an effort in the face of huge 
change. It is a badly needed first step and a crucial 
reconsideration of the structures that support workers in 
difficult transitions. 

The following comments on the current bill are offered with 
an eye toward future interventions: 

(1) The division between "basic" and "intensive" services 
confers different levels of benefits to different populations 
depending upon eligibility requirements (Title I, Sec. 103 in all 
four bills; Title II, Sec. 202, S1951 and HR4040) . While it is 
clear that services must be targeted carefully given limited 
resources, the success of the initiative will depend upon fair 
distribution of services and a wide perception that the program 
is universally valuable. Toward that end, the individual 
reemployment plans included under the intensive services (Title 
I, Part A, Sec. 119 (c)(2)(A), S1964 and HR4050) should eventually 
be available on a voluntary basis for all unemployed workers. 

(2) All our research shows that performance standards work. 
Public agencies, measured against reasonable performance 
standards, should be at the core of a new re-employment system. 
Evaluations of the Employment Service (ES) by the Commission and 
the General Accounting Office concur that outcome standards would 
make the ES more effective. 

We would suggest going much further in the area of 
Management Information Systems (MIS) for dislocated worker 
programs. Increasing the consistency and quality of information 
in a system allows for greater decentralization of operational 
authority. This, in turn, allows for greater autonomy within a 
network of providers, while also encouraging greater efficiency 
and consistency of quality. A robust MIS system permits the 
monitoring of performance both throughout the network and at 
individual delivery sites. An effective MIS system also enables 
the benchmarking of performance throughout the system and the 
provision of targeted technical assistance where performance 
appears to be substandard. In addition, an effective MIS 
encourages inventory, analysis and dissemination of model 
practices. Finally, an information system embedded in the 
delivery structure eliminates burdensome reporting requirements 
and after-the-fact evaluations. 

At a minimum, an effective federal management information 
system should include reporting on system-wide program 
treatments. Although the final list of treatment categories is 
subject to further discussion and would obviously be derived from 
a review of all existing federal programs, the following general 
categories of services are offered as a starting point for 
discussion: 



198 



* Outreach — includes outreach to client communities; 

* Employment services — i.e., assessment, counseling, 
job search assistance; 

* Education and classroom training — would include only 
prescribed courses of instruction delivered by 
accredited learning institutions with measurable 
learning outcomes, consistent with work-based skill 
requirements at levels sufficient to increase the 
employability or earnings capability of clients; 

* On-the-job training (OJT) — would include employer- 
provided training in regular jobs through a "hire 
first, train later strategy," with participants who 
successfully complete OJT retained in permanent 
employment; 

* Subsidized employment — unstructured work experience; 

* Job development and job placement - assistance in 
securing a job; 

* Support services — services necessary to access 
employment services, education, training or OJT; and 

* Needs-based payments and financial assistance — income 
support necessary to sustain clients. 

These services and treatment categories could be grouped 
into cost categories that are consistent or compatible across all 
federal employment and training programs. Here, too, a step in 
this direction can be taken now, with further development in the 
future . 



(3) The linkage between unemployment insurance (UI) and re- 
employment programs is crucial. The REA and UI reform are not 
substitutes; they are complements. For example, because the UI 
system excludes many claimants, the impact of UI eligibility as a 
screen for re-employment services poses substantial problems. If 
the UI system is going to be the principle gateway into the re- 
employment system, then UI reform, perhaps even federal 
standards, must be on the agenda. 

Research on the declining percentage of the unemployed 
receiving benefits shows that states vary tremendously in their 
eligibility requirements, causing a notable decline in national 
recipiency rates. Given the disparities in state treatment of UI 
claimants, a federal standard for eligibility may be preferable 
to reliance on state eligibility requirements. By deferring to 
state UI laws, the REA essentially imposes 50 different 
eligibility standards. 

Similarly, the low level and duration of benefits in many 
states may make it a poor income support for training, 
particularly for those who will not be eligible for the 
additional weeks of benefits proposed in the REA. It is time to 
once again examine the case for federal standards for benefit 
levels. 

The issue of Extended Benefit (EB) reform is brought into 
sharp focus by the REA. We are concerned that funding the income 
support provisions of the REA out of the Unemployment Trust Fund 
administrative account will endanger both state administrative 
performance and EB reform, since both are currently paid out of 
this source. The income support provisions of the REA should not 
be seen as a substitute for EB reform; there will still be 
lengthy cyclical unemployment to address along with the 
structural unemployment that is targeted by the REA. 



199 



(4) The Commission is particularly concerned about 
responsibility for initial UI claims (Title I, Sec. 119 (b) (4) in 
all four bills) and the determination of whether an individual 
would have been eligible for UI had he or she applied (Title I, 
Sec. 119 (e)(2)(C) in all four bills). Legal and administrative 
integrity in filing claims and granting UI eligibility needs to 
be considered and the integrity of eligibility determination 
assured prior to expanding UI eligibility determination beyond 
public agencies. 

(5) The NCEP would urge an expansion of the definition of 
services that are permissible as "training" under the income 
support eligibility requirements (Title I, Sec. 119 (e) (2) (D) in 
all four bills). If a client's re-employment plan calls for 
extended job search training or other lengthy interventions other 
than training, the income support should still be available. 
This makes intuitive sense and follows a recommendation made by 
the GAO in evaluating the then-proposed NAFTA re-employment 
assistance program, suggesting that job search assistance be 
included as allowable "training." Income support limited to 
classroom training may undermine the intent of unique, 
individualized re-employment plans. Moreover, rigid training 
requirements may encourage enrollment in inappropriate training 
only in order to access income support. 

Forthcoming Information 

Staff of the Commission are completing research on the 
demographic and financial implications of the proposed 
eligibility requirements for income support during training. We 
will discuss our findings in the final written submission of this 
testimony. 

Conclusion 

The REA is a complex, detailed prescription for revamping 
the system of dislocated worker programs in this country. In 
spite of all the other legislative activity occurring right now, 
we urge these and other committees to take this Act seriously and 
to focus attention on the problems of displaced workers and the 
inadequate programs that serve them. 

As Chair of the National Commission for Employment Policy, I 
wholeheartedly offer the expertise of our staff in service to the 
future of this policy. We look forward to working with all of 
you. 



200 

STATEMENT OF ANDREW N. RICHARDSON, PRESIDENT, 
INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY 
AGENCIES, INC., AND COMMISSIONER, WEST VIRGINIA 
DEPARTMENT OF EMPLOYMENT PROGRAMS 

Mr. Richardson. Thank you, Mr. Chairman. My name is Andy 
Richardson. I am commissioner of employment programs for the 
State of West Virginia. I am also president of the Interstate Con- 
ference of Employment Security Agencies, which is the national or- 
ganization of the State administrators' unemployment insurance, 
the employment service, job training labor market information pro- 
grams. 

We commend Congress and the administration for recognizing 
the importance of the Nation's employment security and training 
programs to our economic future. In general, the State employment 
security agencies embrace the goals and direction of the Reemploy- 
ment Act as substantial progress in support of many of the changes 
that States have already undertaken. 

Still, there are some basic elements in the legislation about 
which we have some serious concerns. But I do want to acknowl- 
edge the efforts of the Department of Labor to reach consensus 
among the various stakeholders' organizations on the various as- 
pects of the legislation. 

As a result of those efforts, I am encouraged. I understand the 
Department of Labor may be willing to address a number of the 
concerns that are highlighted in our statement. 

First of all, in the context of the comprehensive dislocated worker 
assistance program, overall, we support the consolidation of the 
array of specific programs for dislocated workers into a single com- 
prehensive system for all workers who have been permanently laid 
off regardless of the cause of dislocation. 

We do have some concerns specifically. We are concerned about 
reducing the reserve that the Governor has from 40 percent of the 
funding to 30 percent of the funding. We are concerned about cir- 
cumscribing the Governor's overall authority. 

We are also concerned about a more restrictive designation of 
sub-State areas, and we are also concerned about the cost and ad- 
ministrative issues related to the supplemental wage allowances 
for older workers. ICESA urges Congress to ensure that the Gov- 
ernors have both sufficient funds and the flexibility to respond to 
Statewide worker dislocations and reemployment projects. 

Regarding retraining income support, ICESA agrees that the UI 
system can do a better job of identifying unemployment insurance 
beneficiaries who are likely to need retraining or reemployment as- 
sistance. 

However, policymakers should keep in mind that a large segment 
of the unemployed have marketable skills and are unemployed for 
seasonal or cyclical reasons. They need income support merely to 
get them through that cycle. 

The important role of the unemployment insurance in providing 
economic stabilization and alleviating personal hardship during 
economic downturns should not be impaired by new responsibil- 
ities. 

We are afraid that the tenure screen that the bill proposes to de- 
termine eligibility for income support may perpetuate unequal 



201 

treatment of unemployed workers which consolidation of programs 
is intended to eliminate. 

We are concerned that an increased participation in training by 
unemployed insurance beneficiaries along with the prospect of ad- 
ditional income support payments may result in a longer average 
duration of unemployment claims and a higher rate of benefit ex- 
haustions, thus increasing the outlay from State unemployment 
trust funds. 

We are particularly concerned about redirecting a portion of the 
Federal Unemployment Tax Act revenues from the Employment 
Security Administration account in the unemployment trust fund 
to the new reemployment income support account. We believe that 
this could reduce the funds that are available for both the extended 
unemployment compensation account each year, and ultimately 
that there might be a shortfall in the Employment Security Admin- 
istration account unless there is an increase in taxes. 

Regarding the one-stop career system, we like the idea of build- 
ing on existing success. We would advocate emphasizing collabora- 
tion. States should have the flexibility to propose a governance 
structure that will achieve the articulated goals of the legislation. 

We disagree strongly in section 313 with the requirement to have 
at least two career centers in each local labor market area. This 
is inefficient. These decisions should continue to be made at the 
State level based on need and resources available. 

We also have a major concern about the multiple independent op- 
erator or competitive process. We think this focus on competition 
has no place in this particular concept. Instead, we should focus on 
informed customer choice among services available, and that the 
legislation should emphasize expanding consortia and collaboration 
and creating a no-wrong-door environment. 

We do endorse provisions authorizing the waiver of Federal stat- 
utory and regulatory items that are barriers to program and serv- 
ice integration, and the provisions allowing States to pool adminis- 
trative funds. We are encouraged that Congress is going to address 
needed improvements in the existing labor market information pro- 
gram. 

We do believe greater emphasis should be placed on the State 
and local data and analysis, and we would ask that you ensure 
that this legislation not add to existing unfunded Federal mandates 
to produce State and local data for Federal programs such as 
NAFTA, the rural loan grants and others. 

In conclusion, obviously there remains some significant issues 
that must be resolved. However, in the spirit of cooperation and 
consultation that has marked these important deliberations, 
ICESA's members are prepared to continue to work with the ad- 
ministration and the Congress in moving our shared goals closer to 
achievement. 

We are encouraged by the consultative process undertaken by 
the Department of Labor with the various stakeholder organiza- 
tions. We look forward to continuing discussions with Congress and 
the administration. 

Chairman Ford. Thank you very much, Mr. Richardson. 

[The prepared statement follows:J 



202 



STATEMENT BY ANDREW N. RICHARDSON 

PRESIDENT 

INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY AGENCIES 

AND 

COMMISSIONER 

WEST VIRGINIA DEPARTMENT OF EMPLOYMENT PROGRAMS 

TO THE 

SUBCOMMITTEE ON HUMAN RESOURCES 

AND THE 

SUBCOMMITTEE ON TRADE 

COMMITTEE ON WAYS AND MEANS 

ON 
THE REEMPLOYMENT ACT OF 1994 

JULY 12, 1994 



Mr. Chairman, members of the Committee, my name is Andrew Richardson. I am 
Commissioner of the West Virginia Bureau of Employment Programs, and I am here 
today representing the Interstate Conference of Employment Security Agencies 
(ICESA). ICESA is the national organization of state officials who administer the 
nation's public employment service, job training programs, unemployment insurance 
laws, and labor market information programs. 

On behalf of my colleagues across the country, I want to take this opportunity to 
commend Congress and the Administration for recognizing the importance of the 
nation's employment security and training programs to our economic future. We 
employment security administrators believe that these programs, which have 
evolved over the past six decades, must continue to change in order to respond 
effectively to the demands of today's global economy, dynamic workforce, and 
structural unemployment. 

In recent years, many states have moved to redesign their own unemployment, 
employment, and training systems to respond to local labor market conditions, to 
integrate services, to become more customer focused, and to build collaborations 
among human service providers. These changes have been designed to simplify 
access to employment and training opportunities for both the job-ready and those 
workers in need of skill development. 

The Administration has proposed the Reemployment Act of 1994 to address the 
Administration's view of the following three problems in the current "unemployment 
system." Witnesses were asked whether they agree with the Administration's 
critique of the unemployment system. In large measure, we do, as you will see from 
our comments below. 

In the Administration's view, the unemployment insurance system 
functions on an erroneous assumption that unemployed workers will 
get their old jobs back. 

The unemployment insurance system provides benefits to workers who are 
unemployed for seasonal and cyclical reasons as well as those that are 
unemployed due to structural changes in the economy. The Administration 
finds that about 2 million workers per year are permanently displaced due to 
plant closures, production cut-backs and layoffs. In recent years, the 
unemployment insurance system has paid benefits to 8-10 million 
unemployed workers annually. Therefore, the 2 million unemployed workers 
targeted by this bill are likely to comprise about 20-25% of the workers that 
are served by the unemployment insurance system nationwide. Of course, in 
areas that have experienced significant economic dislocations, this 
percentage will be much higher. 



203 



We agree with the Administration that the unemployment insurance system 
can do a better job of identifying Ul beneficiaries who are likely to need 
retraining or reemployment assistance and linking them with those services; 
however, policy makers should keep in mind that a large segment of 
unemployed workers are, in fact, on temporary layoffs and will return to their 
old jobs. Others have marketable skills and are unemployed for cyclical 
reasons; they need income support until the economy picks up rather than 
retraining. 

The important role of unemployment insurance in providing economic 
stabilization and alleviating personal hardship during economic downturns 
should not be impaired by new responsibilities for worker adjustment to 
structural changes in the economy. 

The Reemployment Act is based on the assumption that job search 
assistance, long term training, and useful labor market information are 
not available to all who need them. 

Research in New Jersey indicates that job search assistance is the most cost 
effective help that can be provided to dislocated workers. However, 
resources for the nationwide network of state employment/job service offices 
has been reduced dramatically since 1982. Before that time, the employment 
service provided assessment and counseling services to workers with 
difficulty in finding work. Budget cuts have forced states to drop most 
assessment and counseling services and to focus on matching job listings 
with qualified applicants and making job information available to job seekers 
on a self-service basis through automated systems. 

The extent to which long term training is needed by dislocated workers is not 
clear. Dislocated workers are a heterogeneous population. Some highly 
skilled workers (e.g., engineers) may be displaced due to structural changes 
in the economy; however, they are better served by good labor market 
information and job search assistance than by retraining. Others with less 
education may need long term training in order to return to the workforce. 

An improved system of labor market information is needed for many reasons, 
including assistance to job seekers. 

The legislation also assumes that delivery of workforce services to 
unemployed workers is fragmented and difficult to access. 

While the delivery of workforce development services has been fragmented, it 
is becoming less so every day. Over the last few years, many states have 
redesigned their service delivery systems and moved in the direction of either 
co-locating their employment, training and unemployment services under one 
roof or building electronic gateway connections among service providers. 
These offices or "integrated systems" are intended to be more user-friendly 
and easier to access for the individual. 

In some states, staff have been cross-trained so that they can provide 
customers with both unemployment insurance and employment service 
information, eliminating the need for the individual to see more than one 
person for basic re-employment services. In other states, various related 
agencies such as local and state social service agencies and vocational 
rehabilitation agencies co-locate in the same office or building, thus making it 
easier for the customers to obtain the services they need to return to the 
workforce. Some states are developing common intake procedures for 
employment and training programs. 



204 



Although great strides have been made in recent years to consolidate access 
to services and make those services more "customer-friendly," much work 
remains to be done at both the state and national level to make our 
employment/unemployment and training programs a true system. 

Witnesses were also asked whether the Reemployment Act is the right response to 
the problems identified and whether other issues or opinions should be considered. 
In general, state employment security agencies embrace the goals and direction of 
the Reemployment Act as substantial progress in support of many of the changes 
that states have undertaken already. Furthermore, the proposed Act includes many 
goals and specific provisions that closely mirror key sections of ICESA's Workforce 
Development Policy, adopted in 1993 by all 50 states, the District of Columbia, 
Puerto Rico and the Virgin Islands. Briefly, the goals we wholeheartedly share with 
the Administration include: 

--Consolidating all dislocated worker programs into one comprehensive program for 
all workers who have been permanently laid-off, regardless of the cause of 
dislocation; 

-Facilitating effective, high-quality training for permanently laid-off workers who 
need new skills; 

--Providing universal access to customer-centered, high quality employment and 
training services; 

-Changing the fragmented employment and training system into a network of 
streamlined, one-stop career centers providing access to all Americans who want 
jobs; 

-Building on the innovative efforts of states and localities to provide comprehensive, 
high-quality reemployment and training services; and, 

-Creating a national labor market information system that provides high quality and 
timely data on the local economy, labor market, and other occupational information. 

The provisions of the Reemployment Act and Retraining Income Support Act that 
are consistent with ICESA's Workforce Development Policy and begin to move us 
toward the above articulated goals are: 

• Creation of a national labor market information system that will ensure accurate, 
timely, and widely accessible information on national, state, and local labor market 
conditions and trends; 

• Resource incentives for states that want to establish a one-stop career center 
system with universal access to a core set of services and more intensive services 
for eligible dislocated workers; 

• Creation of a universal worker readjustment response that stresses early 
recognition and action and permits adequate income support for workers in training; 

• A commitment to uniform national measures of progress and performance, to be 
developed with state input, and to emphasize customer satisfaction; and, 

• Waiver authority to address federal statutory, regulatory, and administrative 
requirements that inhibit service integration and quality customer service. 

In addition, ICESA strongly supports the commitment to capacity building and 
technical assistance to enhance the service providers' and program administrators' 
ability to develop and implement effective employment and training programs. We 



205 



also see this proposed legislation as an opportunity to reaffirm our shared 
commitment to the principles of equal opportunity in service to our nation's diverse 
workforce. 

Still, there are basic elements in the proposed legislation about which we have 
serious concerns and which we believe could impair the states' ability to achieve the 
articulated, shared goals In recent months, the Department of Labor has held 
discussions with ICESA and other "stakeholders" about possible modifications to the 
legislation that could ameliorate many of our concerns. We commend the 
Administration for this effort; however, our comments below are based on the 
legislation as it is currently drafted. 

Comprehensive Dislocated Worker Assistance 

Overall, we support consolidation of the array of specific programs for dislocated 
workers into a single comprehensive program for all workers who have been 
permanently laid off, regardless of the cause of dislocation. 

At the state level, governors must be able to provide a comprehensive response to 
statewide dislocations. We are concerned that under Title I, Section 101, the 
amount of funds reserved for the governors to use for state level activity is reduced 
from the current 40% to 30%, and that the governors' authority is circumscribed. 
Currently, states use these reserve funds to support a wide range of activities 
including rapid response and reemployment project grants to respond to plant 
closings and large layoffs that cut across several service delivery areas. ICESA 
urges the Congress to ensure governors have both sufficient funds and the flexibility 
to respond to statewide worker dislocations and reemployment projects. 

Section 117 of the legislation provides for the designation of substate areas for the 
delivery of program services under the Title. The section prescribes that except in 
very limited circumstances, the substate areas designated by the governor under the 
Act may not have a population of less than 200,000, although no justification has 
been provided for this number. This rule would virtually eliminate many already- 
recognized entities that currently operate very effectively in rural counties in 
numerous states. ICESA strongly urges that this section be amended to give the 
governor the ability to designate smaller jurisdictions in order to meet the needs of 
the particular state. 

We applaud the intent of the legislation to provide a comprehensive array of 
reemployment services to unemployed workers who have no hope of returning to 
their old jobs. Research, such as the New Jersey Unemployment Insurance 
Reemployment Project, has shown that job search assistance is the most cost- 
effective way to help most dislocated workers return to the workforce. 

The New Jersey study found that intensive job search assistance offered early in the 
spell of unemployment hastened reemployment for many Ul beneficiaries who had 
characteristics associated with long-term unemployment. These services included 
assessment, counseling, and access to job search materials and resources. Those 
receiving intensive job search assistance were reemployed more quickly, with no 
sacrifice in wages, than those who were not offered these services. 

The supplemental wage allowances for older workers (Section 119 (g)) permits 
payment of wage supplements to eligible individuals who are age 55 or older and 
who accept full-time employment at less than their "preceding wage." In order for 
this subsection to be administered, the weekly wage in preceding employment must 
be defined. The simplest definition to administer would be the individual's average 
weekly wage in the base period used to determine his unemployment compensation 
claim 



206 



The state unemployment compensation agency would administer the supplemental 
wage allowance for older workers on a cost-reimbursable basis. As we understand 
the bill, the cost of wage supplements as well as the cost of administration of this 
initiative would be reimbursable. This initiative would be complicated and labor 
intensive, making it quite costly to administer. 



Retraining Income Support 

For those workers for whom retraining is necessary, we believe that the emphasis 
should be on training for specific occupations or skills for which there are job 
openings in the community. In many instances, this training will be long-term, and 
many of these workers will need income support while participating. State 
unemployment benefits will be payable to these individuals for up to 26 weeks in 
most states; after which up to 26 weeks of retraining income support may be paid 
under Title I and up to 52 weeks under Title II. An increase in participation in 
training by unemployment insurance beneficiaries, along with the prospect for 
additional income support payments, are expected to result in a longer average 
duration of unemployment claims, a higher rate of benefit exhaustion, and increased 
outlays from state unemployment trust funds. However, no analysis of the 
magnitude of this impact on state unemployment trust funds and state 
unemployment taxes has been provided by the Department of Labor. 

Another concern is that the application of a tenure screen to determine eligibility for 
income support may perpetuate unequal treatment of unemployed workers that 
consolidation of dislocated worker assistance programs is intended to correct. For 
example, an individual who found a new job after lay-off from an employer for whom 
he had worked for many years, only to be laid off again after a short time, would not 
be eligible for income support payments. Meanwhile, his colleague who had no 
short-term employment after lay-off would be potentially eligible. The bill attempts to 
address many of these potential inequities by defining continuous employment to 
include periods of temporary layoff, disability, service in the military, etc. The result 
is that making a determination that an individual has or has not been "continuously 
employed" for a particular employer for one year (under Title I) or three years (under 
Title II) will be next to impossible to make with certainty and is likely to result in 
litigation initiated by those who believe they have been treated unfairly. 

Retraining income support payments under Title II would be funded by re-directing a 
portion of FUTA revenues from the Employment Security Administration Account 
(ESAA) in the Unemployment Trust Fund to a new Reemployment Income Support 
Account (RISA). The amount transferred each year from ESAA to RISA is set in the 
proposed legislation from 1996 through 2000. Beginning in 2001, 20% of FUTA 
revenues-currently about $1.11 billion-each year would go to RISA. 

The immediate impact of this diversion of funds to RISA would be a reduction in 
excess ESAA funds that are transferred to the Extended Unemployment 
Compensation Account each year, and ultimately there would be a shortfall in the 
Employment Security Administration Account unless taxes are increased. 

To illustrate: in FY 1995 total FUTA revenues are estimated at $5.57 billion. Twenty 
percent of that amount-$1.11 billion— is automatically transferred to the Extended 
Unemployment Compensation Account. If an additional twenty percent-$1.11 
billion-were transferred to RISA, only $3.35 billion would be left in ESAA while 
administrative costs for FY 1995 are estimated to be $3.83 billion. The carryover 
from prior years in ESAA would make up the difference for some years-how long 
depends on the economy-however, eventually, spending more each year from 
ESAA than comes in will result in a shortfall. 



207 



The level of demand for retraining income support payments is not known. The 
funds available to RISA for those payments would provide income support to 
relatively few of those potentially eligible. If the number of individuals seeking 
income support exceeds the funds available, we risk raising expectations that will 
not be met. 

There are a number of administrative issues related to retraining income support 
payments to which we would like to call your attention. They include defining 
responsibility for monitoring participation and satisfactory progress in training 
programs which is a requirement for eligibility for income support payments and 
liability for overpayments and fraud. 

There is also concern about the adequacy of resources for administering the income 
support payments under both Titles I and II, and development of the administrative 
capacity to withhold federal income taxes which will require major and costly 
modifications to automated systems. 



One Stop Career Center System 

Many states have made significant strides in implementing a statewide delivery 
system for employment and training services that is part of an overall national 
employment security system. ICESA has serious concerns with Title III, Section 
312's proposed divestiture of the strategic planning, program and budget authority to 
local workforce investment boards. We believe that implementation of the legislation 
as crafted could result in fragmented and multiple, rather than coordinated service 
delivery systems. The governance structure proposed for the one stop career 
center system precludes a governor's authority to develop and implement a 
statewide system. 

ICESA believes local workforce investment boards can be vital to effective 
evaluation of local labor markets and effective planning and coordination. However, 
the role and authority of such boards should be developed within each state by the 
governor and local elected officials. The Administration and the Congress should 
give the states flexibility to propose a governance structure that will achieve the 
articulated goals of the legislation. 

The requirement that local workforce investment boards review and approve the 
budgets of all participating programs is inappropriate and unworkable. 
Unemployment insurance budgets are developed on a state-wide basis and 
resources are deployed to a great extent based on the level of unemployment in 
local areas. In addition, Ul services may be offered at locations in addition to the 
one-stop centers. 

We commend the Administration for including in the bill a consortium model for one 
stop career centers as outlined in Section 313 of the bill, but disagree strongly with 
the requirement to have at least two career centers in each local labor market. In 
many labor markets, this would be impractical and unnecessary, imposing 
duplicative administrative costs. States now have the ability to make decisions on 
where to establish offices based on the need for services, regardless of where the 
local labor market area begins or ends. In some cases, there may be a need to 
establish a temporary office during busy hiring seasons or it may be determined that 
additional access points are necessary in certain urban or rural areas of a state. 
These decisions should continue to be made at the state level, based on need and 
resources available. 

ICESA has major concerns about the bill's inclusion of a "multiple independent 
operator" option or competitive process to select service deliverers. That process 
focuses on competition among program administrators instead of informed customer 



208 



choice among services available. As just described, states have been moving to 
build partnerships and collaborations among service providers. New legislation 
should focus on expanding such collaborations or consortia to ensure a "no wrong 
door" environment for customers. We feel that the emphasis on competition in the 
legislation will undermine many of the collaborative efforts that have been 
established in states. 

We are especially concerned about the potential for breaking the long-standing 
linkage between the state unemployment insurance programs and the employment 
service. The UI-ES connection is very strong; many states have not only collocated 
these services but have integrated the programs substantially. The legislation 
requires that where states opt for one-stop centers, ES services can be provided 
only in the one-stop center. If the employment se r vice is not the operator of the 
one-stop center, ES resources will be withdrawn from joint UI-ES facilities, creating 
serious problems for states that have enormous investments in infrastructures, (i.e., 
buildings, communications networks and equipment) that support a co-located, 
integrated UI-ES state-wide system. The result would be closing local offices in 
these areas and reducing Ul services available. 

The bill requires that assistance in filing unemployment insurance claims be 
provided in one-stop centers. It is not clear what that assistance would entail and 
whether it would be provided by staff other than employees of the state 
unemployment compensation agency. Before turning over any aspect of 
administration of the state unemployment compensation law to another entity, the 
risks and liabilities incurred by both the state and the one-stop operator must be 
considered very carefully. 

Title III does contain several provisions that are critical to states' ability to provide 
high quality, integrated service to our employment and training customers. ICESA 
strongly endorses the provisions authorizing waiver of federal statutory and 
regulatory requirements that are barriers to program and service integration. For 
example, OMB Circular A-102 and the resultant Labor Department General 
Administrative Letter on real property present significant barriers to the co-location of 
employment and training programs. ICESA has sought relief from these rules for 
several years, without success. We do believe that Title Ill's waiver authority should 
not be limited to Department of Labor programs. 

We also support the provisions allowing states to pool administrative funds to 
support one stop career center activities. The separate funding streams for an array 
of workforce development programs continue to create barriers to effective, cost 
efficient administration of integrated service delivery. 

National Labor Market Information System 

While we are particularly pleased to see the emphasis in Title I and in Title IV on 
developing and maintaining a comprehensive state and local labor market 
information system which will assist both jobseekers and employers in making 
informed decisions, we encourage the Congress to address needed improvements 
in the nation's existing labor market information program. The state employment 
security agencies across the nation produce, broker, analyze, develop, and 
disseminate state and local labor market information. Currently, 23 federal statutes 
require labor market information at the state and local level, yet funding to support 
these mandates is virtually nonexistent. Section 113 should identify the entity 
responsible for management and implementation of the labor market information 
program, as well as clarify the roles of the state agency responsible for the Bureau 
of Labor Statistics federal/state cooperative programs and the state occupational 
information coordinating committee. We also recommend deleting the reference to 
"the state share" of funding in Section 113(e)(3) related to matching cooperative 
agreements authorized in Section 402. Section 402 requirements are federal 



209 



mandates and should be funded by federal appropriations. Suggested language 
modifications to the labor market information sections of this proposed legislation -- 
too lengthy to be included in this statement-will be provided to subcommittee staff. 

Again, we are delighted that this proposed legislation recognizes the priority we 
must place on a strong national labor market information program. However, Title 
IV should be modified to ensure correction of one of the major shortcomings of the 
existing labor market information program - lack of state and local data and 
analysis. We also ask you to ensure that this legislation does not add to the 
unfunded federal mandates to produce state/local data for federal programs in 
current legislation, i.e., NAFTA, OFCCP Affirmative Action Data, Rural Loan Grants, 
as examples. Specific language should be included to ensure funding for the items 
listed as product components in Section 403. Among the language modifications 
suggested for Title IV: 

■ reference to building a program for a nationwide system of state and local labor 
market information; 

■ inclusion of employers as an important customer for labor market information in 
section 401 (2); 

■designation of the governors as a key consultant as the Department of Labor 
designs and implements the labor market information program; 

■ reference to the Bureau of Labor Statistics and the National Occupational 
Information Coordinating Committee as key supporters of labor market information. 

As this bill is considered, we also look forward to the review of the nation's labor 
market information system being conducted by the Department of Labor as 
requested in the FY 1994 appropriations report language. The preliminary 
recommendations submitted to the Department of Labor from the states are 
supporting evidence for this investment in the labor market information program. 

Conclusion 

Obviously there remain some significant issues that must be resolved. However, in 
the spirit of cooperation and consultation that has marked these important 
deliberations, ICESA's members are prepared to continue to work with the 
Administration and the Congress in moving our shared goals closer to achievement. 
In particular, we are encouraged by the consultative process that the department 
has undertaken recently with the various "stakeholders" organizations. We look 
forward to continuing discussions with Congress and the Administration. 



210 

Chairman Ford. And let me thank all of the panelists who testi- 
fied prior to you. I am going to relieve you and the others so you 
won't have to wait. 

And at the same time, I am going to call down the other three 
witnesses. I have to go to the House floor. I have about 3 minutes 
before I vote, but I will have everybody in place. I am going to call 
down at this time Rudolph Oswald, with the American Federation 
of Labor and Congress of Industrial Organizations, along with 
Charles Loveless, of the American Federation of State, County and 
Municipal Employees. Also, Peggy Connerton, the Service Employ- 
ees International Union of the AFL-CIO. I am going to recess the 
subcommittee for about 6 minutes. When I come back, we will start 
back. 

[Vote recess from 4:34 p.m. to 4:44 p.m.] 

Chairman Ford. Mr. Jayne, you will be substituting for Mr. 
Loveless; is that correct? 

Mr. Jayne. Yes, that is right. 

Chairman Ford. We are going to proceed. I am awfully sorry. 
There are votes every so often on the House floor and we have to 
break and go to and from the floor to vote. 

I want to thank you all very much for your patience. We have 
been going since about 1 o'clock. This is a long afternoon session, 
and I do appreciate all of you putting up with us today. 

STATEMENT OF JAMES C. CABRERA, COCHAIRMAN, REGU- 
LATORY AFFAIRS COMMITTEE, ASSOCIATION OF 
OUTPLACEMENT CONSULTING FIRMS INTERNATIONAL, AND 
VICE CHAIRMAN, DRAKE BEAM MORIN, INC., ACCOMPANffiD 
BY FRANK LOUCHHEIM, FOUNDING CHAIRMAN, RIGHT 
ASSOCIATES, PHILADELPHIA, PA. 

Mr. Cabrera. Mr. Chairman and members of the subcommittee, 
my name is Jim Cabrera, and I am vice chairman of Drake Beam 
Morin. I am here today with Frank Louchheim, who is founding 
chairman of Right Associates. Right Associates and DBM are the 
largest outplacement service providers, with 172 offices in the 
United States and 113 overseas. 

We have provided outplacement assistance to companies in each 
of your congressional districts. We appreciate the opportunity to be 
here on behalf of the Association of Outplacement Consulting 
Firms International. 

Members of AOCFI provide an estimated 70 percent of private 
outplacement or reemployment services in the United States. The 
industry assists over 1 million Americans each year in transition 
from one job to another, funded by employers with no government 
subsidies. The industry also helps employers plan for and carry out 
workforce reductions, including helping employers identify alter- 
native employment for the workers within their company, thereby 
serving certain employee jobs. 

Employers spent more than $700 million for private reemploy- 
ment services in 1993 without government subsidies, servicing over 
1 million people from the executive suite to the shop floor. 

The Federal Government spent almost the same amount, $650 
million, for job search assistance, retraining, and other services, 



211 

but had only 350,000 individuals registered for help with their job 
seekers. 

The administration has initiated a dramatic expansion of 
government-funded reemployment and training assistance to dis- 
located workers. A large part of this budget could result in the re- 
placement of private funding of reemployment services with public 
funds, creating two serious problems. 

First, there could be no net increase in the number of displaced 
workers served if only the funding source changes from downsizing 
companies to taxpayers. Second, competition, which provides choice 
and improves quality, will be diminished as private outplacement 
firms are forced out of business. 

AOCFI believes that encouraging public/private partnerships is 
essential to maximizing the return on the government's investment 
in dislocated worker programs. AOCFI recommends that the Ways 
and Means Committee require the Labor Department and States to 
match employer expenditures for dislocated workers, rather than 
replace them. 

The Reemployment Act of 1994 recognizes the importance of 
using public funds to leverage the continuation of employer-funded 
private reemployment services. Section 115 of the act authorizes 
Governors to establish onsite reemployment assistance centers 
using Federal and State funds matched with substantial private 
funds. 

AOCFI supports this approach, but believes that clarifications in 
the legislation are needed to ensure employers have sufficient in- 
centives to participate and that the act does not create unnecessary 
obstacles to their involvement. 

We would like to recommend the following: One, the act should 
be amended to clarify that the private sector outplacement industry 
may provide job search assistance under the transitional trade ad- 
justment assistance program. 

Two, the Labor Department should be required to clarify that 
employer-funded job search assistance is to be treated as "similar 
services," thus satisfying the requirement of a claimant's participa- 
tion in reemployment services in order to receive unemployment in- 
surance compensation. 

Three, the act should make clear that initiatives to set up an on- 
site career center can and should come from an employer as well 
as the Governor's office. An employer or other eligible entity should 
clearly have the opportunity to apply for matching funds if it is 
willing to make a contribution substantially equal to the ultimate 
grant. In addition, there should be a requirement for prompt re- 
sponse to such applications. 

Four, the act should be modified to permit Governors to match 
any private reemployment efforts of a certain size. As drafted, the 
act would authorize matching only in geographic areas with sub- 
stantial increases in dislocated workers. Any employer willing to 
contribute its own resources should be able to apply for matching 
funds. 

Five, in cases where an employer contributes the required match- 
ing amount, the employer should have the authority to choose, in 
consultation with employees and their representatives, the firm or 
agency that will provide the reemployment service. A major incen- 



212 

tive for the employer to participate in a matching program is the 
prospect of being able to assure the quality of services received by 
departing employees. To do this, an employer must be able to hire 
and fire the service provider. 

Six, the act should be clarified to require employers or other pri- 
vate entities to provide matching funds for only those reemploy- 
ment services traditionally provided to relocating workers. 

Seven, private providers of reemployment services should be eli- 
gible to receive notice of planned downsizings, plant closures, et 
cetera, under the WARN Act. 

And last, the act should require the Labor Department to report 
to Congress on its activities to encourage private sector involve- 
ment in the provision of dislocated worker assistance. In U.S. con- 
gressional testimony, Department of Labor officials have affirmed 
that the key to success of any and all worker reemployment pro- 
grams is that they must be market driven. This implies the cus- 
tomer, the ultimate end user and beneficiary of the service, must 
have the freedom to choose the service that is best for them, and 
is an additional reason why the concept of public/private coopera- 
tion is so critical to the success of what the administration is trying 
to do. 

I thank you for this opportunity to testify. Frank and I will be 
more than glad to answer any questions you may have. 

Chairman Ford. Thank you very much. 

[The prepared statement follows:] 



213 



STATEMENT OF THE 
ASSOCIATION OF OUTPLACEMENT CONSULTING FIRMS INTERNATIONAL 

Summary 

Members of the Association of Outplacement Consulting Firms International 
(AOCFI) provide an estimated 70 percent of private outplacement (reemployment) services 
in the United States. The industry assists over 1 million Americans each year transition 
from one job to another, funded by employers without government subsidies. The industry 
also helps employers plan for and carry out workforce reductions, including helping 
employers identify alternative employment for the workers within the company. Employers 
spent more than $700 million for private reemployment services in 1993. 

The Administration has initiated a dramatic expansion of government-funded 
reemployment and training assistance to dislocated workers. The Administration has 
requested $1.5 billion for FY 1995, almost three times the FY 1993 appropriation and a 36 
percent increase over the FY 1994 appropriation. These government programs are intended 
to provide many of the same services as are provided by the private outplacement industry. 



These large budget increases could result in the replacement of private funding of 
reemployment services with public funds, creating two serious problems. First, there could 
be no net increase in the number of displaced workers served if only the funding source 
changes from downsizing companies to taxpayers. Second, competition, which provides 
choice and improves quality, will be diminished as private outplacement firms are forced out 
of business. AOCFI believes that encouraging public-private partnerships is essential to 
maximizing the return on the government's investment in dislocated worker programs. 
AOCFI recommends that the Ways and Means Committee require the Labor Department 
and states to match employers' expenditures for dislocated workers rather than replace 
them. 

The Private Outplacement Industry 

Private outplacement firms are retained by downsizing companies to help laid-off 
workers transition to new employment and to assist the companies with the workforce 
reduction process. The industry serves about 1 million dislocated American workers each 
year. AOCFI members provide an estimated 70 percent of total private reemployment 
services in the United States. Employer expenditures for these services exceeded $700 
million in 1993. The industry, which had its origins in the early 1960's, experienced 
substantial growth in the 1980's as companies increasingly reorganized, repositioned and 
relocated in response to technology changes, import competition, deregulation, and financial 
and other pressures. Most private outplacement firms have been providing services for 
more than ten years and all of the major firms have fifteen or more years experience. 

Outplacement services generally consist of two components: 

Consulting to Employers Contemplating Workforce Reductions 

Outplacement firms help employers address issues with respect to workforce 
reductions. Outplacement firms help employers achieve consistency and fairness in 
the application of severance policies and practices. They apprise employers of 
applicable federal and state laws and the duties imposed on an employer. In some 
cases, outplacement firms help employers identify alternative employment within the 
company for workers and thus reduce the number of dislocated workers. 

Counseling for Employees Whose Employment is Terminated 

Reemployment services help employees plan and execute job searches to obtain new 
employment at the earliest possible date. Services are purchased by employers and 
are provided to all levels of employees, from blue collar and clerical workers to 
executives. The services are designed to fit the needs of the individual being 
outplaced and routinely begin the moment the employee is notified of termination. 



214 



The design of an outplacement program for employees whose employment is to be 
terminated is governed by the particular characteristics of the affected individuals. Factors 
that are taken into account include an individual's job history and compensation, the trade 
or business engaged in, the current demand for that specific trade or business in the 
marketplace, as well as many subjective factors such as the individual's personal goals, age 
and willingness to relocate. 

Services typically include assessment, development of career objectives, development 
of job search strategy, identification of job opportunities, assistance in preparing job 
applications and resumes, training in interview and communication techniques and referral 
to training and retraining where appropriate. 

Concerns about Federal Dislocated Worker Programs 

The Administration has undertaken a dramatic expansion of government-funded 
employment and training assistance to dislocated workers. In its FY 1994 budget request, 
the Administration asked for $1.9 billion to fund dislocated worker programs, a $1.3 billion 
increase over FY 1993. Congress agreed to a $550 million increase for these programs ~ 
almost doubling FY 1993 funding. The FY 1995 request is for $1.5 billion and the 
Administration plans to seek further increases to an annual funding level of $3.5 billion over 
five years. Under the Reemployment Act of 1994, the Administration has also proposed to 
broaden eligibility for dislocated worker services and reorganize the delivery of services. 

Federally funded worker adjustment programs provide reemployment services to 
employees without cost to their employers, in effect providing a government subsidy to 
companies seeking to restructure for businesses purposes. Although federal programs, such 
as the Trade Adjustment Assistance Program (TAA) and the Economic Dislocation and 
Worker Adjustment and Assistance Act (EDWAA), provide training and other services not 
provided by outplacement firms, there is substantial overlap between the two sectors. 

Many employers currently pay for reemployment services to help employees affected 
by major layoffs and plant closings find new jobs. In fact, private expenditures for job 
transition assistance in 1993 exceeded the federal budget for such purposes. A study by the 
American Management Association found that 46 percent of its members responding to the 
survey had downsized between June 1992 and June 1993 and that more than half of these 
companies provided outplacement assistance to all affected workers. Seventy-eight percent 
of these downsizing employers provided outplacement to at least some employees compared 
to just over 50 percent four years ago. The exponential growth and broadening of the 
federal programs threatens to significantly reduce employers' incentives to buy services for 
their departing employees. Increasingly, companies, regardless of their financial condition, 
are turning to government agencies to provide reemployment services. 

There are two significant issues involved. First, it is not an effective use of 
government resources to replace private spending on reemployment services with public 
spending. Second, the public loses the benefit of the professional services that the private 
outplacement industry has been providing for 30 years and the choice and quality generated 
by a competitive market. 

Although private entities are technically eligible to receive contracts to provide 
services under EDWAA programs, in practice public displaced worker funds rarely find their 
way to private outplacement firms. The state and local bureaucracies that administer these 
funds often have established working relationships with community colleges and other 
publicly funded entities that offer training and outplacement services. Another concern is 
that the tax-exempt status of community colleges and other organizations often allows these 
organizations to underbid even the highly competitive private firms. 

If federal programs supplant private services, the private outplacement infrastructure 
will be undermined and firms that now serve companies and their employees will go out of 
business. This will create a ripple effect as more and more companies and dislocated 
workers become dependent on publicly funded programs, increasing federal spending and 
the burden on taxpayers. 



215 



The Labor Department has estimated that approximately 2.2 million dislocated 
workers per year need help transitioning to new jobs. This estimate does not include the 
1 million dislocated workers currently served by the private system, many of whom find jobs 
before their severance payments expire. If federal funds supplant private outplacement 
efforts, the number of workers in need of publicly funded assistance would increase by 5Q 
percent . 

Recommendations 

Workers affected by plant closings and mass layoffs will be served better and more 
efficiently if the private and public sectors work together and do not duplicate efforts. In 
view of the predicted restructuring of the American economy in the 1990s, there are likely 
to be far more dislocated workers than even the most generously funded state and federal 
programs will be able to serve. Government should seek to maximize the use of private 
reemployment services so that government funds are used most effectively, Lfi,, where 
private industry does not fully meet the need. 

We recommend that the Committee require the Department of Labor and states to 
avoid whenever possible displacing the voluntary provision of private reemployment services 
by employers. The Labor Department and the states should be required to partner with the 
private sector by offering to match downsizing companies' outplacement expenditures with 
public funds and report to the Congress regarding these activities. 

The Reemployment Act recognizes the importance using public funds to leverage the 
continuation of employer-funded private reemployment services. Section 115 of the Act 
authorizes Governors to establish on-site reemployment assistance centers using federal or 
state funds matched with substantial private funds. AOCFI supports this approach, but 
believes that clarifications in the legislation are needed to ensure that employers have 
sufficient incentives to participate and that the Act does not create unnecessary obstacles 
to their involvement. 

The Act should be amended to clarify that the private sector outplacement 
industry may provide job search assistance under the transitional TAA 
program. 

The Labor Department should be required to clarify that employer-funded job 
search assistance is to be treated as "similar services" thus satisfying the 
requirement of a claimant's participation in reemployment services in order 
to receive unemployment insurance compensation. 

The Act should make clear that the initiative to set up an on-site career 
center can and should come from an employer as well as the Governor's 
office. An employer (or other eligible entity) should clearly have the 
opportunity to apply for matching funds if it is willing to make a contribution 
substantially equal to the ultimate grant. In addition, there should be a 
requirement for prompt response to such applications. 

• The Act should be modified to permit Governors to match any private 

reemployment efforts of a certain size (e. g. . downsizings involving 50 or more 
employees). As drafted, the Act would authorize matching only in geographic 
areas with a substantial increase in dislocated workers. Any employer willing 
to contribute its own resources should be able to apply for matching funds. 

In cases where an employer contributes the required matching amount, the 
employer should have the authority to choose, in consultation with employees 
or their representatives, the firm or agency that will provide the 
reemployment services. A major incentive for employers to participate is the 
prospect of being able to assure the quality of services received by departing 
employees. To do this, an employer must be able to hire (and fire) the 
service provider. 



216 



The Act should be clarified to require employers (or other private entities) 
to provide matching funds for only those reemployment services traditionally 
provided to dislocated workers by employers. As drafted, the Act could be 
interpreted to require employers to fund additional services such as travel and 
moving allowances that would be authorized under the Act These additional, 
non-traditional services, would act as a disincentive to employers to 
participate. 

Private providers of reemployment services should be eligible to receive 
notice of planned downsizings, plant closures, etc. under the WARN Act. 

The Act should require the Labor Department to report to Congress on its 
activities to encourage private sector involvement in the provision of 
dislocated worker assistance. 



217 

Chairman Ford. Mr. Baiter. 

STATEMENT OF JAY H. BALTER, PRESIDENT AND CHIEF 
EXECUTD/E OFFICER, VOCAID; CHAIRMAN, COMMITTEE ON 
REEMPLOYMENT ACT OF 1994, CALIFORNIA ASSOCIATION 
OF REHABILITATION PROFESSIONALS; AND COCHAIRMAN, 
CALIFORNIA ASSOCIATION OF INDEPENDENT 

REHABILITATION EMPLOYERS 

Mr. Balter. Mr. Chairman, members of the committee, I thank 
you for the opportunity to appear here. My name is Jay Baiter. I 
am president and chief executive officer of VocAid, a 16-year pri- 
vate career vocational counseling firm. 

I also represent the California Association of Rehabilitation Pro- 
fessionals (CARP), and the California Association of Independent 
Rehabilitation Employers (CAIRE), a society of 2,000 career and 
vocational counselors in California with well over 1,000 career 
counseling centers established and in operation. 

The members of the organizations have academic credentials 
that include Bachelors, Masters, and Ph.D.s in vocational counsel- 
ing, educational psychological, and guidance, industrial psychology, 
various behavioral sciences, and up to 20 years' experience in iden- 
tifying labor markets and specific job requirements for our type of 
clientele. 

We serve the 21 percent of the chronically unemployed that are 
a major problem to this country. This includes the displaced work- 
ers, factory workers who have lost their jobs to the Pacific rim and 
Mexico, middle management personnel who have become victims of 
corporate restructuring and downsizing, reentry people, housewives 
and senior citizens, high school graduates and nonhigh school grad- 
uates and college graduates who can't seem to find a job. 

The majority of our clients are classified minority, non-English 
speaking, and many are disabled as a result of injury or disease, 
but are employable with proper guidance. 

It is our opinion that the present unemployment insurance sys- 
tem and similar systems within the U.S. social welfare process 
have failed to maximize the abilities, skills, and intelligence of our 
workforce. It has instead perpetuated a dependence on govern- 
mental assistance, and the career of many of our clients, not all, 
has become the pursuit of benefits available in place of a self-reli- 
ant income-producing career goal. 

It is easy to blame government. It is easy to blame the worker. 
And it is easy to blame business. We believe that the major respon- 
sibility rests with government as the creator of ideas and pro- 
grams, not necessarily as the financier. 

The Reemployment Act of 1994 is a major innovative response by 
the Federal Government to correct the unemployment insurance 
system and change it from a financially dependent system into a 
goal-oriented approach that serves the unemployed and the chron- 
ically unemployed community. 

Government and private sector statistics support the need for 
change. Long-term unemployed represent 21 percent of the unem- 
ployed, and this group of people are not going back to work. In- 
stead, they are turning to crime and fraud within the welfare sys- 
tem. They have become a double burden on society. 



218 

As a professional in career and vocational counseling for 30 
years, I have learned the problems of the long-term unemployed 
are their lack of education or lack of access to education and train- 
ing, not their lack of intelligence, ability, or desire. 

If they have the access to the proper programs and professional 
advice other than similar unemployed peer group members, the 
chances to become long-term income-producers are greatly en- 
hanced. 

The administration proposes a program with the following mod- 
ern social ideas: Early outreach linked to rapid response; reemploy- 
ment bonuses; opportunity for the unemployed worker to start 
businesses. It is estimated that over 40 million people today are 
working at home using modern technology. These jobs have gone 
mainly to people who have the skills. The poor are not having this 
opportunity, and the Reemployment Act suggests counseling and 
training so they too can achieve entrepreneurial goals. 

Why will the system work? The system focuses on reemployment, 
identifying skills, and providing job search assistance. Our experi- 
ence has shown that we can identify the skills and employability 
of this group, this caliber of client, in 1 to 4 weeks, not 16 weeks. 

And if we can't get them back to work and into job search by that 
point, we then can design a training program within another 30 
days. We believe that the Reemployment Act is necessary for this 
country, and it not only will solve the unemployment problem, but 
will assist in the future in solving the welfare problem. 

Thank you very much. 

[The prepared statement follows:] 



219 



REEMPLOYMENT ACT OF 1994 - HR4040 
Jay H. Baiter 

Written testimony before House Subcommittee 

on Human Resources 

Committee on Ways and Means 

U.S. House of Representatives 

Jay H. Baiter 

July 12, 1994 



Mr. Chairman, Members of the Committee, I thank you for 
the opportunity to appear before Congress to present my 
ideas and opinions on the Reemployment Act of 1994. 

My name is Jay Baiter: I am Co-founder, President and 
CEO of VOCAID, Inc., a ,16 year private career and 
Vocational Counseling Firm, serving the unemployed, 
displaced, and disabled workers. Prior to VOCAID I was 
National Director of Workers' Compensation and 
Rehabilitation for the Home Insurance Company of New 
York. I have a total of over 30. years working with the 
disabled and displaced unemployed. I am a graduate of 
Adelphi University, Garden City, New York, with a B.A. in 
Social Sciences and a concentration in Social Psychology. 

I am representing, in addition to VOCAID two other 
organizations, as their spokesperson in regards to the 
Reemployment Act of 1994. I am a 15 year member of the 
California Association of Rehabilitation Professionals, 
and the Chairperson of the Committee for promotion of the 
Reemployment Act of 1994. CARP has 1300 career and 
vocational counselors in their membership, throughout 
California, and is one of the largest professional 
organizations in the United States representing Career 
Counselors and their clients. 

I am also co-founder and a co-chairman of the California 
Association of Independent Rehabilitation Employers, a 
10-company alliance with approximately 400 career 
counselors in over 100 locations in Southern California. 

Counselors from VOCAID, CARP and CAIRE have academic 
credentials that include Bachelors, Masters and PhD's in 
Vocational Counseling, Educational Psychology and 
Guidance, Industrial Psychology and various Behavioral 
Sciences . 

VOCAID and the professional organization I represent 
serve the following clientele: 

1. Displaced workers who have lost jobs due to Defense 
cut backs . 

2. Factory workers whose jobs have been eliminated due 
to manufacturer relocating to the Pacific Rim and 
Mexico . 

3 . Middle management personnel who have become victims 
of corporate restructuring and downsizing. 

4 . Re-entry workers ; housewives seeking employment as 



220 



their children become independent; retirees who 
cannot sustain themselves on Social Security 
Benefits . 

5. Recent high School and College graduates, as well 
as non-graduates who are unable to identify 
employable skills, and need career guidance and 
additional training. 

6. A majority of the clients are classified minority, 
non-English speaking, and many are disabled as a 
result of injury or disease, but are employable 
with proper guidance. 

The present Unemployment Insurance System, and similar 
systems within the United State's Social Welfare process, 
have failed to maximize the abilities, skills and 
intelligence of our work force. It has instead, 
perpetuated a dependence on governmental assistance, and 
the "Career" of many UI clients, has become the pursuit 
of benefits available, in place of a self reliant income 
producing career goals. 

It is easy to blame the unemployment and social welfare 
client, and as a group and individually they must assume 
more responsibility; however Government must assume the 
major responsibility; not as the financier, but as the 
creator of ideas and programs that meet the needs of all 
displaced workers. 

The Reemployment Act of 1994 is the first major 
innovative response by the Federal Government to correct 
the UI System, and change it from a financial dependence 
system into a goal oriented approach that serves the 
unemployed community. 

The goal of the Act is not to prolong dependence on 
government assistant programs but to provide a process 
that demands results from the UI client and the 
government representative; a process that will lead to 
" emp 1 oyab i 1 i t v " of the client, with the ability to find 
employment even in adverse economic times. 

Government and private sector statistics support the need 
for change. The long termed unemployed represent 21% of 
the unemployed, and it is this group of people who 
represent the greatest dangers to the American economy. 

Not only is that number increasing, their dependence on government 
is increasing. And as government fails due to the lack of funds 
and innovative approaches, many long term unemployed turn to crime, 
and welfare abuse. They become a double burden on society. 

As a professional in career and vocational counseling, I have 
learned the problems of the long term unemployed are their lack of 
education, or lack of access to education and training; not their 
lack of intelligence, ability or desire. 

If they have access to the proper programs, and professional 
advice, other than similarly unemployed peer group members, the 
chances to become long term income producers are greatly enhanced. 

The Administration proposes a program with the following modern 
social ideas. 

1. Early outreach linked to rapid response: In the disability 
rehabilitation field, early intervention has been the key to 
a higher success rate. 

2. Re-employment Bonuses: Behavioral Social Scientists advocate 
a reward, as opposed to punishment or a dependence system. 



221 



Bonuses stimulate the UI client; weekly benefits lead to 
procrastination and dependence. The eager client should be 
rewarded for reducing government burden. The present system 
punishes the innovator and rewards the procrastinator . 

3. Opportunity for unemployed workers to start business: It is 
estimated that 40 million people are working at home, mostly 
as self employed or independent contractors. Many are former 
defense workers who had the ability to transfer their skills 
to home based self employment situations, utilizing modern 
technology and communications. These small businesses have 
also served to solve the child care and transportation 
problems, from a convenience and cost point of view, to the 
dual income family of modern America. Unfortunately, the long 
term unemployed, and the less educated population have not 
been able to take advantage of the emerging home based 
entrepreneurial employment opportunity. The ACT provides not 
only the finances, but also the counseling and training 
necessary for the UI client to join the ranks of the home 
based self-employed and other self-employed opportunities. 

Why the Reemployment Act will work for workers and employees? The 
Administration states five reasons, with which I concur with 
enthusiasm. 

1. The system will focus on reemployment by promptly identifying 
skills, and providing Job Search assistance. Less skilled 
will promptly be provided retraining services to achieve 
employability . 

2. The Act provides for a system consolidating the efforts of 
various agencies and programs. Consolidation not only better 
serves the UI client, but also reduces bureaucratic financial 
waste; and provides more money for professional services to 
the client. The great probability is the dollar shifting from 
administration costs to service and benefits will reduce the 
overall financial burden on government. 

3 . The New System supports long term training of laid off workers 
who want and need it: I concur with the Administration's 
opinion that short term programs for the dislocated worker 
have not been successful. The Act provides necessary funding, 
counseling and income support beyond traditional UI Benefits, 
that allow the laid-off worker to return to an employment and 
income level they had prior to dislocation. Long term 
enhancement of skills and abilities will eventually reduce the 
percentage of long term unemployed. The present short sighted 
system will continue to increase long term unemployment. 

4. The Act provides for "ONE STOP SHOPPING", in place of 
fragmented employment and training systems. The 
Administration recommends CAREER CENTERS to coordinate the 
delivery of benefits, training, and job placement. Instead of 
the UI client shifting from one agency to another with little 
direction or advice, the CAREER CENTERS will service all 
aspects of the client; the CAREER CENTERS will emphasize 
reemployment as the goal, as opposed to filing of benefit 
application forms, under the present system. 

5. The New System puts the client first letting workers decide 
where to get their services: The present system places people 
in pre-planned programs, with little concern for the workers 
interests, or minimal relation to available labor markets. 
With the "ONE STOP CAREER CENTERS", programs for reemployment 
and retraining are designed around the worker, and they are 
provided the opportunity to make choices, based on 
professional career advice. The present system is geared for 
failure, as evidenced by the growing long term unemployed. The 
system proposed focuses on employment success. 



84-377 - 95 - 



222 



What services will be provided of the Career Centers? The 
Administration outlines 5 service areas. 

1. BASIC SERVICES: This includes career and labor market 
information, eligibility review, vocational and aptitude 
testing with professional evaluation of assessments, 
employment referrals, and individual and group job search 
assistance including resume preparation and use of labor 
market information. 

It is my opinion that the majority of UI clients will require 
only basic services, if the CAREER CENTERS are properly 
staffed with counselors who have both the academic and 
experience credentials. 

2. INTENSIVE SERVICES: Dislocated workers will have more access, 
to include individual assistance, diagnostic testing, more 
individualized and career planning, an evaluation of 
appropriate educational and retraining needs. It is apparent 
that the dislocated worker lacks the skills of employability 
in today's changing technological economy. The 
Administration's suggestion that the dislocated worker be 
provided intensive services is valid and necessary. This is a 
group of workers who have provided long term benefits to our 
country from their previous self directed career efforts. The 
laid off defense worker, and others in this category represent 
a good investment based on their past experience of 
achievement and contribution to our society. 

3. EDUCATION AND TRAINING SERVICES: The Administration is again 
being innovative in their approach to training. The system 
does not limit training to traditional methods, but includes 
remedial and literacy training, occupational skills, 
entrepreneurial and self employment assistance, and skill 
based training to include problem solving and teamwork, and 
skills related to use of new technologies. It is my opinion 
that this new modern approach to education is one of the major 
factors that will make the Reemployment Act of 1994 
successful. We are now focusing our training concepts on the 
present and future, not the habits and outmoded educational 
theories of the past. 

4. OTHER SERVICES: Again the Administration is being realistic. 
The Act allows, when needed, relocation assistance, out of 
area Job Search, and child care and transportation assistance. 
It also allows skill upgrading for currently employed workers 
at risk of layoff. These are modern ideas for a modern world. 
Relocation assistance for displaced Californians is mandatory. 
The high cost of housing and transportation, with decreasing 
employment opportunities, in the state, necessitates 
relocation for many California workers. 

Providing benefits to the currently employed, is a break from 
long term bureaucratic frustration. It is far more economical 
to provide services while a person is working, than when 
unemployed. 

5. INCOME SUPPORT: The Administration recognizes not all UI 
clients are the same. Dislocated workers who require long 
term training need benefits beyond the regular UI benefits. 
I concur with this recommendation. 



223 



ADMINISTRATION OF THE NEW UI SYSTEM 

The Act proposes a delivery system that establishes consortiums 
within each state, to create the CAREER CENTERS. Since I am a 
Career Counselor not an Administrator, I doubt my qualification to 
render an opinion of the administration of the system. My concern 
is that the system does not create an unnecessary bureaucracy, and 
that the public funds made available are directed towards 
professional services and income benefits, with administrative 
costs kept to a minimum. My review of the Reemployment Act 
indicates the Administration has recognized this potential problem, 
and has focused on benefits to the UI client. It would be my 
suggestion that a budget be allocated prior to the creation of any 
State consortium, with minimal allocation towards administration 
and maximum allocation to services and benefits. We should develop 
a system where the provider of benefits is properly compensated, 
but not to the degree that we do not have sufficient funds to care 
for the recipient of benefits who requires improved and increased 
services than previous programs . 

WHY THE REEMPLOYMENT ACT OF 1994 IS NECESSARY 

The present system of unemployment insurance perpetuates a social 
welfare dependence. The system determines eligibility, and provides 
financial benefits; however it does not assist the unemployed in 
obtaining an employable skill. The pursuit of benefits becomes the 
"career", as opposed to the pursuit of occupational skills. 

The proposed Reemployment Act imposes upon the chronically and 
newly unemployed the obligation to identify and utilize employable 
skills. If it is required, an upgrade or acquirement of new skills 
to become employable is evaluated, and training programs may be 
implemented. 

The Act makes it mandatory for the unemployed to participate in 
career counseling, training (if needed) and job search in order to 
continue receiving benefits while the unemployed worker is becoming 
redirected, retrained and employable. 

It is my strong and enthusiastic belief that the Reemployment Act 
will not only reduce the financial burden on a UI system that is 
not working, but will also lead, in the near future, to Welfare 
cost reduction. Employment of the Welfare recipient, who are part 
of the unemployed population, is the key to Welfare Reform. Since 
the Reemployment Act focuses on employment as opposed to benefits, 
it will greatly supplement Welfare Reform, since we can expect many 
previous welfare clients to return to work as a result of the 
Reemployment Act of 1994. 

I strongly recommend to the Congress of the U.S.A. the immediate 

passage of the Reemployment Act of 1994. Further delays will only 

create further financial burdens on the taxpayer, and the 

unemployed dislocated worker will continue to stand still 

in a changing workworld. The problem of the unemployed is 

solvable. 



224 

Chairman Ford. Dr. Oswald. 

STATEMENT OF RUDOLPH OSWALD, PH.D., DIRECTOR, ECO- 
NOMIC RESEARCH DEPARTMENT, AMERICAN FEDERATION 
OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 

Mr. Oswald. Thank you, Mr. Chairman. I appreciate the oppor- 
tunity to present the views of the AFL-CIO on this legislation. 

The AFL-CIO commends the administration for its recognition of 
the need for more training funds and income support during train- 
ing for displaced workers, as well as better, more extensive services 
to unemployed workers. 

The administration's REA training program represents an impor- 
tant step forward in meeting the needs of the unemployed. The 
AFL-CIO welcomes and supports the general intent of many of the 
provisions of the REA bill. 

There are many very positive features of the legislation. Let me 
try and summarize those very quickly. First of all, the 0.2 percent 
FUTA tax that you talked about so much today we think is an im- 
portant element for income support for unemployed workers. The 
last time Congress, we feel, misused these funds, in terms of using 
it for other purposes, rather than for the unemployed workers. 

And as has been talked about earlier, it has been in effect since 
1977, it is not a new tax, and we would like to see that money used 
for unemployed workers in the future. 

Second, it provides income support and training for displaced 
workers without a means test. We believe that is essential because 
that income support allows workers to undertake long-term train- 
ing, which they otherwise would not be able to do. 

Third, it provides more services to unemployed workers and bet- 
ter job search ability. 

Fourth, it attempts to better coordinate help for displaced work- 
ers through the so-called one-stop career centers. 

And fifth, it would develop a national labor market information 
center. 

On the other hand, Mr. Chairman, I would like to also bring to 
your attention some of our concerns with things that we feel need 
to be done to improve the legislation. 

First of all, we believe that trade adjustment assistance and 
NAFTA TAA should not be included in this legislation. It was a 
promise to workers specifically dislocated by trade ever since the 
Kennedy years when the first major multilateral trade legislation 
was put into effect, and we would like to see that maintained as 
a separate program. As you well know, Mr. Chairman, it once pro- 
vided much more — much better benefits than currently exists and 
those proposed under the REA legislation. 

Second, we believe that the worker profiling that is proposed in 
the legislation and becomes a type of gatekeeper for eligibility for 
training should become a voluntary program rather than a manda- 
tory program. We would like to see that 16-week eligibility rule 
also done away with. 

Third, we believe that the worker adjustment career centers and 
one-stop career centers should be part of the Employment Service. 
Fee charging and privatization proposals we think will not be a 
way to provide workers with the help that they need. 



225 

But if there is one thing that we would like to see added to the 
bill that we think is most important to provide workers with the 
real opportunities to know about employment, that would be a re- 
quirement that employers list all job opportunities with the Em- 
ployment Service. 

Most foreign nations in the industrialized world today have a re- 
quirement that employers list job openings. And one of the major 
shortcomings of our labor market system is that one does not have 
a central clearinghouse where he can go and find out the full range 
of job opportunities. 

The fourth change we would like to see is a greater participation 
by organized labor in the planning and implementation of REA pro- 
grams. 

And finally, that the WARN advance notice law would be 
strengthened in order to better help workers when they have com- 
ing layoffs. We would like to see a smaller number than the cur- 
rent numbers in the WARN legislation and would like to see the 
Labor Department have greater enforcement authority than it cur- 
rently has. 

My full statement, Mr. Chairman, tries to spell out these ele- 
ments, both on the positive and those areas that we would like to 
see improved. And I thank you for the opportunity to present the 
views of the AFL-CIO on behalf of its 90 affiliates and 14 million 
members. Thank you, Mr. Chairman. 

[The prepared statement follows:] 



226 



94-17 

TESTIMONY OF DR. RUDOLPH OSWALD, DIRECTOR, 

ECONOMIC RESEARCH DEPARTMENT, 

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, 

BEFORE THE SUBCOMMITTEE ON HUMAN RESOURCES AND THE SUBCOMMITTEE ON TRADE, 

OF THE HOUSE WAYS AND MEANS COMMITTEE, 

ON THE RE-EMPLOYMENT ACT, H.R.4040 

July 12, 1994 

Mr. Chairman, we appreciate this opportunity to present the views of the 
AFL-CIO on the Clinton Administration's proposed Re-Employment Act, the REA bill, 
H.R.4040. We commend the Clinton Administration for its recognition of the need for 
more retraining funds and income support during training for displaced workers and 
better, more extensive services to unemployed workers. 

The Administration's REA retraining program represents an important step 
forward in meeting the needs of the unemployed. We welcome and support the 
general intent of many of the provisions of the REA bill. The earmarking for the future 
of the two-tenths of one percent FUTA tax for income support is an important and 
worthwhile use of these funds. 

There are a number of changes in the bill which would make it more effective 
in serving people looking for jobs. We look forward to working with your 
subcommittees and with the Administration to improve this proposal. 

Under Title I of H.R.4040, a wide variety of services, including income 
support for up to 78 weeks while in training, will be available to many displaced 
workers. This is a great step forward beyond the present situation under the JTPA 
Title III dislocated worker program. 

The JTPA Title III program provides minimal income support for dislocated 
workers in training. As a result, many eligible workers who would benefit from training 
now simply cannot afford to go into training programs because they must seek work 
and income to support themselves and their families. So REA income support is real 
progress. 

Under REA Title I, a variety of services to dislocated workers will be available 
at Career Centers. These services, linked to "worker profiling," involve early 
identification of workers claiming unemployment insurance benefits who are likely to 
be long-term unemployed and likely to exhaust their regular Ul benefits. 

The Career Centers will provide job search assistance and other intensive 
reemployment services to dislocated workers, including development of individual 
reemployment plans. 

REA Title II sets up a financing mechanism for the REA income support 
program. Beginning July 1, 1995, eligible workers who have exhausted Ul benefits, 
who have a minimum level of tenure with their previous employer, and who are 
enrolled in long-term retraining will be eligible for up to 52 weeks of 
retraining income support. REA Title II would permanently extend the present 0.2 
percent federal surtax collected under FUTA, the Federal Unemployment Tax Act, 
deposit these funds in a Retraining Income Support Account (up to certain capped 
amounts), and use the money to make REA income support payments. This is an 
important and worthwhile use of these funds. 

REA Title III would encourage and help states to set up a network of "One- 
Stop Career Centers" to provide a single, simple, common point of access to 
employment-related services to any worker or employer. Title III also provides for local 
Workforce Investment Boards (WIBs), to oversee the One-Stop Career Centers. 

Title III also calls for a National Labor Market Information System to be 
developed with universal access to comprehensive up-to-date information on jobs, 
necessary skills, training programs, and job search assistance. 



227 



We welcome and support the general intent of these provisions of the REA 
bill. However, we have a number of key concerns and key principles which we 
strongly believe should be incorporated in this legislation. But we want it to be clear 
that, with those changes and improvements, this legislation is important to American 
workers and to the nation's ability to provide essential training to those workers. Let 
me briefly summarize our concerns. 

We are adamantly opposed to the proposed phase-outs of TAA and NAFTA- 
TAA. These programs represent a long-standing national commitment. They should 
be retained and improved. 

We support the permanent extension of the 17-year-old 0.2 percent FUTA 
federal surtax to help provide income support for unemployed workers. However, we 
are concerned about adequacy of funds for administration of unemployment insurance 
and the Employment Service and for Extended Benefits during a recession. 

We support the effort to identify potential long-term unemployed workers 
who need special assistance through "profiling," but we believe profiling must be 
preceded by counseling, that profiling should be voluntary on the part of the worker, 
and that profiling should not be used in a stigmatizing or punitive way to deny workers 
access to basic and intensive services. 

We believe the Employment Service should be the center for job opportunities 
with the proposed Worker Adjustment Career Centers and One-Stop Career Centers 
as part of the Employment Service. All employers should be required to list job 
openings with the Employment Service. 

We believe the purposes of the REA bill can be greatly strengthened by 
greater participation of organized labor at all levels in planning, implementing, and 
monitoring. This will help assure accountability in planning and implementing. An open 
and participatory planning process with state and local plans publicly available for 
review and comment well in advance of program start-up is essential for 
accountability. 

In line with this concern, let me stress the importance of consultation and 
input from organized labor, including concurrence where collective bargaining 
agreements may be affected. 

Finally, we believe improvements in the advance notice WARN law would be 
appropriate additions to H.R.4040. It is clear that dislocated workers who get advance 
notice and early adjustment assistance get new jobs sooner and earn more than they 
would have without such early intervention. 

Mr. Chairman, I want to reiterate the general support of the AFL-CIO for the 
purposes of the Clinton Administration's proposed Re-Employment Act, H.R.4040 to 
provide more effective help for dislocated workers and other unemployed workers. 
This bill represents real progress in this area, and we look forward to working with this 
Committee and with the Administration to further the objectives of this legislation. 

1 . Funding 

We congratulate the Administration on its proposal for $1.5 billion in fiscal 
1995 for re-employment services for some 300,000 dislocated workers. When fully 
implemented in fiscal year 2000, the system will serve an estimated 1.3 million 
dislocated workers. This represents considerable progress over the present JTPA Title 
III dislocated worker program. 

In regard to the proposed Retraining Income Support Account, to be financed 
by the 0.2 percent FUTA federal surtax, the AFL-CIO supports the permanent 
extension of this 17-year-old surtax. Income support of unemployed workers is a 
worthy use of this money. 



228 



However, we are concerned that the Administration and the Congress 
allowed the Extended Unemployment Compensation program to expire and have failed 
to move on reform of the Extended Benefit program as recommended by the Advisory 
Council on Unemployment Compensation. We hope Congress will act favorably on the 
Council's February 1994 recommendations. 

Furthermore, we are concerned that there are insufficient funds for 
administration of unemployment insurance and Employment Service programs, as well 
as insufficient funds for Extended Benefits during a recession under the 
Administration's proposal. 

We object to the annual capping of funds in the Retraining Income Support 
Account, as proposed in REA Section 221. To achieve its purpose, REA income 
support should be an uncapped entitlement for all dislocated workers. 

It is clear to us that a cap on the funds transferred to this account --$350 
million in fiscal 1996 and $500 million in fiscal 1997- will make it impossible to give 
income support to all or even a substantial part of the displaced workers who will be 
eligible. As a result, there will be frustration and cynicism about the entire program. 
We urge that the caps in Section 221 be eliminated. 

In fact, we believe funding for the overall program should be increased - and 
duration of training should be increased in Section 204- to provide for up to two years 
of training and income support (26 weeks of regular state Ul payments plus 78 weeks 
of retraining income support payments). Currently under TAA many workers exhaust 
their income support before their training program has been completed and they are 
forced to drop out of training. 

Furthermore, we believe the level of income support should be raised above 
what unemployment insurance pays to what was previously provided by Trade 
Adjustment Assistance -70 percent of lost earnings up to a reasonable cap. The Ul 
benefit level is woefully inadequate in most states, averaging less than $ 1 50 a week 
in nearly 20 states. This is below the poverty line for a family of three. Many 
dislocated workers will not be able to take advantage of training opportunities without 
a much higher level of income support. 

If in the final analysis, these levels are not adjusted for all workers, they 
should now be restored for TAA & NAFTA-TAA eligible dislocated workers, and the 
higher level phased in for other dislocated workers. 



2. Trade Adjustment Assistance (TAA) 

Unfortunately, REA Section 241 would phase out both the Trade Adjustment 
Assistance program and the NAFTA Transitional Adjustment Assistance program. We 
are adamantly opposed to these phase-outs. 

We believe the 30-year-old commitment to the needs of workers displaced 
by trade and government trade policies should be continued. When other programs for 
displaced workers are combined in REA Title I, Trade Adjustment Assistance and 
NAFTA-TAA should retain their separate status and should be improved. 

The promise of TAA is a matter of special concern to the AFL-CIO. When the 
Kennedy Round of Trade Negotiations was undertaken in the 1960's, workers were 
promised that if they were harmed as a result of the trade negotiations, that they 
would receive special adjustment assistance. The need for TAA remains. 
The JTPA Title III dislocated worker program was not a substitute and the new 
REA Title I program for displaced workers is not a substitute for TAA or for NAFTA- 
TAA. 

The rationale for TAA is even stronger today than when President Kennedy 
first proposed the program more than 30 years ago. At a time when the nation's trade 



229 



deficit remains very high, and the Administration is pursuing trade agreements that will 
cause the loss of even more jobs, it would be a serious injustice to end TAA. 

For workers who are eligible for TAA, REA offers much reduced benefits and 
services. TAA is less restrictive and more realistic. To eliminate TAA would constitute 
a serious take-away and a substantial breech of faith with the nation's trade-injured 
workers. 

With respect to NAFTA-TAA, the AFL-CIO strongly urges that this too should 
remain a distinct entitlement program. In spite of its serious inadequacies, NAFTA-TAA 
does constitute at least a limited commitment to help some of the workers who will 
be the most direct victims of the North American Free Trade Agreement. To eliminate 
this modest program so soon after the ink has dried on NAFTA would be a breach of 
faith with America's working people. It would also deprive the nation of vital 
information on NAFTA-related job loss. 

The nation and the Congress went through three months of discussion and 
debate and review of NAFTA. One reason for passage was the Administration's 
promise of special NAFTA-TAA funding at $90 million for 18 months. The 
Administration also made promises on sugar, citrus, and other items to make sure it 
would have enough votes. There have been no proposals to change any of the 
promises on those items, but here in the REA bill are proposals to do away with the 
last vestiges of the only real promises made to workers in NAFTA. 

Instead, the Labor Department should improve greatly its administration of 
NAFTA-TAA. Outreach and publicity about the program should be improved, especially 
in those states where the program has not been implemented properly to date. The 
secondary part of the NAFTA-TAA program has yet to serve a single worker, a 
disgraceful situation which should be remedied as soon as possible. 

We urge an immediate technical fix to the restrictive training enrollment 
deadlines in NAFTA-TAA which are depriving many workers of badly needed 
assistance. 

Furthermore, we believe special attention should be directed to workers who 
are displaced by new government policies, including any health care workers who may 
be displaced as a result of health care reform. 

3. Eligibility and Profiling 

Eligibility rules for training and income support should be inclusive rather than 
exclusionary. Under the REA, workers must be eligible for unemployment insurance 
to be eligible for REA income support. Given the low rate of Ul recipients to job losers 
and the REA tenure screens, it seems likely that there will be an access problem for 
many displaced workers, especially in regard to excessively rigid deadlines for 
enrollment in training. 

The requirement that workers be in training by the 16th week of 
unemployment raises the question why the full burden should be on the worker who 
is not in training through no fault of his own, but because training is not available or 
not offered. Only a single 30-day extension is possible. Experience with TAA shows 
these requirements are excessively restrictive. 

Under new worker profiling procedures aimed at identifying potential long- 
term unemployed workers, dislocated workers will be required to participate in 
appropriate re-employment services in order to remain eligible for Ul benefits. We 
believe profiling should be voluntary on the part of the worker. 

We support the effort to identify workers who need special assistance and 
to refer them to appropriate re-employment services, but we are very much concerned 
that worker profiling should not be used punitively to deny even more workers their 
Ul benefits. Furthermore, it should not be used in such a way as to stigmatize 
workers. 



230 



Also, worker profiling should not be used to deny access to basic and 
intensive services, including training, and displaced workers should have ample 
freedom and opportunity to select from a range of job-related services and training 
programs. 

Public Law 103-152, Section 4(b). states that Ul claimants must participate 
in re-employment services "as a condition of eligibility for regular unemployment for 
any week." We believe Congress should make it clear that non-participation results 
only in non-eligibility for Ul benefits for the week in question, but does not disqualify 
a Ul "laimant for any longer period. 

The Unemployment Insurance Service has clarified its position on this issue 
in a program letter dated April 1 5, 1 994, but we believe Congress should clarify this 
point by law, including a right to appeal denial of justifiable cause for failure to 
participate. 

We call your attention also to the March 22, 1994, Field Memorandum No. 
35-94 from the Labor Department's Employment and Training Administration about 
implementation of a system of profiling and re-employment services. It notes that 
"Profiling will become the primary way that dislocated workers enter reemployment 
services." This highlights the need for criteria that assure fair and equitable access to 
all workers. 

We believe four general principles should govern the system relating to 
profiling and referral to services: (1) Workers should be entitled to counseling before 
profiling takes place. (2) Profiling should be voluntary on the part of the workers. (3) 
Decisions on referral to training should not be based only on profiling but also on such 
factors as interest and experience. (4) The right to appeal should be assured, 
particularly as it relates to development of Ul benefits, service plans and other referral 
decisions. 



4. Employment Service 

The Employment Service should be the center for job opportunities. The 
proposed Worker Adjustment Career Centers and One-Stop Career Centers should be 
mandated as part of the Employment Service, enabling it to serve as a focal point for 
providing career information, counseling, testing and assessment of skills, and 
information on training opportunities. The model should be collaboration with 
employment-related agencies — not a competitive model. 

We believe all employers should be required to list their job openings with the 
Employment Service. This requirement could be added to Title IV. This would ensure 
the Employment Service's ability to serve mainstream workers and employers and 
enhance its ability to serve as a tool of a comprehensive workforce policy. Nearly all 
industrial nations require employers to list job openings with the state employment 
service, thus developing full listing of job opportunities and job needs. The United 
States should have a similar information and referral base. 

Since the Employment Service has suffered staff and budget cuts of 18 
percent in real terms from 1 984 to 1 992, its funding should be restored to a level that 
enables it to function properly. 

Proposals to privatize some Employment Service functions or charge fees to 
some users of the Employment Service should be rejected. Such proposals lead to 
creaming, loss of accountability, and undermine the Employment Service when it 
should be strengthened rather than weakened. 

We are much concerned, therefore, about REA provisions - Section 1 1 8 and 
Section 313 — which open the door to private, for-profit organizations to operate 
career centers for dislocated workers and one-stop career centers for all workers. (We 
understand that the Labor Department now wants to drop for-profit organizations from 
eligibility to operate one-stop centers.) 



231 



We are also very much concerned about REA Section 314(e) which would allow one- 
stop career centers to charge fees for services. 

We are also concerned about Section 333 relating to waivers of federal laws 
and regulations, including specifically the possibility that states may seek waivers of 
the right to payment of unemployment benefits and the right to fair hearing as 
guaranteed by Title III of the Social Security Act. 

Likewise, we are concerned about privacy and conflict-of-interest dangers if 
private agencies are involved in the taking and processing of claims for unemployment 
insurance benefits. We are concerned that such action will invade the privacy of 
workers and allow unwarranted pressures from employers seeking to protect their 
experience ratings by preventing workers from getting Ul benefits to which they are 
entitled. Ul should be administered only by public agencies and cuts in funding for 
state administration of Ul should be restored. 

Public employees, who have gained considerable knowledge and expertise 
through their years of on-the-job experience, should be given the opportunity to 
improve the operation of the Employment Service through involvement in worker 
participation committees, and by having the opportunity to receive cross-training to 
perform both Employment Service and unemployment insurance functions. 



5. Labor Participation 

We believe the purposes of the REA bill and the programs to be established 
by REA can be greatly strengthened by greater participation by organized labor in 
planning and implementation. The planning process, both at the state level, at the 
local Workforce Investment Board level, and at the one-stop career centers should be 
open to all stakeholders, including labor organizations and community-based groups, 
as well as employers. This will help to assure necessary accountability in the process 
of planning and implementation. 

Specifically, we recommend that business-dominated Private Industry 
Councils (PICs) be reconstituted with equal representation of organized labor, 
employers and community-based groups and that the REA proposed local Workforce 
Investment Boards (WIBs) be modeled on State Human Resource Investment Councils, 
where labor and employer members and community groups, including community 
colleges, share equal representation. Congress has already endorsed the concept of 
representation for business and organized labor and community groups in this fashion 
in Section 702 of the JTPA law relating to the composition of the State Human 
Resource Investment Council. 

Under Section 702, organized labor has no less than 15 percent of the 
Council, and business and industry have no less than 15 percent. Local public 
education, post secondary and vocational education institutions, and community based 
organizations together have another minimum 15 percent of the Council's 
membership. 

The Governor may select additional Council members from local welfare 
agencies, public housing, representatives of local government, the state legislature, 
and representatives from any state or local program receiving federal funding. The 
Council must include the heads of state agencies responsible for administering federal 
human resource programs. 

We believe the principle of equal representation for organized labor and for 
private employers is sound. It should apply to the proposed local Workforce 
Investment Boards. 

In the absence of equal representation of business and organized labor on 
PICs and WIBs, we believe federal money and contract authority should be given only 
to state and local government entities and not to PICs and WIBs. 



232 



Programs established under the REA can benefit greatly from organized 
labor's job training expertise, particularly in the selection of demand occupations 
where training is proposed. Therefore, we recommend strengthening the consultation 
and concurrence provisions of REA to provide for full participation of appropriate labor 
representatives. We also propose that training providers fully involve organized labor 
in designing their programs. 

The dangers of failure to involve organized labor in selection of demand 
occupations and in designing and implementing training programs are dramatically 
highlighted in the April 26 "Dateline NBC" TV program which describes how the 
Philadelphia Private Industry Council -- over the objections of the Hospital and Health 
Care Workers Union -- funded a training program for medical assistants. The training 
program turned out to be a total fiasco. Few got training. Fewer got jobs. !t was a big 
rip-off and waste of taxpayers' money. 

We believe this Philadelphia story and similar cases could have been avoided 
if there had been legal requirements and effective enforcement for consultation and 
concurrence by the appropriate labor organization before funding training programs. 

To assure the "customer focus" sought by the Administration, we believe an 
open and participatory planning process at the state and local levels is critical. We 
recommend that state and local plans be developed and be publicly available for 
review and comment well in advance of program start-up. The process for selecting 
training providers should also be open to public scrutiny. 

Program implementation to help dislocated workers can be strengthened by 
providing states with specific opportunities to operate state-wide or industry-wide 
projects in coordination with labor organizations. Delivery of services at the plant site 
or in the union hall provides critically needed early intervention when there is a major 
layoff or plant closing. 

But matching requirements are likely to reduce delivery of on-site services 
when financially strapped employers and unions cannot furnish the required matching 
cash or when substantial funding from sources other than publiG funds" is not 
available (Sections 1 1 5 and 116). We recommend dropping the matching requirements 
to assure that urgently needed services for displaced workers reach them in a timely 
manner. 

We are pleased to note in the REA a number of requirements for concurrence 
and participation of affected workers and their representatives -- for example, Section 
1 1 5(c)(2)(C) relating to on-site transition centers and Section 332(b)(2)(H) relating to 
participation of organized labor in state plans for federal grants to implement one-stop 
career centers. 

We believe that maximum participation by organized labor will maximize 
achievement of the purposes of the REA, and therefore, we urge that more language 
be included in this legislation to require greater participation by workers and their 
unions in design and development of all programs at all levels that serve workers. All 
such programs should involve consultation and concurrence by unions representing 
workers who may be affected by the programs. 



6. Advance Notice 

We believe improvements in the WARN law would be appropriate additions 
to H.R.4040. 

Dislocated workers who get advance notice and early adjustment assistance 
get new jobs sooner and earn more than they would have without such early 
intervention. It is vitally important, therefore, that employers give their workers fair 
and adequate warning on layoffs so workers and their unions can plan for the 
transition and minimize hardship and adverse effects. 



233 



A report from the General Accounting Office last year makes it clear that 
many layoffs are excluded from the advance notice requirement of the 1988 WARN 
law, mainly because of the requirement that the layoff affects one-third of the 
workforce or 500 or more workers. The report also reveals that many employers who 
should have given advance notice did not do so and that a substantial portion of the 
employers who did give advance notice did not give the required 60 days notice. 

Better enforcement of WARN is urgently needed. Civil lawsuits -- the only 
enforcement method now available to workers, unions, and local communities are a 
poor way to enforce the WARN law advance notice requirement. The costs and 
uncertainty and relatively low payoff from lawsuits discourage too many aggrieved 
workers and local communities from filing lawsuits. 

One possible reform would be to give the U.S. Labor Department a WARN 
enforcement role similar to its enforcement of the Fair Labor Standards Act. Also the 
Labor Department could expand public information efforts to give workers more and 
better knowledge about WARN - with requirements for workplace bulletin board 
posting of WARN rules and with toll-free phone numbers where workers can get help 
on WARN issues. 

Other reforms should expand coverage by reducing the number of workers 
required for WARN coverage from 1 00 to 50 and by cutting the layoff threshold to 1 
percent of the workforce or 1 00 or more laid-of f workers - instead of the present one- 
third or 500-plus threshold which excludes huge numbers of laid-off workers from 
WARN requirements. 

The definition of mass layoff should be changed to cover more effectively 
multiple-site employers and employers who by accident or design stretch out layoffs 
over a long period and thereby avoid their WARN responsibilities. 

We are also concerned about the need to tighten or correct "good faith" 
loopholes; eliminate the possibility of cutting an employer's back pay liability by the 
amount of collectively bargained severance pay or by the amount of unemployment 
compensation payments; and more effective requirements and penalties to assure 
compliance with the existing obligation for notification of layoffs to the local 
community and to the state "rapid response unit" to assure prompt dislocated worker 
assistance. 

Finally, this Committee may wish to consider proposals for a longer advance 
notice period so that workers and unions and local communities can have more 
opportunities to prepare more effective adjustment programs and to find new jobs. 

Mr. Chairman, the AFL-CIO has a big interest in assuring effective assistance 
for displaced workers. With our Human Resources Development Institute, affiliated 
international unions, and state and local central bodies, we will do our utmost to make 
sure that the purposes of the Administration's REA bill are achieved. 

In conclusion, Mr. Chairman, I want to reiterate AFL-CIO support for the 
purposes of the Clinton Administration's proposed Re-Employment Act, H.R.404O, to 
provide more effective help for dislocated workers and other unemployed workers with 
the adjustments we have noted. There are further technical modifications that we 
would like to propose to your subcommittees and we hope that the Labor Department 
will concur in these recommendations. We believe this bill can represent real progress 
in this area and we look forward to working with you and with the Administration to 
further the objectives of this legislation. 

Thank you. 



234 

Chairman Ford. Thank you very much. 
Dr. Connerton. 

STATEMENT OF PEGGY CONNERTON, PH.D., DIRECTOR, 
PUBLIC POLICY, SERVICE EMPLOYEES INTERNATIONAL 
UNION, AFL-CIO 

Ms. Connerton. Good afternoon, or I guess it is good evening. 

My name is Peggy Connerton. I am director of public policy for 
the Service Employees International Union. SEIU represents over 
1 million service workers, including some 15,000 members who 
work in various parts of the employment security system. 

These workers have hands-on experience with providing career 
counseling and other services to unemployed and dislocated work- 
ers. We wish to thank the members of the subcommittee for the op- 
portunity to testify on the Reemployment Act of 1994 and on the 
administration's proposals for financing it. 

Before I turn to financing I would first like to commend both the 
administration and Congress for finally addressing the problems of 
long-term joblessness. Current efforts to assist such workers suffer 
from inadequate funding in a hodgepodge of training programs. 
Unemployment is not likely to go away without a new approach to 
adjustment assistance. 

The ranks of the long-term unemployed have risen steadily over 
the last decade. 

While much of the rise stems from the fundamental restructur- 
ing of the U.S. economy that is taking place, as well as trade liber- 
alization, it is clear that the changing nature of unemployment de- 
mands that our outdated unemployment insurance system change 
to keep pace. That system was designed to provide temporary sup- 
port and extended benefits during an economic downturn. 

In that regard, the UI system today is woefully inadequate. But 
in addition, it totally fails to deal effectively with structural unem- 
ployment, which now accounts for a growing share of job loss. To 
deal with the growth in long-term unemployment, the Nation needs 
a comprehensive workforce development strategy. 

SEIU supports the administration's goal of consolidating training 
programs and the delivery of services through one-stop career cen- 
ters. We also support the administration's efforts to provide ex- 
panded income support and retraining services for workers who 
must adjust their skills in a changing economy. 

Workers in the service sector would almost surely benefit from 
the administration's reemployment initiative. Service workers, 
which today account for roughly half of all dislocated workers, don't 
really have access to extended income support and training pro- 
grams. 

This brings us back to what is the critical issue before the sub- 
committee, and that is the question of financing. The Reemploy- 
ment Act could turn out to be just an empty promise, a program 
that is designed to provide expanded services to workers, but fails 
to fulfill that promise. 

We applaud the Clinton administration's effort to increase fund- 
ing for dislocated workers to $13 billion over 5 years. We believe 
that this is not sufficient financing in light of what are the antici- 
pated needs in a changing economy. 



235 

We are also concerned that much of the financing in the startup 
phase is discretionary and that it takes a while for the FUTA sur- 
tax to kick in. But on this question of the surtax, we think that 
this is a key building block to making at least a good start on the 
reemployment initiative, for a couple of reasons. 

First of all, it is clear from the experience under JTPA title III 
that workers will not engage in serious long-term training unless 
they have adequate income support. If you pull the rug from the 
income support, then much of the money you are spending on 
training goes down the drain. 

The second reason is one that everybody talked about today, that 
in fact this extension will be made permanent, so we might as well 
use it for the purpose for which it was designed. The most impor- 
tant reason in our view is the fact that training and retraining is 
really a vital part of our long-term competitiveness. 

In that vein, you really do need a longer-term horizon and there- 
fore a stable, dependable financing source. 

We continue to have some concerns about the financing. In par- 
ticular, we are concerned that it is a capped entitlement. We recog- 
nize that we are in an era of severe budget limitations, but we be- 
lieve that this program has to be well funded to really serve its eco- 
nomic purpose. 

We are also concerned about whether sufficient funds were built 
in for the administration of unemployment insurance and ES. 

Let me finish by saying that we do have concerns with some spe- 
cific aspects of the bill. One of those concerns is the TAA program. 
We continue to believe that those workers whose dislocation is the 
result of government policies need specially tailored services and 
we don't think that continuing TAA would be inconsistent with our 
support of consolidating training programs. 

We also continue to have some concerns about delivery system 
proposals but, while we may not agree with the administration on 
every aspect of the proposal, we strongly endorse the goals and key 
provisions of the administration's reemployment initiative and are 
prepared to work with Congress and the administration to 
strengthen this important initiative. 

Thank you. 

Chairman Ford. Thank you very much. 

[The prepared statement follows:] 



236 



Testimony on the Reemployment Act of 1994 

Before the 

Subcommittee on Human Resources 

of the Committee on Ways and Means 

July 12, 1994 

Good afternoon. My name is Peggy Connerton and I am Director of Public Policy of 
the Service Employees International Union (SEIU). SEIU represents over one million workers, 
including some 15,000 who work in various facets of the employment security system. These 
workers have hands-on experience with the provision of training and career counseling services 
to unemployed and dislocated workers. On their behalf, I would like to thank Chairman Ford, 
as well as the other members of the subcommittee, for the opportunity to testify on the 
permanent expansion of the 0.2 percent FUTA tax under the Reemployment Act of 1994. 

Before I turn to the specific issue that this hearing addresses, I would first like to 
commend the administration for its commitment to meeting the needs of unemployed workers. 
The Reemployment Act (REA) of 1994 will help streamline access to services that will help 
unemployed workers regain entry into the job market as quickly as possible. 

Most workers in the United States have faced the threat of job loss at one point or 
another in their lives. In good times and bad, large numbers of workers have been laid off — 
either permanently or temporarily — when their firms experience periods of weak demand for 
their products. 

In recent years, however, there has been a dramatic change in the U.S. labor market. 
Rapidly evolving technology, the reorganization of work, and trade liberalization have allowed 
firms to eliminate hundreds of thousands of jobs. Those subsequently dislocated often have 
difficultly finding new jobs at wages and benefits that are comparable to what they received 
in their old positions. 

Workers in the service sector, who earn low wages to begin with, are highly vulnerable 
to shifting economic winds because they often have minimal education and lack transferable 
job skills. Data from the Congressional Budget Office show that roughly half of all displaced 
workers were employed in service-producing industries. While many existing dislocated 
worker programs do a good job serving targeted groups of workers, those programs often have 
not reached workers in the service sector, the most rapidly growing sector of the U.S. 
economy. 

The evidence of growth in long-term unemployment throughout the economy is 
compelling. In 1992, 75 percent of laid-off workers were on permanent layoff — the highest 
annual proportion since tracking began in 1967. The length of unemployment spells has also 
increased over the last two decades. During the 1970s, an average of 11 percent of the 
unemployed were out of work for six months or longer. In the 1980s, long-term 
unemployment averaged 15 percent of total unemployment. Last year, 21 percent of the 
unemployed hadn't worked in six months — the second highest annual level since the end of 
World War II. 

These changes in the labor market have highlighted some of the "holes" in the safety-net 
of federal programs designed to address both long- and short-term joblessness. While such 
programs are no substitute for effective trade and industrial policies that will create good jobs 
in the United States, they can help ease some of the suffering associated with losing one's job 
and can help provide the resources and training needed to secure new employment. 

SEIU is pleased that the Clinton administration is responding to the desperate need for 
a comprehensive workforce development policy. We are strongly supportive of the President's 
efforts to provide expanded income support and retraining services. We agree that the 
profound needs of the workers and job seekers who will use the services provided by the 
Reemployment Act are of paramount concern. SEIU supports the administration's goal of 
streamlining eligibility criteria and eliminating the excessive paperwork in many of these 
programs. 



237 



The Reemployment Act would consolidate and streamline many of the programs that 
currently exist to serve dislocated workers and other unemployed workers. For many workers, 
the variety of services provided — particularly the income support while in training — would 
be a significant improvement over the benefits currently available to them under the JTPA Title 
III dislocated worker program. 

However, SEIU continues to believe that those workers whose dislocation is a direct 
result of government policies are entitled to specially tailored services. The Trade Adjustment 
Assistance (TAA) Act has given special attention to the needs of workers displaced by 
government trade policies for 30 years. Particularly in light of the recent trade agreements, the 
rationale for maintaining TAA as a separate program remains stronger than ever. 

Now I will turn to the issue of the FUTA tax extension. Title II of the Reemployment 
Act relies on the 0.2 percent FUTA federal surtax as the financing mechanism for the income 
support program. SEIU fully supports the permanent extension of this 1 7 year old surtax to 
finance the Retraining Income Support Account established in the REA. 

The experience under JTPA Title III demonstrates that displaced workers are unlikely 
to engage in retraining efforts if they lack adequate income support. By providing workers 
with up to 78 weeks of income support while in training, the REA is a major improvement 
over past practice. 

Given the rapid pace of technological change, generated in part by intense competition 
in the global marketplace, training and retraining efforts have become more important than ever 
before. To remain employable, workers of all ages and education levels must engage in 
ongoing training throughout their working lives. This notion of continuous learning encourages 
both workers and firms alike to focus on a long-term horizon — which will better prepare us 
as we enter the 21st century. 

Of course, the need for training is particularly acute after a worker has been laid off 
from his or her job. But few dislocated workers can exercise this option without some steady 
form of income support. The income support program in the REA should open up this door 
of opportunity for thousands of workers. 

The 0.2 percent FUTA tax would provide a consistent source of funding for the income 
support program. Those dislocated workers who choose to undergo extensive retraining efforts 
need some assurances that there will be adequate funding to sustain their income support 
throughout the length of their training. Dislocated workers have enough to worry about 
without having the added stress of wondering whether funding for the Retraining Income 
Support Account will dry up before their training is complete. 

We cannot afford to leave the fate of the Retraining Income Support Account to the 
appropriations process. In these times of severe budget constraints, it is impossible to gain any 
assurances that there will be enough money available from one year to the next. Just last 
month, the House Appropriations panel cut back the President's request for dislocated worker 
funding from $1.5 billion to $1.3 billion. We could face an even tougher battle next year. The 
FUTA tax, on the other hand, would provide a continuous funding stream that would support 
the program well into the future. 

I must mention, however, that this is just one step in improving the situation for 
unemployed workers and is not intended to be a substitute for a major overhaul of the 
unemployment compensation system. 

In conclusion, Mr. Chairman, I want to reiterate SEIU's strong support of the goals of 
the Clinton administration's Reemployment Act. While we may not agree with the 
administration on every aspect of the proposal, we entirely concur with the need to provide 
more effective help for dislocated workers and other unemployed workers. We look forward 
to working with you and the other members of the subcommittee to help achieve the goals of 
the President's legislation. 



238 

STATEMENT OF ED JAYNE, ASSOCIATE DIRECTOR OF 
LEGISLATION, AMERICAN FEDERATION OF STATE, COUNTY 
AND MUNICIPAL EMPLOYEES, AFL-CIO, PRESENTING THE 
STATEMENT OF CHARLES M. LOVELESS, DffiECTOR OF LEG- 
ISLATION 

Mr. Jayne. Mr. Chairman, I am Ed Jayne, the associate director 
of legislation for AFSCME. I am sorry that Chuck Loveless, our di- 
rector, had to leave for a prior appointment. 

AFSCME represents 1.3 million State and local government and 
nonprofit workers, thousands of whom are employed in the local 
Employment Service and unemployment insurance offices around 
the Nation. 

We are pleased to have the opportunity to present our views on 
H.R. 4040. Labor Secretary Reich and the administration are to be 
complimented for their leadership in focusing on the dual problems 
of returning dislocated workers to the workplace and redesigning 
the delivery of employment and training services in a rapidly 
changing economy. 

We are especially pleased the administration's proposal recog- 
nizes the need to provide extended income support for workers who 
are displaced from their jobs and makes permanent the current 0.2 
percent FUTA tax. 

AFSCME strongly supports extending this tax and income sup- 
port to help displaced workers retrain for new jobs. 

Let me get to the heart of the matter. We also hope that ade- 
quate resources will be available. This is a key part of this proposal 
and we feel that the revenue base for the unemployment insurance 
system needs fundamental strengthening at the onset. In this re- 
gard, we note that ICESA has expressed concern that transferring 
funds to the new retraining income support account could eventu- 
ally jeopardize the adequacy of available funds for running local ES 
and UI offices. 

In addition, we believe the extended benefits account and the EB 
program are woefully inadequate and in crucial need of reform. 
Clearly if this vital safety net program is to regain its value as an 
effective countercyclical economic tool and lifeline of financial secu- 
rity for the unemployed, its revenue base must be strengthened 
and we must start there. 

In the area of eligibility and services, we are also concerned that 
H.R. 4040 would give dislocated workers different levels of services 
depending on their work history and experience. The tenure screen 
will separate out workers with extensive employment with the 
same employer for more intensive services and income support. 

The profiling system could act to screen out workers with less 
specialized skills who may be considered to be more able to find al- 
ternative work. Such different treatment of workers could com- 
plicate the task of administering comprehensive one-stop career 
center systems. 

The issues inherent in a two-tiered approach could intensify also 
as participants in future welfare-to-work programs are phased into 
one-stop systems. 

AFSCME strongly supports linking these two systems so that job 
seekers in the welfare system will not be segregated into a sepa- 
rate and possibly unequal system of education, training and labor 



239 

market services. It would be much better to set up a system offer- 
ing all services to all workers based on their individual needs, ca- 
pacities, interests and willingness to participate. 

Moving to one-stop career centers and systems is of great impor- 
tance to our members who work in State Employment Service of- 
fices and unemployment offices. While we support better coordi- 
nated delivery of services, we do have certain concerns with the de- 
livery system, many of which have been touched on in earlier testi- 
mony, and are detailed in our prepared statement. 

We are pleased that the Department of Labor has indicated its 
willingness to ensure the integrity of the UI system, including the 
claims-taking function. We also understand tnat the Department 
intends to eliminate competition in the selection of career center 
operators and the option for proprietary entities to operate career 
centers. 

The design of one-stop centers will have a direct impact on the 
unemployment insurance program. Because of the close connection 
between the Employment Service and the unemployment insurance 
program, cross-training of staff and unified administrative struc- 
tures have become increasingly common and moving Employment 
Service functions into career centers could further destabilize the 
UI system, in our opinion. In addition, responsibility for handling 
UI claims could become less clear. 

Ensuring that one-stop career centers are publicly operated and 
that the ES/UI operations retain their separate identities as part 
of a one-stop consortium making up the one-stop career center or 
system we feel is the best way to achieve the objectives of the Re- 
employment Act while also protecting the integrity of the employ- 
ment security system. 

In conclusion, AFSCME believes that in taking on the twin chal- 
lenges of reinventing the Employment Service and changing the 
culture of the welfare system, the administration has created a 
unique opportunity to redesign, rationalize and reinvigorate two 
badly weakened but crucially important government programs. 

AFSCME is willing to work with you and the administration in 
creating a coordinated high-quality, customer-oriented system of 
education training and labor market services equally available to 
all Americans. 

Thank you, Mr. Chairman. 

Chairman Ford. Thank you very much for your testimony Mr. 
Jayne. 

[The prepared statement of Mr. Loveless follows:] 



240 



STATEMENT OF CHARLES M. LOVELESS 

DIRECTOR OF LEGISLATION 

AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, 

AFL-CIO 

Messrs. Chairmen, I am Charles M. Loveless, Director of Legislation of the American 
Federation of State, County and Municipal Employees (AFSCME). AFSCME represents 
1.3 million state and local government and non-profit workers, thousands of whom are 
employed in local Employment Service and unemployment insurance offices around the 
nation. We are pleased to have this opportunity to present our views on the proposed 
Reemployment Act of 1994. 

Labor Secretary Reich and the Administration are to be complimented for their 
leadership in focusing on the dual problems of returning dislocated workers to the 
workplace and redesigning the delivery of employment and training services in a rapidly 
changing economy. Technological change, corporate restructuring, the integration of the 
world economy, and defense downsizing have greatly intensified the problem of 
structural unemployment. 

AFSCME supports the purposes of the Reemployment Act to: 

* Provide expanded, readily accessible income support, education, training and 
labor market services to dislocated workers; 

* Begin integrating a fragmented employment and training system through a 
network of one-stop career centers and systems to meet the skills and income 
support needs of workers seeking entry or reentry into the work force; 

Provide customer-centered, high-quality employment and training services; and 

* Build a comprehensive National Labor Market Information System labor market 
information system within the Employment Service which provides a full listing 
of job openings from all employers. 



Financing the Reemployment Act 

We are especially pleased that the Administration's proposal recognizes the need to 
provide extended income support for workers who are displaced from their jobs. While 
we think two years is better than 18 months, this bill is an important step forward 
because it recognizes that short-term training has limited value in many circumstances 
and that unemployed workers need income support in order to take advantage of 
training opportunities. 

H.R. 4040 would make permanent the current two-tenths percent Federal Unemployment 
Tax Act (FUTA) tax to help pay for the bill. AFSCME strongly supports extension of this 
tax. However, we are concerned that most of the initial proposed funding for the 
Reemployment Act is discretionary and most of the funds are not available for three 
years. This means that the resources will be inadequate to address the needs of all 
dislocated workers. 

We also urge you to look closely at the impact of transferring 20% of the FUTA revenues 
to the Retraining Income Support Account beginning in FY 2001. We note that the 
Interstate Conference of Employment Security Administrators (ICESA) has commented 
that the current FUTA tax rate and base cannot support the proposed addition of 
retraining income support without eventually jeopardizing the adequacy of funds 
available in the Employment Security Administration Account (ESAA) which pays the costs 
of running local employment service and unemployment insurance offices. 

In addition, because excess funds from the ESAA account flow into the Extended 
Unemployment compensations Account (EUCA), which pays the federal share of extended 



241 



benefits, this financing plan also may jeopardize continuation or improvement of the 
extended benefits program Ifie existing EUCA account and the Extended Benefits (IB) 
program are woefully inadequate and in crucial need of reform The EUCA account 
went broke during the last recession, and only 8 states triggered onto the KB program 
during the 1991 recession. 

Clearly, additional resources are necessary to address the serious underfunding 
problems of the employment security system. If this vital safety net program is to regain 
its value as an effective countercyclical economic tool and lifeline of financial security for 
the unemployed, its revenue base must be strengthened. 



Eligibility and Services 

H.R. 4050 proposes to provide dislocated and displaced workers with different levels of 
services based on their work history and experience. The tenure screen will separate- 
out workers with extensive employment with the same employer for more intensive 
services and income support. The profiling system could very well screen out workers 
with less specialized skills who may be considered to be more able to find alternative 
work. 

Such a system could make it difficult to administer comprehensive one-stop career center 
systems because of differential treatment among different individuals with the same 
employer. It would create inequitable distinctions among workers, and could weaken 
the bill's object of getting away from separate and duplicating categorical programs. 

The problems inherent in a two-tiered approach could increase as those eligible for 
future welfare-to-work programs are phased into the one-stop systems. AFSCME strongly 
supports linking these two systems so that job seekers in the welfare system will not be 
segregated into a separate, and possibly unequal, system of education, training, and labor 
market services. It would be much better to set up a system that opens all services to 
all workers based on their individual needs, capacities, interests, and willingness to 
participate. 



Delivery System 

The proposal to move to one-stop career centers and systems is of great importance to 
our members who work in state employment service offices and unemployment offices. 
Our principal concerns have centered around the future viability of the Employment 
Service as a free nationwide public labor exchange; the requirement for competition in 
selecting one-stop centers operators instead of encouraging collaboration among local 
service providers; the role of private, for-profit entities in the delivery system; the 
composition and powers of the local Workforce Investment Boards; and the relationship 
of the new system to the unemployment insurance program and the payment of 
unemployment benefits. 

Our most recent discussions with the Labor Department have been productive on many 
of these issues. This is especially important in view of the close connection between the 
Employment Service and the unemployment insurance program. 

The substantial funding cuts and instability which both programs experienced during the 
1980s caused many states to co-locate unemployment insurance and employment service 
offices and to cross-train staff. One reason for cross-training was to allow the states to 
assign employment service personnel to process unemployment insurance claims when 



242 



disruptive funding shortfalls developed during the recessions in the 1980s. 

Where such co-location and cross-training of staff and unified administrative structures 
exist, moving employment service functions into career centers could further destabilize 
the unemployment insurance program. It would split the ES and UI programs into 
different locations and systems thereby further weakening the administrative structure of 
the unemployment insurance system. 

The Labor Department has expressed its commitment to ensuring the integrity of the UI 
system, including the claims-taking function, and to eliminating competition in the 
selection of career center operators. It also is our understanding that the Department 
of Labor intends to propose that the option for proprietary entities to operate career 
centers be eliminated. 

These modifications are crucial given the long and explicit commitment of the Social 
Security Act to merit-based personnel systems to administer the unemployment insurance 
program. The original law anticipated that "social security" would be a public function 
carried out by public, government agencies because of the failure of private business, 
charities, and local and state governments to respond adequately to the economic crisis 
of the 1930s. However, initially, it did not include any requirement for state agencies to 
have merit-based personnel systems. 

Subsequent concern in 1939 about turning over federal funds to states, which at the rime 
generally did not have civil service systems, led to the addition of Section 303 (a)(1), 
which requires the establishment and maintenance of personnel standards on a merit 
basis. [The same requirement was added to the APDC program (Sec. 602 (a)(5) at the 
same time] Enactment of these programs with these requirements contributed 
significantly to the creation of state merit-based personnel systems. 

The basic premise of the 1939 amendments was that the federal government had an 
interest in ensuring that states did not misuse federal funding. It is equally valid today. 

This legislation must protect the current funding stream for and integrity of both the 
employment service and unemployment insurance programs. Ensuring that one-stop 
career centers are publicly operated and that the ES/UI operations retain their separate 
identity as part of an operational consortium making up the one-stop career center or 
system is the best way to achieve the objectives of the Reemployment Act while also 
protecting the integrity of the employment security system. 

In conclusion, AFSCME believes that, in taking on the twin challenges of reinventing the 
employment service and changing the culture of the welfare system, the Administration 
has created a unique opportunity to redesign, rationalize, and reinvigorate two badly 
weakened, but crucially important, government programs. AFSCME is eager to work with 
you and the Administration in creating a coordinated high quality, customer oriented 
system of education, training, and labor market services equally available to all 
Americans. It is our hope that the Committee will not miss this historic opportunity to 
create a truly comprehensive employment security and training and education system for 
all structurally unemployed workers. 



243 

Chairman Ford. Mr. Oswald, you stated that earmarking the 0.2 
percent FUTA tax for income support for unemployed workers is a 
worthy use of these funds, yet some might think that this is an in- 
appropriate use of funds that was previously reserved for the un- 
employment insurance system. 

In your opinion, as a representative of the AFL-CIO, who ulti- 
mately will bear the burden of the Federal unemployment tax? 
Don't employees really pay this tax in the form of a lower wage? 

I posed this question to the Secretary earlier. I talked about 
whether the employer is actually going to be taxed or whether he 
is going to be able to pass that on. Will the employee receive a re- 
duction in wages if this 0.2 percent FUTA tax is passed to offset 
the revenue impact of this bill? 

Mr. Oswald. Mr. Chairman, as you all know, it is not an addi- 
tional tax. It is a continuation of a tax that already exists. 

Chairman Ford. There is so much talk on this committee about 
this being a tax. Now we are talking about a continuation, this 0.2 
percent FUTA tax. 

Go ahead. 

Mr. Oswald. It is 0.2 percent of $7,000. It is not of a worker's 
total wages either, so that we have to remember what a small frac- 
tion that is. Even if the tax were automatically dropped next week, 
workers would not get a wage increase. It just won't happen. It 
hasn't happened in the past and it won't happen now. 

So that if the tax is automatically dropped next week, no worker 
will see a difference in his paycheck. 

Chairman Ford. But the Reemployment Act of 1994 is a very 
key piece of legislation for this administration as it relates to try- 
ing to place some of the dislocated workers who have been forced 
out of the workforce and some of those who have been out of the 
workforce for quite some time, especially many of those who live 
in urban areas and a lot of minorities are caught into the situation 
and it is very difficult. 

I am not sure this bill is an answer to all the problems, but it 
is certainly an additional step in the right direction. 

Mr. Oswald. That is what we have tried to highlight, that, it is 
an important step. I think that clearly training is not a full em- 
ployment act in and of itself, but it is an important step of helping 
people who cannot find a particular job that is available because 
of failure to have the adequate skills. 

Certainly it is still aimed at a relatively short period of training. 
The income support is essentially for 52 weeks beyond the expira- 
tion of someone's unemployment insurance and if I can highlight 
even that aspect, if one looks back at what the experience was of 
trade adjustment assistance there, prior to the 1981 big cuts under 
the Reagan budget, in the income support was 70 percent of lost 
earnings. 

In many indications today, unemployment insurance amounts to 
only about 25 to 35 percent of lost earnings. It promises 50 percent, 
but because of the limit on covered wages, it is still low. For many 
workers, that is not enough income to pay the rent and the food 
for a 1- or 2-year training program, and the old trade adjustment 
assistance provided training for up to 2 years. 



244 

Many of the new occupations, particularly in your area of Mem- 
phis, have been in the health care area and many of the technician 
jobs there require at least a 2-year training program rather than 
a 1-year training program. 

Chairman Ford. What are those provisions of the Reemployment 
Act that you disagree with or some things that you think would 
strengthen the bill? 

Mr. Oswald. We would try to emphasize maybe five different 
items. First is the notion that trade adjustment assistance be 
maintained and the NAFTA trade adjustment as a separate pro- 
gram because of its long-term specific promise to workers. 

Second, that the role of the Employment Service itself be 
strengthened as a means of trying to provide services to workers, 
because it is that that has been created as the means by which peo- 
ple can have access. 

We would add to that the notion that the Employment Service 
be the registrar of all available jobs so that employers would reg- 
ister all their openings with the Employment Service so that any 
worker could go to the Employment Service and find out what jobs 
employers are looking for. That today is not true of the situation. 
So we would strengthen the legislation in that fashion. 

Third, we would try and strengthen the eligibility rule for people 
to obtain training. The current legislation is written in a way to re- 
strict training by requiring that a worker have a profile that would 
somehow say that they should get training, that the training deci- 
sion has to be made by the 16th week of unemployment and that 
the person be unemployed, have an employment career of at least 
3 years with a single employer and in some cases that may not be 
true for workers who should receive this training, so that we would 
change those eligibility rules. 

Fourth, we would like to strengthen the role of the current 
WARN Act which, while it was the one major piece of legislation 
that was in this area that was passed during the Reagan-Bush ad- 
ministrations, it could be improved by lowering the numbers for eli- 
gibility and by giving a role to the Labor Department to help en- 
force the WARN Act. Now it is only enforced by people going to 
court to try and enforce their own rights. 

Fifth, we would like to see a better role for organized labor in 
these workplaces — the so-called WIBS, the new operation for ad- 
ministering the local area programs and we think that the labor in- 
volvement represents the worker's voice in making them function 
in the worker's interest. 

Chairman FORD. At what level of involvement? 

Mr. Oswald. Currently the proposed legislation sets aside 25 
percent of the seats on these WIBS for so-called worker and com- 
munity involvement. We believe that your committee when it un- 
dertook a way of looking at skills that are required in the work- 
place when it set up a Skills Standards Board that established it 
with one-third employer representation, one-third the community 
of trainers and educators, and one-third labor, would be a better 
model than the model that is in the legislation for the WIBS. 

Chairman Ford. OK. 

Any other comments? 



245 

Mr. Jayne. We have also concentrated primarily on the Employ- 
ment Service and expressed concern about the requirement for 
competition in selecting one-stop career center operators instead of 
encouraging a collaborative model. 

We have spent a lot of time in our formal testimony explaining 
those concerns and our alternative view. I would also mention an- 
other issue which is the authority for States to waive the Social Se- 
curity Act merit rule, section 303(a)(1). 

I think there has been a long history of requiring that Social Se- 
curity would be a public function carried out by public government 
agencies that dates back to 1939. In our testimony, we go into that 
in detail. We would encourage you to look at that provision as well. 

Mr. Cabrera. One comment that my colleague from AFSCME 
said during his testimony and reiterated, is directly contrary to 
AOCFI's position. We are asking the committee to consider making 
sure that the private sector has a role in operating the one-stop ca- 
reer centers described in the act. Under the act as currently draft- 
ed, for-profit and nonprofit organizations can each compete to oper- 
ate the career centers. 

Our industry again has had extensive involvement and experi- 
ence in operating career centers associated with large-scale 
downsizings and it would be not in the best interest of the Federal 
Government or the taxpayers to discourage private sector participa- 
tion or not to take advantage of the private sector's experience and 
learning. 

Ms. Connerton. I want to comment on that because I think this 
is an important issue. There is already a public-private system cur- 
rently, but one thing we want to make absolutely clear from our 
perspective is that the one-stop career centers really need to be a 
public function. 

Under the consortium model, there are lots of private vendors. 
There is a lot of collaboration, including community colleges. Every- 
body gets to be a part of the system. But I think the fundamental 
integrity of this one-stop career center, where all of these decisions 
are made about funding and where people go or don't go, what 
services they are entitled to, the filing of UE claims, et cetera, has 
to be a public function. 

Mr. Balter. I would like to comment, too. Again with the ap- 
proximately 2,000 centers I represent in California, the majority of 
our placements are within a period of 3 to 6 months in nonunion 
jobs and with employers that have employees that number less 
than 25. 

In California in the last 15 years, there has been a decrease in 
the Fortune 500 company jobs and an increase in the small iobs. 
The private vendors, as opposed to the public service, have been 
able to accommodate this displaced group significantly. 

Our figures represent — most of our figures represent — disabled 
and disability cases and now with the newly assigned displaced, we 
are placing 75 percent of the people within 6 to 9 months. 

Under the career counseling concept, one-on-one concept, we are 
moving faster with less bureaucracy and we believe with less cost. 

So I support both the public and the private sector competing 
with each other and being accountable for the results of maintain- 
ing statistics which I think is part of the Reemployment Act and 



246 

I think that after a period of time, we can tell whether that com- 
petition between public and private sectors will work and who will 
be doing a better job. 

Mr. CABRERA. Mr. Chairman, I am sorry, but my cochairman of 
the organization is with me. May he make a statement with regard 
to one of these questions? 

Chairman Ford. I will allow him to come to this mike. 

Mr. LOUCHHEIM. My name is Frank Louchheim, L-O-U-C-H-H-E- 
I-M. I am founding chairman of Right Associates, and with Mr. 
Cabrera am cochairman of AOCFI's regulatory affairs committee. 

Last year, our industry as a total, earned about $700 million, 
helping over 1 million workers. The public sector handled 350,000 
workers for about the same dollars — $650 million for job search, re- 
training and other purposes. 

I don't think it would be, therefore, in the taxpayers' best inter- 
est not to have competitive bidding to operate one-stop career cen- 
ters or other private sector investment. 

I do believe that there is a need for public/private collaboration 
because the unemployment assistance and the retraining needs of 
dislocated workers are great, and they can't all be addressed by 
any one firm or any one group. So, therefore, we very much believe 
in public/private collaboration and competition. 

Chairman Ford. One of the things that is difficult for this com- 
mittee is to hear from someone without prepared testimony who 
comes in and gives numbers. 

You trained 1 million individuals to the tune of $700 million 
compared with 350,000 individuals trained by the public sector? 

Mr. Louchheim. They are in Mr. Cabrera's written testimony. 

Chairman Ford. It just doesn't sound right. I am not going to 
doubt it, but I will look into it. It just doesn't sound right. 

Are there other comments? 

Ms. Connerton. There are private agencies that do job place- 
ments for a fee. Those will continue to exist. 

However, the public sector really has to take all comers. We have 
had severe problems with the job listings and as Dr. Oswald men- 
tioned, I think that it is important that we understand where we 
are starting from with the public sector and that we revitalize it. 

Chairman Ford. Of course, the public sector is going to reach 
down into the communities. It is going to be different from the pri- 
vate sector. These private services in my area and other areas of 
this country, dislocated workers have not been tapped the hard- 
core unemployed. 

It is a drain on taxpayers in this country and we must address 
this particular problem. I appreciate the input from both sides of 
the perspective. 

We have a responsibility here on this committee, both Repub- 
licans and Democrats alike, to try to come together over the next 
few weeks to craft a bill in the markup session that we can move 
to the full committee of this House. 

All the written testimony of the witnesses has been submitted 
and the oral summaries of the testimony have been good. We do 
appreciate it as subcommittee members and I thank all of you on 
this panel for participating today. 



247 

That will conclude the business of the Subcommittees on Trade 
and Human Resources on the Reemployment Act of 1994. Let me 
once again thank all of you for your patience. I know some of you 
waited 3 or 4 hours to testify. Thank you very much for your testi- 
mony and your input. 

The committee stands adjourned. 

[Whereupon, at 5:30 p.m., the hearing was adjourned. 1 

[Submissions for the record follow:! 



248 




American Payroll Association 

New York Education Division 



Testimony of the American Payroll Association to the 
Subcommittee on Human Resources and the Subcommittee 
on Trade — Committee on Ways and Means Regarding The 
Reemployment Act of 1994 (H.R. 4040). 

July 25, 1994 

Submitted by Carolyn M. Kelley, Director of Government Affairs, 
American Payroll Association 



The American Payroll Association is a non-profit professional association 
representing 10,000 companies and individuals on issues relating to wage 
and employment tax withholding, unemployment insurance tax payments, 
reporting and depositing. Over 85% of the gross federal revenues of the 
United States are collected, reported and/or deposited through company 
payroll withholding. Under our system of voluntary compliance, we are 
the nation's tax collectors. 

APA is pleased to be able to comment that we are fundamentally in 
agreement with the Administration's noble goals to empower workers 
with real employment choices through a new program that consists of job 
awareness, skills profiling, one stop career centers, and long-term 
retraining initiatives. 

APA also agrees with the Administration that the United States has seen a 
greater reduction in work forces during the last economic downturn than 
in the past. This permanent loss of jobs is primarily caused by major 
downsizing of companies. 

APA Concerns: 

APA has four basic concerns with the Administration's Reemployment Act 

of 1994 (REA) proposals and how they aim to reengineer the present 

unemployment insurance program (Ul Program) into a reemployment 

program. 

1. APA does not agree with the Administration that the present Ul 
Program is broken or outdated. 



!0 Ii.isl :;.'.]-! Slier!. New York. NY. I OO 16-5386 • Phone: (212) 686-2030 • Kiix: (212) 686-2789 



249 



2. APA is concerned that there will be a major impact on state trust 
funds under the Administration's proposal to extend unemployment 
insurance benefits to 78 weeks or more when a dislocated individual is 
being retrained. 

3. APA is also concerned that there is no provision in the REA to fund 
the administration of the retraining programs by state agencies. 

4. APA does not agree with the Administration's financing proposal to 
extend permanently the .2 % FUTA surtax to fund the income support 
provision of REA. 

APA's position on the above concerns: 

1. APA believes that the current Ul Program still serves unemployed 
individuals in providing short-term income support for up to 26 weeks for 
workers who because of no fault of their own become unemployed. 
Congress should not incorporate the REA retraining program's approach to 
training long-term unemployed into the current Ul Program which still does 
the very important job it was designed to perform. 

In addition, the Federal/State sharing of costs to fund an additional 13 
weeks of extended benefits is still a viable operating program that assists 
workers who have not yet been recalled to their old jobs or have not found 
suitable new career opportunities. 

2. APA believes that after a qualified unemployed individual has 
collected over nine months of regular and extended benefits paid for by 
the employer, any further unemployment insurance benefits for these 
unemployed individuals for additional training should be supported by 
general revenues of the Federal government. These costs should not be 
shouldered soley by U.S. employers. 

3. APA is concerned that there will not be adequate resources for 
administering the income support payments under both Titles I and II and 
the development of the administrative capacity to withhold the 15 percent 
federal income tax, which will require major and costly modifications to 
automated systems. In addition, we question the oversight and 
evaluation of an individual's training during the retraining period when 
income support is being paid. Our skepticism regarding the cost of 
implementation and program effectiveness is exacerbated by our inability 
to accurately assess these costs after consulting various state agencies. 
We would refer Congress to state officials to obtain additional information 
for costing these provisions of REA. 



250 



APA also opposes using state unemployment insurance trust fund money 
to pay for new program initiatives such as: 1) the Short-time 
Compensation Program; 2) a Reemployment Bonus Program; and 3) a 
Self-Employment Assistance Program. All three programs would exact a 
heavy toll on the state unemployment insurance trust funds that must be 
replenished by tax dollars. Again, APA does not feel employers should 
shoulder this burden but rather that it should be financed by general 
revenues of the Federal government. 

4. APA objects to the Administration's financing proposal that would 
make the .2% FUTA surtax permanent for tax years after 1998, its current 
expiration date, in order to support extended retraining income. Since 
1977, this "temporary surtax" has been extended "temporarily" to fund 
various Congressional enactments under the unified budget process. 

As of May 31, 1994 the Extended Unemployment Compensation Account 
(EUCA) was $1.15 billion in the red. This reflects a $1.55 billion loan from 
the Federal Loan Account (FUA). Since all the funds coming into EUCA 
(including the .2% "temporary tax") are being spent currently, there will 
be an even larger shortfall of funds in this account if 20% of the revenue 
from the current .8% FUTA tax is moved to a new "Retraining Income 
Support Account" (RISA). 

It is possible that the .16% tax is not adequate to fund the RISA. If this 
were to occur, APA is very concerned that Congress will increase FUTA 
tax rates, wage bases, transfers from one of the other FUTA accounts 
borrowing from general revenues, etc.. 

The Department of Labor has estimated that approximately 2 million 
individuals are permanently dislocated workers and potentially eligible to 
receive income support from RISA. That being the case, if the current 
average weekly unemployment insurance benefit payment is about $185 
per week and 52 additional weeks were paid to each individual, it would 
cost nearly $10,000 for each claimant referred to retraining. By APA's 
calculation, the $1.1 billion that the .16% tax will bring into RISA 
commencing in the year 2000 will only cover about 100,000 trainees, not 
the 2 million workers that will be permanently displaced each year. 

In addition, if the .2% surtax becomes permanent in 1999, this will convert 
to $14 per employee. For example, one APA member company with 46,000 
employees has estimated that making the tax permanent would cost their 
company $650,000 per year. If the wage base is raised to $8,500 to 
support income during training for long-term unemployed as was 
recommended by a majority of the Federal Advisory Council, then the cost 
rises to $17 per employee or an additional $130,000 per year. These 



251 



additional costs will likely result in further reductions in work forces 
which is exactly what the United States does not need while it is 
attempting to meet the needs of the long-term unemployed and dislocated 
workers. 

APA disagrees with the Administration's REA proposal that the employer 
should shoulder the additional burden to fund another entitlement program 
financed by the permanent extension of the .2% FUTA surtax. 



APA Recommendations: 

APA recommends that the current Ul Program should not be reengineered. 
APA believes that the current Ul Program still serves the unemployed in 
providing short-term income support for workers who because of no fault 
of their own become unemployed. 

APA believes that existing state and federal training programs that 
provide the opportunity for long-term unemployed and dislocated workers 
to upgrade their skills to enable them to compete equally for other career 
opportunities should be evaluated for duplicity and effectiveness. An 
example of such a program that does not need to be duplicated is the 
one-stop job career center currently operating in the states of Indiana, 
Michigan, New York, Ohio, and Pennsylvania . 

A new, more dynamic training program for long-term unemployed and 
dislocated workers should be collectively resolved (and funded) by all 
stakeholders: federal and state governmental bodies and the general 
public. 

The cost of any new retraining program should be shared by the general 
public since it represents a financial obligation that should be the 
responsibility of society as a whole and not just the employer. 

Any federal retraining program should be structured in such a manner so 
as to not duplicate state programs that are currently in place and being 
governed effectively by the various state agencies and their staffs. 

Congress should request a study of the total costs of the REA, including 
estimates of the impact the income support and volunteer income tax 
withholding provisions will have on state Ul Program administrative 
capabilities. 

Congress should also assess the potential cost impact of this proposal on 
state unemployment insurance trust funds related to the possibility of 
more unemployed individuals extending their receipt of weekly benefits 
from an average of 16 weeks currently to 26 weeks with the goal to 
receive income support during their retraining period. APA attempted to 
obtain this information but was not successful. 

The American Payroll Association thanks the Subcommittee for allowing 
us to submit comments related to the proposed REA legislation. We stand 
ready to assist the Subcommittee and welcome the opportunity to be of 
service. Please contact William Petz, Jr., Chair, APA Subcommittee on 
Unemployment Insurance, at (412)433-5109 or Warren G. Blue, Esq., 
member, APA Subcommittee on Unemployment Insurance, at 
(614)438-7003 if any questions arise. 



252 



STATEMENT SUBMITTED BY: 

ASSOCIATED BUILDERS AND CONTRACTORS (ABC) 

Julia L. Renjilian 

Legislative Representative 

1300 North Seventeenth Street, Suite 800 

Rosslyn, Virginia 22209 

(703) 812-2000 



Associated Builders and Contractors (ABC) thanks the House Ways and Means 
Subcommittees on Human Resources and Trade for the opportunity to submit a statement 
regarding H.R. 4040, the Reemployment Act of 1994. 

ABC is a national trade association representing more than 16,000 construction and 
construction-related firms located in more than 80 chapters throughout the United States. 
Our diverse membership of contractors, subcontractors, material suppliers and associated 
firms is bound by a commitment to the merit shop philosophy of awarding contracts on the 
basis of merit, without regard to union or non-union status. Selection of the lowest 
responsible bidder assures the construction consumer of the best value for their investment 
With more than 70 percent of all construction in the United States performed by open shop 
contractors, ABC is proud to be their voice. 

While the intent of the Reemployment Act - to assist dislocated workers in finding a 
solid, new career path — is noble, ABC has some strong concerns about several provisions 
contained in the Reemployment Act of 1994. One provision we particularly oppose is the 
permanent extension of the .2% increase in the FUTA tax to pay for income support for long- 
term training. 

Employers were made a promise when the .2% "temporary tax" was originally enacted 
in 1976, which legislators have continued to renege on by extending the .2% increase several 
times since its scheduled expiration in 1987. Recently, this .2% has been dedicated to funding 
unemployment benefits, the extended unemployment account (EUCA) in particular. ABC 
is extremely concerned that if that support is taken out of the EUCA, an additional FUTA tax 
is likely to become necessary and employers will again be asked to pay the price. This 
concern is logical, considering the EUCA has less money today than it has had in the past 
even with the support of the .2% increase in the FUTA tax. 

The Reemployment Act of 1994 would make the additional .2% tax permanent, again 
with promises that this "small" contribution will be all employers will have to make to be 
ensured of a skilled workforce. With the history on this issue, employers are obviously 
skeptical as to whether this program will turn into another open-ended, under-funded 
entitlement which they will in some way end up paying more for. 

ABC supports increased education and training for dislocated workers, non-college 
bound youth and for our current workforce. In fact, ABC, through its educational affiliate 
the Construction Education Foundatioa has developed a standardized craft training program 
to provide a total career ladder for workers entering the construction industry. Under ABC's 
programs, an individual can be trained as a highly skilled craft worker, learn additional skills 
that lead to promotion into a field management position, and finally take advanced courses 
in senior executive management skills. This program assists workers in a changing, 
competitive market It also provides ABC's member companies with a skilled labor pool to 
combat projected labor shortages in the construction industry. 

ABC recognizes the advantages of increased training — provided it is targeted to jobs 
which truly exist — and has been a leader in promoting training in our industry. However, 
we believe that using the payroll tax to support this program is a step in the wrong direction. 
Continuing to increase taxes on employers — particularly small employers — will in fact cost 
many of the jobs this program would purportedly be training for. Instead, we encourage 
legislators to seek current budgetary offsets to pay for any program to assist unemployed 
workers. 



253 



Statements of Matthew M. Fondel, Director of At Cost Services, Inc. on the 
Re-employment Security Act of 1994. At Cost Services, Inc. is a non-profit job 
training and job placement services. 

The Re-employment Act of 1994 is proposed to enable the unemployed to better navigate an 
employment environment that is very different from what existed when the current unemployment 
system was created Yet, as far as we have been able to determine, the Act fails to address one of 
the fastest growing segments of the labor market, i.e., the temporary help and contract labor 
market 

Labor Department statistics will confirm that the temporary help and contract labor markets are 
expanding rapidly as companies are choosing the flexibility of using temporary and contract 
workers. Given that a large amount of the new work created may in fact be temporary and 
contract work, the Re-employment Act should address the issues of assuring that the unemployed 
are made aware of this work and that this work is available to everyone on a non-discriminatory 
basis just as conventional work would be. 

Specifically, we request that the Re-employment Act contain law: 

1 . Requiring employers to advertise all temporary and contract work which is available and 
the procedure for applying for that work (i.e. if applicants should apply directly to the 
employer or to a temporary agency or consulting firm which the employer has contracted 
to manage and/or supply it with temporary/contract help). 

2. Requiring employers to follow a public bidding process when they are seeking companies 
to supply them with temporary and contract labor similar to that used by government 
agencies. 

3. Requiring employers to file reports with the EEOC detailing workers working within the 
company as temporary and contract workers (whether hired directly by the employer or 
supplied by a temporary agency or consulting firm) by sex, race, ethnicity etc. as with the 
EEOl report for their conventional work force. 

4. In general, assuring equal employment opportunity for the unemployed seeking temporary 
and contract work as with conventional "permanent" employment. 



84-377 0-95-9 



254 



COMMENTS ON THE REEMPLOYMENT ACT OF 1994 
Submitted By 

Spruiell D. Weber White, Executive Director 
CHICAGO JOBS COUNCIL 



On behalf of our organizational members and the thousands of Chicago residents who are in need of 
employment-related services, the Chicago Jobs Council is pleased to submit the following comments to 
the Subcommittee on Human Resources of the U.S. House of Representatives Committee on Ways and 
Means on the Reemployment Act of 1994. 

One of the greatest problems facing the nation is the lack of a coherent workforce preparation system 
which can be "negotiated" by most potential consumers, particularly those seeking to transition from 
welfare to work, the truly long-term unemployed, and others with marginal or no previous connection 
to the labor force. 

Our primary concern with the Reemployment Act is that it lacks the breadth needed to build an effective 
and viable workforce preparation system which can serve all Americans seeking entry to the labor 
market, regardless of their point of entry. Although the Act states its concern for "all Americans — 
whether seeking first jobs, new jobs, or better jobs", it clearly directs the bulk of federal resources to 
only those with marketable skills and previous work histories. The Act reinforces the perception that 
the US Department of Labor (USDOL) has developed a two-tiered approach to serving unemployed 
persons. It appears that a primary goal of USDOL programs is to serve those who are currently, or have 
been previously, connected to the paid labor market or to school (e.g. youth targeted under school-to- 
work initiatives) with intensive educational and support services. Permanently laid off and dislocated 
workers, as well as in-school youth, will be supported through technical and long-term training in 
preparation for high wage, permanent employment. 

Those who have no recent connections to the labor market or school (e.g. many AFDC families, single 
adults who formerly received general assistance, and young people who have dropped out of high 
school), are a secondary market not targeted by the "coherent employment arid training system" 
envisioned in the Reemployment Act. These are Americans who have long-term education, training, or 
support service needs — arguably those most in need. Already underserved by the JTPA system, and 
an amalgam of other federal human resource programs, these Americans are held to a lesser standard. 
Federal initiatives suggest that this population is destined to end up in low-wage, low-skilled jobs. As 
such, they will not be given the support, encouragement, and resources the Reemployment Act promises 
to those who already have some comparative advantage through an employment history or by virtue of 
a connection to school or training. 

Contrary to its stated goals of developing a "comprehensive system of employment and training services" 
within the USDOL, H.R. 4040 further divides federal policy addressing our nation's critical problems 
in the areas of education, worker training and economic development. The Act establishes a 
comprehensive program for the reemployment of dislocated workers which would include: 

■ intensive re-employment services for those dislocated workers not able to find jobs; 

■ income support beyond unemployment insurance to permanently laid off workers who need and 
decide to train for new jobs and occupations; 

■ reemployment bonuses for those who quickly find new jobs; and, 

■ supplemental wage allowances for older workers if they accept full-time employment at a weekly 
wage less than the prior wage. 

While these services are welcome additions to our workforce development "system", we have serious 
concern about the disparity of service which will be provided to those "connected" (and targeted by the 
Reemployment Act), and those who are at the margin, desperately seeking a connection to the labor 
market. The Reemployment Act not only provides a substantial level of benefits, but creates an 
environment in which additional training and education, leading to higher wage, permanent employment 
is the expectation for dislocated workers. This is in sharp contrast to the administration's welfare-to- 
work approach which suggests that persons transitioning from welfare into the labor market should do 
so in the fastest, most expedient way — irrespective of long-term job and career interests. 



255 



If, in fact, the administration plans to create alternative systems for those most in need to access training, 
education, and job opportunities, then the Reemployment Act as proposed, would fit nicely into a larger 
system which serves all Americans. However, we see no such plans emerging; and further, see the 
administration applying two wholly different standards - further widening the gap between the "haves" 
and "have nots". 

In addition to this broad concern about the Act, and the direction of the USDOL, we wish to address 
a few other details in the proposed legislation. 

ONE-STOP CAREER CENTERS 

The development of one-stop centers as proposed raises two fundamental issues. If such centers are 
intended to serve all those seeking employment, they should include other federal resources such as the 
JOBS program, Food Stamp Employment & Training, and Carl Perkins-funded activities. Although the 
Act specifies that inclusion of these resources is optional for states, it sets the precedent at the federal 
level that the populations targeted under these initiatives are secondary in importance. Few states will 
move boldly ahead on their own to create more comprehensive programs at the state level without strong 
federal encouragement and support. 

The second issue is that the development of "place-based" one stop career centers seems a step backward 
from the growing use of technology to link existing community-based organizations that have established 
relationships with persons in need of service. Why use scarce federal resources to re-invent the wheel? 
An employment system which truly serves people in need will be conveniently located to serve such 
people where they are. This further supports the impression that the administration does not intend to 
serve those most in need. Rather, the reemployment system will serve those who are skilled, connected, 
and mobile enough to reach the "one-stop center" that may or may not be located near their 
neighborhood. 

LOCALIZED LABOR MARKET DATA 

While we fully support the development of a National Labor Market Information System that allows for 
substantially improved collection and analysis of local labor market trends, we do not see the Act 
allowing for appropriate funding or timing of such a system. The redesign of employment services, 
especially the investment in "place-based" one-stop career centers, should grow from information about 
the local labor market. We would support the development of a National Labor Market Information 
System prior to the introduction of some other elements of the Act. Further, labor market information 
should then be tied to what is known about skill and education levels of those removed from the labor 
market. Together, that information could be used to develop a workforce development system that is 
truly comprehensive, reaching all those in need of employment -related services. 



REINVENTION LABS 

The proposal in Title V, to set up "Reinvention Labs" amending JTPA Title U to allow waivers for 
innovative program designs for serving economically disadvantaged youth and adults is a welcome 
addition. It is certainly true that many JTPA performance standards prohibit service providers from 
serving "hard to serve" populations who require a greater investment of time, energy, and funding than 
SDA's typically allow, in keeping with federal regulations. In particular, many of our organizational 
members have noted that this most needy population typically requires multiple placements after training 
before one of those becomes a "permanent" placement. Under JTPA guidelines, this would result in a 
penalty to providers. To the extent the Reinvention Labs would provide SDAs with increased flexibility 
for operating job training programs, and reaching some populations currently underserved by JTPA- 
funded programs, we support the proposal. However, the proposed legislation sets up this title as a bare- 
bones demonstration, with authorization for only seventy-five SDAs nationally and no apparent funding 
to offset increased cost of some innovative service delivery models. As there may be cuts to the regular 
JTPA budget, we recommend that this title have its own budget line in the funding appropriated for the 
Act. 



256 



Finally, we feel that Reinvention Labs are a potentially good vehicle for the USDOL to coordinate with 
the administration's current welfare reform plans. Allowing SDAs flexibility in their program design 
and delivery will help open doors for blending USDOL initiatives into welfare-to-work efforts. It may 
also be possible for Reinvention Labs to connect further with welfare-to-work efforts by helping to 
identify and/or create jobs specifically for those persons transitioning from public assistance to the labor 
market. As the Chicago Jobs Council is particularly concerned about job creation and access issues, we 
feel this would be one appropriate focus for Reinvention Labs. 



To conclude, we call upon the Committee and the Department of Labor to help set the standard at the 
federal level with respect to workforce development issues. If the admininistration's goal to create a 
truly comprehensive workforce development system is to be realized, then this legislation should itself 
develop a comprehensive and coherent approach within the USDOL. The Reemployment Act of 1994 
does not appear to be such legislation. If implemented as proposed, the Act would create a two-tiered 
system within the USDOL itself, and push much needed federal employment and training resources 
further away from Americans who need them most. We hope you will consider these comments and 
suggestions with care. Please use them to amend the legislation so that it can create a comprehensive 
workforce development system for all Americans; and, serve as the model upon which other federal 
agencies can build. 



257 




H 



COALITION ON C 

UMAN NEEDD 



. \.|-.I,.|I 



Statement of the Coalition on Human Needs, 
Jennifer A. Vasiloff, Executive Director 

before the 

Subcommittee on Trade 

and the 

Subcommittee on Human Resources 

of the 
House Ways and Means Committee 



on 



H.R. 4040, The Reemployment Act of 1994 



The Coalition on Human Needs (CHN) is an alliance of over 100 national organizations working 
together to promote public policies which address the needs of low-income americans. The 
Coalition's members include civil rights, religious, labor and professional organizations and 
those concerned with the well-being of children, women, the elderly and people with disabilities. 
We would like to submit the following statement for the record on H.R. 4040. the proposed 
Reemployment Act of 1994. 

CHN commends the Administration for initiating legislation to retrain dislocated workers and 
better coordinate the delivery of employment and training services. Clearly, the unemployment 
insurance system is failing to reflect the changing realities of the labor market occurring because 
of corporate restructuring, technological change, the integration of the world economy, and 
defense downsizing. We also believe that it is failing to respond to the expansion of the low- 
wage and contingent labor force and increased labor force participation of women. 

The Administration has sent to this committee two different proposals to address these two 
structural unemployment problems. The Reemployment Act focuses on workers with substantial 
work tenure with the same employer while welfare reform in the Work and Responsibility Act 
focuses on single women with children, a substantial number of whom work in the low-wage 
labor market and are dislocated from stable mainstream employment. 

The Coalition on Human Needs urges the Committee to look closely into the relationship 
between these two initiatives in terms of the proposed delivery systems, services and eligibility. 
We believe you have a unique opportunity to design a comprehensive structural unemployment 
system and that you should avoid going down the path of a two-tiered labor market strategy. 
The possibility of a two-tiered approach is present within the Reemployment Act and between 
the Reemployment Act and the Work and Responsibility Act. 

CHN strongly supports the Administration's proposal to provide extended income support for 
workers who are displaced from their jobs. This bill is an important step forward because it 
recognizes that short-term training has limited value in many circumstances and that unemployed 
workers need income support in order to take advantage of longer-term training opportunities. 

H.R. 4040 makes the current two-tenths percent Federal Unemployment Tax Act (FUTA) surtax 
permanent to help pay for the bill. We support this action. However, we are concerned that 
most of the initial proposed funding for the Reemployment Act is discretionary and most of the 
funds are not available for three years. This means that the resources will be inadequate to 
address the needs of all dislocated workers. 

CHN also is concerned about the consequences to the Extended Benefits (EB) program of 
transferring 20% of the FUTA revenues to the Retraining Income Support Account. Because 
excess funds from the ESAA account flow into the Extended Unemployment Compensation 
Account (EUCA), which pays the federal share of extended benefits, we are concerned that this 
financing plan may impair chances to improve the extended benefits program. 



258 



CHN worked hard for enactment of the Emergency Unemployment Compensation program 
during the last recession when the limitations of the existing Extended Benefits (EB) program 
came into stark relief. Only 8 states triggered onto the EB program during the 1991 recession, 
and the extended benefits account ran out of money. We are deeply disappointed that proposals 
to address the inadequacies of the EB program were not included in this proposal also. 

Extending the two-tenths percent tax clearly also will not address the serious underlying revenue 
weakness of the employment security system. The current federal wage base of $7,000 is only 
S4.000 more than it was in the 1930s. It has not been raised since the early 1980s and is at its 
lowest level in history in terms of its coverage of total wages. The average employer tax has 
declined by 25 percent since 1983. and the average employer tax rate as a percent of total wages 
has dropped 33 percent. 

Inadequate revenue capacity, along with three severe recessions in the 1970s and 1980s, has 
severely drained many state trust funds, led to a reduction in unemployment insurance 
protection, and severely weakened the program's ability to respond to cyclical unemployment. 
Strengthening the revenue base of the unemployment insurance program is essential if the 
program is to be restored as an effective countercyclical mechanism and meaningful financial 
safety net for the unemployed. 

Eligibility for income support and training under H.R. 4040 is heavily influenced by the lack 
of adequate resources and the inadequacy of the basic unemployment insurance system. The bill 
proposes to give income support and intensive services to a very limited number of the 
approximately one-third of the unemployed who receive unemployment insurance coverage in 
the first place. It then uses a three-year job tenure screen and worker profiling to select the 
individuals who will be able to participate. 

Among those who meet these tests, the profiling system will identify individuals most likely to 
exhaust unemployment benefits for additional income support and retraining. Workers with less 
specialized skills may be considered to be more able to find alternative work and therefore 
determined ineligible. 

Such a strategy would create inequitable distinctions among workers. Only about half of the 
dislocated workers meet the tenure screen and. according to a 1993 Bureau of Labor Statistics 
survey, only 61.9 percent of them received UI benefits. In addition, employees with the same 
employer may be treated very differently. 

The interaction of the tenure screen and profiling almost certainly will disadvantage a women 
worker who fits the "welfare profile". A single mother employed for nine months in a clerical 
position in a facility which closes will not qualify for dislocated worker income support and 
intensive services. Even if she met the tenure screen, the profiling system might screen her out 
because she may be considered to have more portable, albeit less specialized, skills. She would 
not be able to gain access to training for high skilled, high wage work through this program. 

These mechanisms to ration limited resources will create categorical distinctions which will be 
difficult to justify and administer. At a minimum, worker profiling should be used simply as 
an assessment tool to determine individual workers' needs and volunteers should be served first. 
We also think the tenure screen should be rejected as a requirement for eligibility. 

Notwithstanding these limitations, the opportunities and approach offered for dislocated workers 
under the Reemployment Act are significantly more positive than those under the Work and 
Responsibility Act. This is regrettable since many single mothers who participate in the AFDC 
system put out a significant work effort but do not qualify for unemployment insurance. 

CHN believes that the failure of the unemployment insurance system to offer jobless protection 
to many low wage women has caused many women workers to turn to welfare as the only 
alternative to support their children. 

In a March, 1994 report entitled Income Insecurity; The Failure of Unemployment Insurance to 
Reach Working AFDC Mothers , the Institute for Women's Policy Research (IWPR), a 



259 



participating organization in the Coalition on Human Needs, documents the patterns oi work. 
UI participation, and AFDC receipt ol women on welfare for at leasi two months during a two- 
year period. 

The (IWPR) study found that "the great majority of working AFDC mothers do not receive 
unemployment benefits despite substantial work effort". In addition, it found, that: 

* among single mothers who received AFDC for at least 2 out of 24 months. 43 percent 
also worked and worked an average of 910 hours per year - about the same half-time rate 
as most mothers in the workforce; 

* women who did not receive UI benefits exhibited just as much work effort as AFDC 
mothers who did receive UI; 

* those who received UI benefits were more likely to live in states where the UI system 
covered more of the unemployed and had fewer months on AFDC over the two-year 
study period. 

The reality is that many low wage women workers are using the AFDC system as a substitute 
for the unemployment insurance program because they do not qualify for unemployment 
benefits. We beiieve, and urge the committee to look into the possibility, that this trend may 
have intensified during the 1980s as state unemployment insurance programs cut back on 
eligibility especially in ways that may have disproportionately affected low wage and women 
workers. 

A September, 1993 General Accounting Office (GAO) report, Unemployment Insurance; 
Program's Ability to Meet Objectives Jeopardized , lends credence to this theory. It directly 
links the decline in reserve adequacy and increase in trust fund insolvency to a significant decline 
in unemployment insurance coverage. 

According to the GAO report, between 1978 and 1990, 37 states either reduced the maximum 
number of weeks the unemployed could receive UI benefits, raised their minimum earnings 
requirements by more than 10 percent, or increased one or more disqualification penalties. 
These policies fall especially hard on women in unstable, low-paying jobs and single mothers 
who may have been fired or had to leave their jobs for family-related reasons. 

The GAO report also points to other factors contributing to the decline in unemployment 
insurance coverage during the same time period. They include a shift from higher paying, more 
stable manufacturing jobs to lower paying less stable service sector jobs; employer actions to 
manage employees' hours and wages so that they would not be eligible for unemployment 
benefits; and the growth of independent contractors, consultants, and employee leasing 
arrangements. 

It is reasonable to suspect that these trends, along with the two recessions since 1988, 
contributed significantly to recent increases in the use of AFDC. Thus, the assumption of the 
Work and Responsibility Act that a two-year time limit is necessary to push AFDC participants 
into the workplace simply does not square with the real lives of a substantial number of welfare 
recipients. 

CHN questions the merit of reorienting the entire welfare system to keeping track of how long 
individuals have received benefits, instead of focusing the system on effective case management, 
job search, education, training and support services, supplemented by aggressive job creation 
and improvements in other systems and programs giving greater support and opportunity to low 
wage women workers. Adding more bureaucratic rules to an already highly prescribed program, 
is not the way to help low income women achieve long term economic self-sufficiency. 

In particular, the unemployment insurance program should be made more responsive to the large 
group of women workers who exhibit high work effort but have low and sporadic earnings. 
State UI laws should be modified to reduce minimum earnings requirements and disqualification 
rules which deny unemployment benefits to women who leave work for a variety of 



260 



work/family-related reasons or who cannot find stable decent paying jobs. Reforming 
unemployment insurance eligibility rules and improving unemployment insurance benefits could 
play a significant role in diverting many low wage women workers from AFDC. 

In addition, instead of rationing employment and training according to some categorical 
mechanism, such as worker profiling or AFDC participation, it would be much better to set up 
one unified system serving all workers based on their individual needs, capacities, interests, and 
willingness to participate. Ironically, while the Reemployment Act is based on the premise that 
extended income support is necessary for experienced workers to prepare for high-skill, high 
wage work through long-term training, the Work and Responsibility Act moves away from an 
emphasis on long-term education and training strategies to an emphasis on rapid movement off 
AFDC through job search and job placement. 

A two-tiered employment and training system is very likely to emerge from these two separate 
strategies, with poor lower-skilled working women relegated to the low wage labor market. 
CHN strongly supports merging these two systems so that job seekers in the welfare system will 
not be segregated into a separate and unequal, system of education, training, and labor market 
services. 



261 

Statement 
On Behalf of 



THE COMPUTER TRAINING COALITION FOR 
A HIGH PERFORMANCE WORKFORCE 



Before the 

Human Resources and Trade Subcommittees 

of the Committee on Ways & Means 



July 26, 1994 



Thank you the opportunity to submit this testimony to the Human Resources and 
Trade Subcommittees of the Committee on Ways & Means on behalf of the Computer 
Training Coalition for a High Performance Workforce regarding our strong interest and 
support of H.R. 4040, the Re-Employment Act of 1994. We wish to inform the 
Committee of the many contributions that private sector training programs can make to 
the goals, objectives and implementation of the new legislation. 



The Need to Train and Retrain America's Workforce for the Future 

America is witnessing a major redistribution of both capital and human resources, 
rapid and accelerating advances in technology, a new world of global competition, and 
changes in the structure and processes of business management. More than any other 
sector in this country, the computer training industry recognizes and has been rapidly 
responding to the "third industrial revolution" taking place in the U.S. Its key elements 
are a renewed emphasis on product quality and service, workforce training and 
education, cost control, customer satisfaction, and employee participation in decision- 
making. As a result, information has become "one of the Nation's most critical economic 
, resources, for service industries as well as manufacturing, for economic as well as 
national security..." (National Information Infrastructure Task Force Report 1993). By 
one estimate, two-thirds of U.S. workers are in information-related jobs, and the rest are 
in industries that rely heavily on information. There is a new world of work that 
integrates high-technology communications and information systems for a high 
performance work force. 



262 



The Computer Training Coalition For A High Performance Workforce has been 
created as a direct result of the need to integrate high technology into the skill sets of 
the American worker. The Coalition consists of computer training companies and 
affiliate hardware and software computer companies who are members of the 
Association of Technical Education Centers (ATEC), the International Computer 
Training Association (ICTA). The Coalition also includes representatives from the 
Computer Education Management Association (CEdMA) and the Software Publishers 
Association (SPA). The Coalition represents the interests of over 200 companies who 
are leaders in providing computer training in local communities, serving over 13 million 
students each year in over 400 technical subject areas that designed to develop the skills 
necessary for today's workplace. We strongly believe our contribution is critical to the 
success of the Re-employment legislation's goals. 

The Coalition provides comprehensive computer training services including: 

More than 400 computer training classes with open-enrollment; 
Courses and study materials developed by instructional designers and subject 
matter experts to meet industry standards; 
10,000 qualified instructors trained on state-of-the-art technology; 
Certification and testing for students and instructors; 
Customized training programs for employer-specific needs; 
Support for local delivery providers in communities across the country; 
Training facilities equipped with the latest computer and information technology 
systems, and; 
• A training environment conducive to learning yet representative of the modern 
workplace. 

The Coalition represents nearly 500 national computer training centers providing 
higher level technical skills to more than one million workers and job-seekers each year. 
Member organizations range from Fortune 500 companies to mid-sized and small 
business training centers which facilitate network and computer training programs. 
Services offered include on-the-job computer training, dislocated worker retraining, and 
instruction for unemployed individuals. In addition, Coalition programs provide 
computer training services to all U.S. Government agencies including NASA 
Headquarters, the Department of Commerce, the Department of Energy, the CIA, the 
Resolution Trust Corporation, the Social Security Administration, and the Department of 
Defense. 

Training programs are also provided to local and state agencies such as the City 
of Denver, Community Disability Services in South Dakota, Department of Economic & 
Employment Development in Maryland, and JTPA Job Corps sites in Arizona, New 
Jersey, and Pennsylvania. Training services extend to almost every community across the 
country and incorporate a diverse student population. In some cases, 36% of students 



263 



arc non-college educated, 21% are dislocated workers, 25% are women, and 13% are 
within a low-income bracket. 

In the wake of the continuing process of change in the U.S. economy, there has 
been a significant recognition by both business and individual workers of the importance 
and value of job training and re-training, particularly in specialized areas such as high- 
technology, and advanced communications systems. Companies that invest in worker 
training and education programs contribute to their own business "bottom-line," to the 
overall economic strength of the nation, and to society's well-being. Worker training 
programs in high technology fields clearly strengthen the ability of businesses to compete 
by increasing labor force skill and productivity, while enhancing workers' earning 
potential and employment/re-employment opportunities. 

Members of the Coalition have set the standards for the new American workforce 
in goals and skills development. Several national commissions including Workforce 2000, 
Secretary Reich's Commission On Achieving Necessary Skills, School-to- Work 
Opportunities, National Skill Standards, and the Commission for Work-Based Learning 
have sought to more clearly define the goals and objectives for the workforce of the 21st 
century. Information and technology have specifically been identified as critical 
competencies needed for solid job performance in today's workforce. The ability of 
individuals to be able to use computers to process information, as well as to apply 
technology to specific tasks, encourages a high-performance economy characterized by 
high-skill, high-wage employment 



Responding to Worker Training Needs 

The Reemployment Act of 1994, proposed by the Clinton Administration and 
currently being considered by the Congress, addresses the need to retrain American 
workers to compete in a skill-based economy. Due to a "recognition of changing 
realities" in America's economy, this legislative initiative is designed to create a new 
labor-market dynamic. Ultimately, training and re-training programs will facilitate the 
transition of American workers into new high-tech, high-performance jobs commensurate 
with the demands of the global marketplace. 

Private sector computer companies have an outstanding record of achievement in 
full-service high-technology, computer network education and training programs. The 
Coalition believes it can be a valuable partner with the Federal government in providing 
American workers with the skills required to be productive employees. Computer 
networking and high-tech information technologies, along with a highly trained, 
productive workforce, are key elements needed to compete in the world economy. The 
Coalition members want the opportunity to continue to provide workers with the range 
of high-performance, quality training and re-training services called for in the 
Reemployment Act of 1994. 



264 



The Coalition recognizes that the Re-Employment Act was drafted with the 
intention to accommodate training centers other than institutions of higher education as 
"providers of education and training services." However, it appears at this time that the 
proposed new legislation outlines an onerous and complicated "alternative" process for 
determining training provider eligibility, especially for many commercial computer 
training firms which provide high-quality services but which would not otherwise qualify 
under the so-called "Title IV" eligibility standard. Under the "alternative" provision 
which prescribes the eligibility requirement for providers of education and training 
services, Coalition members believe they would be subject to a complex bureaucratic 
process in each state in order for their training services to be reimbursed by Federal 
funding. While we believe Section 154(b) recognizes the need to establish a set of 
consistent requirements and criteria for alternative training and education providers, we 
also want to ensure that such requirements and criteria are appropriate for an industry 
that is continuously upgrading and introducing new, state-of-the-art training products that 
enable today's workforce to meet the demands of a global marketplace. 

The Coalition seeks to work with the Administration and the Congress to amend 
the Reemployment Act of 1994. as introduced, to establish uniform performance 
standards and an eligibility process appropriate to computer training programs offered by 
private sector training companies- 



Private Sector Programs: Leaders in the Field of Training 

There is a need in this country for skill-specific job training to enable workers to 
adapt to the rapid technological advancements within the American workplace. Private 
sector computer training firms are uniquely positioned to meet this need. Coalition 
members offer computer training services that provide: 

• "Just-In-Time" training to meet today's changing workplace; 

• Sensitivity to the needs of private industry; 

• Knowledge to meet cutting-edge corporate demands; and 

• Full understanding of work force restructuring needs resulting from economic 
policies such as defense conversion and corporate downsizing. 

Coalition members successfully offer high-quality, industry-recognized, certified 
computer training programs that produce individuals with real skills which can: 

• Allow workers to retain jobs that now require computer skills; 

• Enable workers to move into more technologically skilled jobs at higher wage 
brackets; 

• Capitalize on workers current experience; and 

• Increase worker productivity. 



265 



Members of the Coalition share a strong commitment to worker retraining and 
skills enhancement As leaders in the computer training industry, members provide 
essential training services to local communities. 



Job Training and Education Partnerships: Cooperative Programs 

Community partnerships are a key component for Coalition members training 
expansion strategies. For example, under the auspices of a Coalition software publisher, 
several vendor authorized education centers and vendor authorized training centers work 
closely with their local community colleges to provide among their services the complete 
Certified NetWare Engineer (CNE) curriculum. Community colleges have formed 
partnerships with Coalition training centers in order to upgrade their facilities and staff 
with the latest computer technology and instructors. These relationships have become a 
critical part of creating and expanding educational opportunities for students seeking to 
complete the entire NetWare curriculum that otherwise would not be available at local 
community colleges. 

Recognizing the limitations under which educational institutions operate, many 
community colleges now rely on partnerships with private sector training companies to 
complete the CNE curriculum. One successful effort has been in the State of Wisconsin, 
where many local community colleges have determined that CNE curriculum is a 
necessary requirement for graduation. Working with a Coalition member, one 
community college trained its staff and obtained state funding to upgrade their computer 
equipment with more technologically-advanced hardware and software. As a direct 
result of this program, the community college currently places over 90% of its CNE 
graduates in real jobs! 

There are several training centers working with local Private Industry Councils 
(PICs) providing training to unemployed workers. Candidates for CNE programs are 
carefully chosen by PIC counselors and placed in a program. Students are required to 
satisfactorily complete each course by passing CNE exams as part of comprehensive 
training program. This methodology instills confidence to both the individual and the 
center instructors to continue CNE training through completion to certification. Centers 
that provide training through the PICs have maintained an average 75% placement rate. 
To ensure workers and job-seekers continue to benefit from these training services, the 
Reemployment Act must permit individuals to obtain full access to commercial training 
resources. 

Background on Private Sector Training Programs 

The commercial computer training industry was originally developed in the early 
1980's with the advent of the IBM-PC and the huge demand it created almost overnight 
for end user applications software training. At the time, this need was completely 



266 



overlooked by all other providers in the education/training system. Private training 
companies emerged as leaders in the United States specializing in standard applications 
software training and serving the needs of corporate, government, and other computer 
users for high quality, intensive, and timely hands-on training. Private training 
companies have expanded an industry that is now providing a crucial role in restructuring 
the American workforce. 

Software companies began to recognize the need for training partners, and in 
1984, most major software companies established vendor authorized training center 
programs. Training programs are now a standard means for software companies to 
ensure their customers receive timely, high quality training through alliances with private 
training providers. Private technical training companies now represent the fastest 
growing segment of today's training market. 

The International Computer Training Association (ICTA) was formed in 1987 as 
a non-profit entity to promote professionalism in the computer training industry and to 
establish a forum for communication between training organizations, software and 
hardware vendors and their clients. ICTA's mission is to enhance and advance the 
professional growth of member firms through an environment that provides opportunities 
for educational, information exchange and networking. ICTA is dedicated to the 
development of professional standards for its member companies; leaders in the 
computer training business and experts in information technology. ICTA is currently 
comprised of over 100 members directing more than 200 training centers throughout the 
U.S. and Canada delivering nearly a million student-days of training annually. 

The Association of Technical Education Centers (ATEC) is an independent, non- 
profit organization dedicated to expanding opportunities for companies that provide 
vendor-authorized training and education services. ATEC currently has 90 member 
companies that operate 300 training centers throughout the U.S. and Canada educating 
nearly one half million students each year. ATEC provides advisory support to their 
members to develop and implement educational programs. These programs have 
enjoyed a rapid and successful introduction throughout private sector training channel. 
Most importantly, ATEC has provided significant advice and support to the design, 
development, and delivery of industry certification programs. 



The Reemployment Act of 1994: Creating a Public and Private Partnership for Worker 
Training 

In July 1993, the U.S. Departments of Commerce and Labor convened a 
Conference on the Future of the American Workplace in order to highlight an emerging 
revolution in workplace practices and to address accelerating the pace of change. 
President Clinton underscored his commitment to the reinvention of the American 
workplace during his participation in the conference. As a result of the President's 






267 



commitment, not only have relevant government agencies created offices to address this 
issue and the Reemployment Act of 1994 been introduced in the U.S. Congress, but 
private sector training companies have provided an important contribution to meet this 
challenge. 

As hearings continue to be held on the Re-Employment Act to assess what is 
necessary and most valuable to prepare American workers for the high-performance 
oriented demands of today's workplace, the Coalition would like to work with you to 
propose language for "alternative eligibility" of education and training providers that 
would establish uniform performance standards that are appropriate to computer training 
programs offered by private sector training companies. We are a unique industry that 
has successfully been integrated into virtually every workplace across this country, and 
therefore we feel that our training programs provide an essential role in achieving the 
goals of the Re-Employment Act. 

Thank you for this opportunity to submit this testimony to voice our strong 
support of this national worker training and retraining initiative. We look forward to 
working with you to improve the education and training needs of our workers. 



268 



Statement Submitted By 

The Employer's Task Force on Unemployment Compensation 

of 

The Council of State Chambers of Commerce 

To the House Ways and Means Subcommittees on Human Resources and 
Trade - Re: H.R. 4090, the Reemployment Act of 1994 

We support serious evaluation of the various Labor Department training programs as a 
step in the right direction. However, we have very serious problems with the proposed 
Retraining Income Support (RISA) benefit program Generally we agree with the 
concerns expressed by Andrew W Richardson, the West Virginia Employment Programs 
Commissioner, as President of and in behalf of, the Interstate Conference of Employment 
Security Agencies (ICESA). We also have additional concerns which it seems unlikely will 
be possible to address properly in the brief time remaining in the current Congress: 

• We are concerned not just with the proposed RISA training benefits which will 
eventually result in TAX INCREASES at the Federal level, but also the certainly that 
they will automatically bring State tax increases. 

• Nor is our concern just that by making the 0.2%, so-called, 'temporary tax" permanent 
to finance the RISA benefits the in future Congress will have reneged, for the final 
time, on its promise that this is a "temporary" tax. 

• Our primary objection is that the RISA proposal is that it requires the employer to 
finance a program that should be the responsibility of society as a whole and not 
just the employer. Similarly we object to the use of employer payroll taxes to finance 
the Self Employment Assistance Program that the States would be authorized to 
undertake if they so desire, We do not believe it is equitable to ask an employer to 
subsidize a former employee to start up a business that in many cases is likely to be in 
competition with that employer 

Objections to Employer Financing of the Proposed Retraining Income Support 
(RISA) Program 

Historically we have supported complete employer payroll tax financing of 26 weeks of 
regular Unemployment Insurance benefits plus 13 weeks of Extended Benefits. We have 
consistently taken the position that any benefits beyond these periods should be the 
responsibility of society as a whole and not just the employer. The line has to be drawn 
someplace and we continue to believe that this is the place to draw it 

The testimony of Mr. Richardson to thes Subcommittees, in behalf of the State 
Employment Security Administrators, spells out how the proposed Retraining Support 
(RISA) Program would work in the real world. 

Under the provisions of H R 4040 State unemployment benefits would be payable up to 
26 weeks in most States Then under Title I there would be up to an additional 26 weeks 
of retraining income support and up to 52 weeks under Title II. Clearly this payment of 78 
weeks exceeds what we believe should be the sole financing responsibility of the employer 

Also these benefits, as Mr Richardson pointed out, will result in: 

"An increase in participation in training by unemployment insurance 
beneficiaries, along with the prospect for additional income support 
payments, are expected to result in longer average duration of 
unemployment claims, a higher rate of benefit exhaustion, and 
increased outlays from state unemployment trust funds..." 



269 



Increased outlays from State unemployment trust funds automatically results in increased 
State taxes! 

The pressure for increased Federal taxes results from the not only inequitable, but also 
the inadequate, provisions for financing RISA Again Mr Richardson's testimony 
highlights the problem 

"Retraining income support payments under Title II would be 
funded by re-directing a portion of FUTA revenues from the 
Employment Security Administration Account (ESSA) in the 
Unemployment Trust Fund to a new Reemployment Income 
Support Account (RISA) The amount transferred each year from 
ESSA to RISA is set in the proposed legislation from 1996 
through 2000. Beginning in 2001, 20% of FUTA revenues- 
currently about $11 billion-each year would go to RISA 

"The immediate impact of this diversion of funds to RISA would be 
a reduction in excess ESAA funds that are transferred to the 
Extended Unemployment Compensation Account each year, and 
ultimately there would be a shortfall in the Employment Security 
Administration Account unless taxes are increased ." 

The operative phrase above is "unless taxes are increased." We believe that there will be 
considerable pressure for such tax increases even if the program isn't very successful. The 
result will be that employers will be stuck with financing an increasing expensive program 
that should be the responsibility of society as a whole and not just the employer 

Conclusion 

This statement has concentrated on the financing aspects of the proposed Reemployment 
Act since that is our particular area of expertise and concern However, as is pointed out 
in Mr Richardson's ICESA testimony much more is involved than financing issues For 
example, the potential for breaking, what we believe, is an essential connection between 
State unemployment insurance programs and the employment service is a serious problem 
that must be resolved before such comprehensive legislation is enacted If it is not, as Mr 
Richardson pointed out the result will be closing of additional local offices and 
reducing the UI services available. 

The potential for undermining what has been a very successful Federal-State social 
insurance program is too great to enact hasty legislation in the brief time remaining in this 
Congress! 

7/16/94 



270 



EMPLOYERS' NATIONAL JOB SERVICE COUNCIL 

REEMPLOYMENT ACT OF 1994 
POSITION PAPER OF JUNE 28, 1994 



The Reemployment Act is a key program in President Clinton's State of the Union Address as 
delivered in January 1994. The Act, complete with financing, was introduced in the House of 
Representatives by then Ways and Means Chairman Dan Rostenkowski (HR 4040) and in the 
Senate by Finance Chairman Daniel Patrick Moynihan (S 1951) in March of this year. It would 
change the way employers use the current Employment Service System. The Reemployment Act of 
1994 would establish an integrated retraining program by combining six of the current federal 
training programs The Reemployment Act of 1994 would change the current short term 
unemployment compensation system established to assist unemployed workers while seeking 
gainful employment to a long term retraining income support program. The Reemployment Act of 
1994 would provide for voluntary one-stop career centers throughout the country for use by 
unemployed workers and employers. The Reemployment Act of 1994 would strengthen existing 
capabilities of the Labor Market Information System. 

• The Employers' National Job Service Council supports the Administration's concept of folding 
six current U.S. Department of Labor dislocated workers' programs into one comprehensive 
retraining program 

Applicant and employer would benefit from the consolidation of these six programs. This 
effort would reduce administrative costs; solve the eligibility maze, and assist in the 
centralization of information and service. Wc recommend that this be a first step in the 
integration of more of the one hundred and fifty training programs. 

• The Employers' National Job Service Council opposes the use of the Federal Unemployment 
Trust Fund for anything other than what it was intended; i.e. providing temporary 
unemployment benefits to unemployed workers, it must not be used to fund an open ended 
training program 

Under this Act a new "Retraining Income Support Account" (R ISA) would be 
established in the Unemployment Trust Fund. Each year an escalating amount of the 
F.U.T.A. receipts ($350 million in FY 1996 - $920 million in FY 2000) would be placed 
in this new Retraining Income Support Account The amount is capped for each year, but 
with other entitlements (term that has been used by individuals within the Department of 
Labor in describing portions of this Act), when funding projections have been exceeded, a 
supplemental appropriation is made Eligible participants under an entitlement cannot be 
denied the benefit. 

The Administration stated that 2.2 million full-time workers lost their jobs in 1990. More 
than half of the workers displaced in 1992 were still unemployed (Apnl 1994). Eligible 
individuals under this Act with three years or more job tenure are eligible for a maximum 
amount not to exceed fifty two weeks of retraining benefit. These individuals are also 
eligible for education and training services in an amount not to exceed $4,750 for any 
twelve month period. The Administrations own numbers clearly depict an 

underestimating of the funding requirements. 



271 



Employers are taxed and surtaxed to maintain funding levels within the Federal 
Unemployment Trust Account as well as within their state trust fund High utilization 
under the Act could jeopardize the three existing subaccounts of F.U.T.A. and require the 
implementation of new or increased taxes This does not include the increased impact that 
this would have on employers unemployment experience rating. 

The Employers' National Job Service Council opposes the implementation of a permanent 
0.2% F.U.T.A. excise tax. on employers. 

The Act proposes a permanent 0.2% F.U.T.A. excise tax. This a specific tax on 
employers. Although the proponents of the increase state that it makes permanent the 
current 0.2% temporary F.U.T.A. Surtax, the shift of the tax's purpose from deficit 
reduction to funding a new program conflicts with other deficit reduction measures. The 
current temporary tax terminates at the end of 1998. 

The Employers' National Job Service Council supports employer tax credits for employee 
retraining and retention. 

"Grants may be awarded to assist projects that provide services to upgrade the skills of 
employed workers who are at risk of being permanently laid off and in retraining employed 
workers in new technologies... and avert plant closings or substantial layoffs." The 
Administration noted that three out of every four workers who lost their jobs last year lost 
them permanently. Their skills are, for the most part, no longer in demand. We believe 
that a stronger effort be placed on the retention of under-skilled employees and the 
promotion of training toward high efficiency workers. The Act's funding of the job 
retention provision (Section 101) needs to be increased beyond the 5% of the Governor's 
reserve. Current langauage provides from 0% up to 5% of the State's 75% allocation. 

The Employers' National Job Service Council endorses the strengthening of the Labor Market 
Information System. 

The Reemployment Act proposes to "build and strengthen existing capabilities of the 
National Labor Market Information System at the Federal, State and local levels". While 
we agree with many of the components of the system; including comprehensive information 
on job openings, labor supply, occupational trends, current and projected wage rate, skill 
requirements and an automated screening system to permit easy determination of candidate 
eligibility for training services; employers require direct access to the automated system so 
as to be able to conduct our own (employer) job searches. 

This system must be a national system and not a dysfunctional conglomeration of 
independent state data information systems. Many of our larger employers have multi-state 
operations and need a singular job match system attuned to address the specific job 
openings offered by their local divisions throughout the nation. 

Those service providers under this Act must interact with the system by listing their job 
openings and "job ready" applicants. 

We further request that the national system be skilled based oriented and utilize many of 
the components of the SCANS Report (Secretary's Commission on Achieving Necessary 
Skills). Any such system most be developed in harmony with the Skills Board which was 
established through the legislation of Goals 2000. 

ENJSC's Reemployment Act Position Paper: 6/28/94 



272 



The Employers' National Job Service Council supports the voluntary participation of the States 
in the "One-Stop Career Center System". 

Many states have already established programs similar to the one-stop career center and 
have built partnerships which must not be thwarted by passage of the Reemployment Act 
The individual states must be provided the option of participating in the establishment of a 
one-stop career center system within their state. 

The Employers' National Job Service Council supports the specific inclusion of Veterans 

Reemployment Services at the One-Stop Career Center. 

As employers who take pride in the hiring of the American Veteran, we are concerned that 
the veterans would not receive their full cadre of employment and training services. We 
support case management as a "basic reemployment service" offered to veterans. 

The Employers' National Job Service Council supports the basic services which are to be 

provided to the public and employers - without additional charge. 

These include but are not limited to soliciting and accepting job orders submitted by 
employers, and screening and referring applicants in accordance with such orders We 
oppose the charging for placement services; including customized screening and referral of 
individuals for employment. 

The Employers' National Job Service Council supports a national profiling system for the 
purpose of the job match function. 

If the national automation system is to refer the most qualified of candidates on a 
consistent basis, the profiling of the applicant's competencies and skills, require uniformity 
in the identification and input of that information 

The Employers' National Job Service Council promotes the referral of the most qualified 
candidates. 

Employers have strong concerns over the Act's focus on individual training rather than the 
placement of the "job ready" applicant. The monetary training enticement emphasizes the 
need for service provider(s) to prove their training program through the placement of its 
trainees at the expense and the continued unemployment of the skilled "job ready" 
candidate. We believe the priority is in the placement of the most qualified "job ready" 
candidate 

The Employers' National Job Service Council promotes that employers are the ultimate 
customer of the One-Stop Career Centers and that employer services and input be elevated to 
reflect that role. 

The allowance of other than the Employment Service in being the lead agency in placement 
policy, places at risk the talent employers need the most in competing in this global market 
place — those being the most qualified candidates. The unemployment insurance, which 
still helps millions of workers through short-term income support, fails those in need of 
long-term training. 



ENJSC's Reemployment Act Position Paper: 6/28/94 



273 



The Employers' National Job Service Council opposes the assumption of its role as an 
employer advisory board to the Employment Service by a consortia of agencies, institutions 
and entities which do not place the job orders nor possess the job openings 

Section 312 of the Act has the "Workforce Investment Boards" assuming the role of the 
Job Service Employer Committee (J.S.E.C). The J.S.E.C. or E AC (Employer Advisory 
Council, as it is known in some states) is a 30,000 volunteer employer organization which 
has sought to assist and improve the services of the local Job Service office. J.S.E.C. and 
its national organization (E.N J.S.C.) are the only organizations whose memberships are 
made up exclusively of those corporate professionals, who retain the skill criteria of their 
employer job opportunities, place their employer job openings; screen applicants and make 
most of the hiring decisions. We strongly believe that others do not know our employment 
needs. We suggest that employers be revered as customers of the system and not naively 
perceived as captive users of a system. 
We oppose the language and its intent. 

The Employers' National Job Service Council opposes the supplemental wage for individuals. 
The implementation of a specific program for a new group runs contrary to the 
Administrations attempt to consolidate programs, as demonstrated under Title I, 
Comprehensive Program for Worker Reemployment. We believe that such a program is 
both expensive to administer and discriminates against other unemployed groups of 
workers. 

The Employers' National Job Service Council supports the requirement that One-Stop Career 

Centers survey employers on the quality of service which they receive. 

The centers' success or failure is based on the level of customer satisfaction. We further 
recommend that the survey of employers be expanded to include those not using the 
Center. This requires that the survey request information as to why the employer(s) is/are 
not using the Center. 



ENJSC's Reemployment Act Position Paper: 6/28/94 



274 



STATEMENT BY ANDREW N. RICHARDSON 

PRESIDENT 

INTERSTATE CONFERENCE OF EMPLOYMENT SECURITY AGENCIES 

AND 

COMMISSIONER 

WEST VIRGINIA DEPARTMENT OF EMPLOYMENT PROGRAMS 

TO THE 

SUBCOMMITTEE ON HUMAN RESOURCES 

COMMITTEE ON WAYS AND MEANS 

ON 

RECOMMENDATIONS 

OF THE 

ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 



MARCH 8, 1994 



The Interstate Conference of Employment Security Agencies (ICESA) is the 
organization of state administrators of state and federal unemployment 
compensation laws, public employment offices, labor market information services, 
and in many states job training programs. 

FEDERAL-STATE EXTENDED UNEMPLOYMENT BENEFITS 

Expansion of Scope 

The Council recommends expanding the scope of the Extended Benefits program to 
provide assistance to long-term unemployed workers who are participating in job 
search activities or in education and training activities that enhance their 
reemployment prospects. The Council recommends that a separate funding source 
be used to finance job search, education, and training activities for long-term 
unemployed workers. 

Current ICESA policy supports payment of Extended Benefits during periods of high 
unemployment. ICESA's members have not developed policy on the Council's 
proposal to make Extended Benefits available throughout the economic cycle to 
long-term unemployed workers who are participating in job search, education, or 
training activities. The following comments assume that the duration and financing 
of Extended Benefits would not be changed. 

Even during periods of relatively lower unemployment, more than one-quarter of 
unemployment insurance beneficiaries exhaust regular benefits. Therefore, a 
thirteen week extension of benefits, with costs shared equally between the states 
and federal government, would increase both state and federal trust fund liabilities 
substantially. 

It is not clear whether the Council's recommendation for a "separate funding source" 
means that funding for job search, education, and training should come from a 
source other than the Unemployment Trust Fund~i.e., federal or state general 
funds-or from an account in the UTF that is separate from the Extended 
Unemployment Compensation Account and the state accounts from which Extended 
Benefits are financed. We agree that the accounts that provide benefit funds should 
not be used for other purposes. The primary purpose of unemployment benefits is 
providing temporary income maintenance to unemployed workers and economic 
stabilization for local communities. Dipping into these funds for other purposes 
threatens the solvency of the system. 



275 



Extended Benefits Triggers 

The Council recommends that Extended Benefits trigger on when a state's 
seasonally adjusted total unemployment rate (SATUR) exceeds 6.5%, as measured 
before recent changes in the Current Population Survey. There would be no 
requirement for a "threshold" increase in the SATUR over a prior period of time, 
although two members of the Council recommended a threshold. 

Current law gives states the option to pay Extended Benefits when the 3 month 
average SATUR equals or exceeds 6.5% and is at least 10% higher than either or 
both of the corresponding 3 month periods in the prior two years. States that elect 
to pay Extended Benefits under this option provide an additional seven weeks of EB 
when the SATUR equals or exceeds 8.0%. To date, seven states have adopted the 
optional SATUR triggers. 

Although ICESA's members have held in-depth discussions about proposals to 
change EB, it has not been possible for us to reach a consensus on the basic issue 
of the level of unemployment at which EB should be triggered, or whether the 
insured or total unemployment rate is the best measure of economic distress. 

Enactment of the Council's recommendation might trigger Extended Benefits 
constantly in some states. The triggered aspect of Extended Benefits (as distinct 
from the expanded scope aspect discussed above) should be in response to cyclical 
unemployment. Setting triggers at a level at which some states would be "on" 
perpetually would not achieve the objective of responding to high cyclical levels of 
unemployment. 

Under the current EB program, costs are shared equally. Since the federal 
government sets the policies which determine the cost of the benefits-the economic 
conditions under which benefits are available and the number of weeks of benefits 
available-it seems fair that the Federal Unemployment Tax or other federal 
revenues bear the primary financial responsibility. ICESA supports an increase in 
the federal share of EB. 

The Council also recommends that neither substate nor regional data be used to 
determine whether Extended Benefits are available within a given area. ICESA has 
long-standing policy opposing substate Extended Benefit triggers and 
wholeheartedly endorses the Council's recommendation. 

Worksearch and Suitable Work Requirements 

The Council recommends that state work search and suitable work requirements 
apply to eligibility for Extended Benefits. 

ICESA believes that the current federal qualifying and eligibility requirements for EB 
serve no useful purpose, create bureaucratic hurdles for unemployed workers, and 
generate needless paper work for staff in local unemployment offices. We support 
the Council's recommendation and urge the Subcommittee to make the current 
suspension of these requirements permanent. 



276 



A Written Statement 

For The Printed Record of the Hearing 

on the Reemployment Act of 1994 

Subcommittee on Human Resources 

Committee on Ways and Means 

US House of Representatives 

The Honorable Harold E. Ford (D M Tenn.), Chairman 

March 8, 1994 

I believe that the conclusions reached by the Administration in the Reemployment Act of 
1994 are substantially correct. I and many of my closest friends have experienced each situation 
in the Administration's observations. 

It is a disservice to unemployed workers, employers, and to those that fund the various 
unemployment programs to assume that anyone who has been laid off will be rehired at any specific 
point. I have yet to be called back to any job I have ever been laid off from and very rarely have 
I even had an opportunity to return to work at a similar job at a different organization. The event 
of a lay off is a sign that the particular function that a worker was performing is no longer in 
demand in the economy. It is with this sober realization that all events of non-voluntary 
unemployment should be treated. 

Applying for unemployment compensation in the County of Hamilton in the State of Ohio 
is a borderline dehumanizing process. It often begins early in the morning, before dawn, out in the 
cold, with only a freezing metal handrail to lean against. The wait culminates, sometimes many 
hours later, usually with instructions to return at some future time to fill out tremendous amounts 
of paperwork, watch a videotape of questionable relevance, and to speak to several individuals who 
seem genuinely insulted that you have chosen to turn to them for help. 

After completing that process you are returned to the street with instructions to personally 
apply at two employers per week. In exchange for that you are given a check every two weeks that 
I would truly hate to contemplate attempting to support a family with. 

Various listings of potential jobs are made available on microfiche at my local unemployment 
office, but these listings are very difficult to make any sense of. I pride myself something of an 
investigational wizard, and I was eventually able to make sense of the listings, but I would truly hate 
to think about how difficult it would be for those with limited skills to use such a system. 

Good training is extraordinarily difficult to access. For the investment of the value of a 
good used automobile and two years of time it is possible to attend the nearby Cincinnati Technical 
College. Personally I have found the classes quite interesting, but I have been particularly dubious 
of the notion that my chances of securing meaningful, long-term employment appropriate for my 
aptitudes will be improved substantially by having attended CTC. 

Each of the points of the Administration's reemployment proposal are excellent. There are 
also other similar ideas which I believe would benefit unemployed persons tremendously. 

Ideally, it would benefit every person who ever becomes unemployed, and even those looking 
for work for the first time, if there could be a centrally networked employment assistance system 
with a contact point in every community. At each of these contact points, unemployed workers 
should be treated with dignity. The skills of unemployed workers should be thoroughly evaluated 
and tested, and then should be compiled into a central computer system along with any other 
important information about an employee. When an employer needs to hire employees, that 
employer could make use of that same system, either at the community contact point, or, ideally, 
from his own office via modem or fax technologies. The employer could search for the best 
qualified candidates for the positions that employer has available. If such a system proves to be 
extremely successful, then perhaps a fee could even be charged to employers for each placement 
and the system could even become productively self-sustaining. 

Another potentially beneficial program to try would be to provide unemployed workers with 
full unemployment benefits while working for a limited period of time in unpaid or nominally paid 
internship programs with employers. These employers would have the opportunity to evaluate 
potential employees actually performing the jobs they have available at minimal cost. 

Adoption of the Reemployment Act of 1994 and any other actions which will allow more 
efficient communication between unemployed workers and employers with needs for additional 
workers would help both groups tremendously. 



Respectfully submitted, 




John S. Kennedy, representing only myself 



277 



COMM 


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JIM McDERMOTT 

7TH DISTRICT WASHINGTON 



Congress of tfje ©ntteb States 

ft)oii9f of RepreKentatirjeB 

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Statement for the Record 

By U.S. Representative Jim McDermott (D-7th-WA) 

To the Ways and Means Subcommittee on Human Resources 

Hearing on the Unemployment Compensation System 

Tuesday, March 8, 1994 

I would like to thank Chairman Ford for holding this hearing 
on the Unemployment Compensation system. Although recent reports 
about the strength of the national economy are encouraging, it is 
important that we not let our attention be shifted away from 
those who are unemployed and desperately need assistance. 

As you may have heard, we recently had a situation in 
Washington state where more than 27,000 unemployed workers were 
suddenly cut off from any further unemployment compensation from 
the Extended Benefits (EB) program. Due to a slight and 
unexpected drop in our state's seasonally adjusted unemployment 
rate, the EB program halted the benefits upon which these men and 
women rely. With less than two weeks notice, the unemployed of 
Washington state were cut off of up to 13 weeks of anticipated EB 
benefits . 

Although, our state legislature, led by the initiative of 
Governor Lowry, quickly responded to the impending crisis, the 
recent events illustrated the dangers of a federal law that cuts 
off unemployment benefits with little or no notice. 

The legislature of the state of Washington passed the EB 
trigger instead of continuing its reliance on the federally 
funded Emergency Unemployment Compensation (EUC) program, and now 
it appears that the state of Washington is being punished for 
doing so. There is no reason for this to have happened. 

The last time we extended the EUC benefits, I saw that this 
was a potential problem and tried to amend the EB program so that 
if EB were suddenly cut off, a state's unemployed would 
automatically revert to the EUC program. In light of the recent 
events in Washington, I would like to see us try to amend the EB 
program once more. It is imperative that the federal government 
no longer allow essential unemployment compensation benefits to 
suddenly be cut off from those who are supposed to be served by 
these federal programs. 

Again, I thank the chairman for calling this hearing and am 
looking forward to repairing the EB program so that events which 
recently took place in Washington state do not occur anywhere 
else in the country. 

1 707 Longwortn Building 1 809 7th Avenue. Suite 1212 

Washington. DC 20515-4707 Seattle. WA 98101-1399 

(2021 225-3 106 PBINTED ON RECYCLED PAPER © |206| 553-7 1 70 



278 



STATEMENT REGARDING THE REEMPLOYMENT ACT OF 1994 
ON BEHALF OF 
THE NATIONAL ASSOCIATION OF PERSONNEL SERVICES (NAPS) 

As the oldest and largest association of private firms that find 
jobs for workers and assist employers in staffing, the National 
Association of Personnel Services (NAPS) represents members 
skilled in linking workers with jobs. This network of staffing 
firms is a resource that can make the programs endorsed by this 
legislation more effective. As of now, however, this resource 
has been under-utilized. NAPS urges that H.R. 4040 promote 
greater cooperation between Government placement activities and 
private firms with decades of experience in this field. 

Independent verification of private placement effectiveness 

Cooperation between Government and private efforts to place 
unemployed workers has occurred, but the record is spotty. After 
reviewing the capabilities of public and private placement 
agencies, the General Accounting Office (GAO) issued a report 
(HRD-86-61) titled "More Jobseekers Should Be Referred to Private 
Employment Agencies". This title, from a report issued by an arm 
of the Congress, sums up the thrust of this statement. 

In examining the operations of the United States Employment 
Service and its private counterparts, GAO found that employers 
listed job orders with private firms that were not listed with 
the public employment service. With only one-quarter of 
employers using the public employment service (although all fund 
it through F.U.T.A.) this is hardly surprising. GAO also found 
little cooperation along with "no convincing reason why state 
Employment Services could not or should not make available to 
jobseekers the job information and assistance of private 
employment agencies...". Since that report, in 1986, there has 
been some improvement but instances of state agencies adopting 
competitive attitudes toward the private sector still recur. The 
remedy advocated by GAO, that the Secretary of Labor require 
state Employment Services to solicit openings from private 
agencies and refer jobseekers to them, was not adopted. 

This legislation provides the Congress with a clear opportunity 
to promote the full acceptance of the GAO's recommendation that 
the public employment service make full use of the resource 
represented by its private counterparts. By cooperating with 
private placement firms, public agencies access available job 
openings that can sometimes be filled by applicants on their 
rolls. This expands the range of jobs available at no additional 
cost to the taxpayer. 

Private staffing firms can assume a larger role 

GAO's review included an examination of welfare department 
contracts with private firms to place welfare clients in 
permanent jobs. The report noted that "Increased placements, 
reduced time taken to find jobs, or both resulted when welfare 
programs referrd jobseekers to private employment agencies, 
paying fees to the agencies..." 

In addition to the cooperation suggested above, NAPS believes, 
that direct contracting with placement firms is deserving of 
serious consideration. Contracts that pay only for proven 
performance are much easier to administer and pose far fewer 
risks than many of proposals in H.R. 4040. 

Innovative contracting, much of it untested, may be justified by 
the difficult and crucially importance task of reemployment. 
Even so, most of what the Government-funded centers would buy 
under H.R. 4040 is the means (education, training, relocation, 
etc.) to the end, which is re-employment. Purchasing placement 
services from experts on a "payment for placement" basis delivers 
the end itself — placement in a job. Surely a comprehensive 
reform of what is termed a "patchwork system" should include the 



279 



opportunity to buy the service that the entire apparatus is set 
up to deliver. 

Unfair intrusions in the private sector are not required 

Although Government provision of essential services has steadily 
given way to private enterprise in most of the world, one section 
of H.R. 4040 seems to reverse this trend. One-stop career 
centers, under Sec. 314 (c), may provide specialized staffing 
services to employers and charge fees for them under Sec. 314 
(e) . Staffing is one of the five traditional responsibilities of 
management, and American industry either performs this function 
for itself or hires outside specialists to help. We cannot see 
the benefit to displaced workers if career centers spent time 
marketing and delivering "customized" assessments that are 
available in the market from tax-paying businesses. 

Use private sector expertise to help guide this effort 

A new policy entity created by H.R. 4040 is the workforce 
investment board (Sec. 312 (b)(2)). Private sector employers, 
under subsection A, constitute a majority of these boards, but 
there is no indication that placement firms would be included 
here or as "appropriate community leaders" under subsection D. 
Given the problem that is being addressed and the proven 
experience of placement firms in this area, NAPS believes that 
local officials should be encouraged to nominate a representative 
of the placement industry to workforce investment boards wherever 
practical. Private sector experience in placing workers should 
be folded into policy decisions that determine how best to do 
what placement firms must do well to survive. 



CONCLUSION 

Reform of the employment/reemployment system should include 
greater inclusion of private sector firms already professionally 
engaged in facilitating employment. Cooperation should be 
mandated and direct contracting for placement should be 
encouraged. Representatives of the placement industry should be 
appointed to workforce investment boards. Proposals to put one- 
stop centers at the disposal of employers for "customized" 
staffing services should be dropped. 

America's economic effectiveness is largely credited to its free 
enterprise system, with Government stepping in to provide 
services directly only where the private sector cannot or will 
not. Government programs work best when they can make use of the 
abilities of the profit-motivated sector, and private firms can 
provide placement services. They should be a part of any reform 
effort, for their use here is at no loss of control and with 
greater benefit to the unemployed and the taxpayer. 

This statement was submitted on behalf of the National 
Association of Peresonnel Services (NAPS) by its Washington 
counsel, Joseph C. Luman. 



[THE GENERAL ACCOUNTING OFFICE REPORT (HRD-86-61), "MORE JOBSEEKERS 
SHOULD BE REFERRED TO PRIVATE EMPLOYMENT AGENCIES" IS BEING 
RETAINED IN THE COMMITTEE FILES.] 



280 



STATEMENT OF MATTHEW B. COFFEY 

PRESIDENT 

NATIONAL TOOLING AND MACHINING ASSOCIATION 

On behalf of the National Tooling and Machining Association (NTMA), I appreciate the 
opportunity to submit testimony on the Reemployment Act of 1994. 

NTMA is the voice of the tooling and machining industry in the United States. We are made 
up of family-owned businesses who provide the special machines, tools, dies, molds and 
advanced technology machining critical to the requirements of U.S. manufacturing. Our 
employees are highly skilled people who use extremely expensive and sophisticated 
computerized machinery. 

NTMA has conducted training courses through grants from the Department of Labor for a 
quarter century. Over the years, we have operated 1 1 training centers around the United 
States, and 13 NTMA sponsored programs at community colleges and other training 
facilities, and feel we can be of value to you as you seek to craft a bipartisan job training 
reform bill. 

The tooling and machining industry formed NTMA in 1943 expressly for the purpose of 
providing a pool of skilled workers for an industry suffering from a chronic shortage of 
skilled labor. According to statistics of the U.S. Census Bureau, the tooling and machining 
industry is among the top American technical industries in training intensity (courses per 
employee). This small industry segment supports over 4 percent of all U.S. formal 
employer-based training. The industry requires workers who have mastered basic education 
skills in math, science, communication and computers. We have looked to the vocational 
education system in this country to provide adequately prepared students but that system has 
failed. Small companies usually cannot afford the expense of training workers, thus we 
greeted the introduction of the Reemployment Act with high hopes for a retraining system 
that works and supplies people with good jobs. However, we do have some serious 
concerns. 

Our industry, like our country, is in the process of massive restructuring. NTMA's 
membership is being challenged to keep pace with the changing process technologies. This 
requires an upgrade in workforce skills to use these new technologies. In addition, NTMA 
companies must adapt to the demands of their customers who are also undergoing rapid 
technological change and a restructuring in the way they do business — new processes, new 
materials, finer tolerances and specifications, and new business locations. 

TITLE I: COMPREHENSIVE PROGRAM FOR WORKER ADJUSTMENT 

While the trend towards downsizing the government, industry and cutbacks in defense and 
trade policies are all factors contributing to our country's greater competitive edge in the 
global marketplace, these same factors are causing massive long-term unemployment. As a 
result, there are a myriad of dislocated worker training programs administered by different 
federal agencies all with differing eligibility requirements, varied services and resources. 
Our industry feels very strongly about the goals and objectives of the Reemployment Act. 
We wish to make our views a part of the record. NTMA fully supports the objectives 
represented by this bill to transform the current unemployment system into a comprehensive, 
universal reemployment system. 

The Reemployment Act would replace six dislocated worker adjustment programs under 
jurisdiction of the Department of Labor with an integrated system for employees who have 
been permanently displaced. The Act would entitle those eligible to "retraining income 



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support" in the form of weekly unemployment compensation (UC). The guaranteed income 
would come from a 0.2 percent employer tax. 

NTMA fully supports the goals of consolidation, our disagreement arises from issues raised 
by the targeting of the funding mechanism to income support rather than to development and 
delivery of training programs. 

TITLE II -- INCOME SUPPORT FOR TRAINING AND CHANGES TO THE 
UNEMPLOYMENT COMPENSATION SYSTEM 

The Reemployment Act of 1994 would establish a new federal trust fund account to provide 
income support for individuals participating in long-term training programs. The trust fund 
would be paid for by making permanent a 0.2 percent F.U.T.A. tax currently levied on 
payrolls of all covered employers. This tax already applies to small tooling and machining 
companies. 

The "temporary" 0.2 percent tax has been extended until the end of 1998. The 
Reemployment Act would establish the transfer of funds to a new "Retraining Income 
Support Account" in the Unemployment Trust Fund. The transfer of funds would occur in 
limited amounts over a period of years from 1996 to 2000. After the year 2000, retraining 
income support would be financed entirely by the F.U.T.A. 0.2 percent surtax. 

This represents a fundamental change in tax policy with regard to federal income support for 
individuals which in the past have always been financed from general revenues. We do not 
believe this shift in tax policy is good public policy. NTMA is opposed to the dedication of 
a fund which in effect amounts to a brand new entitlement in an era of a costly federal 
budget deficit and the reinventing government movement. NTMA fully endorses the training 
proposals in this bill, but is opposed to creating a new welfare program by a permanent 
extension of the 0.2 percent to fund the program. 

TITLE III: ONE-STOP CAREER CENTER SYSTEM 

NTMA supports the Reemployment Act's "one-stop" career centers where unemployed 
workers could access information regarding, among other things, job availability and worker 
retraining. 

Similar centers referred to as community job resource centers are also included in H.R. 
2943 introduced by Rep. Goodling on the House Education and Labor Committee. NTMA 
supports these centers. 

NTMA agrees with others in the business community that now is the time to make efforts to 
overhaul the training system instead of just those programs under jurisdiction of the 
Department of Labor. Senator Nancy Kassebaum has introduced the "Job Training 
Consolidation Act of 1994" which would develop a single system of employment and 
training. This bill would grant broad waivers to states to allow them flexibility to develop 
state and local programs with significant involvement of employers. This is an important 
provision that would allow local areas to respond to local needs. 

In addition, the "Job Training Consolidation Act of 1994" would establish a temporary 
federal Commission on Employment and Training to determine the best administrative 
structure for such systems including which federal agency should oversee them. The 



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Commission would determine standards for measuring the effectiveness of federal programs. 
The bill would consolidate 60 programs as opposed to only six under the Reemployment Act. 
NTMA supports this effort at more comprehensive consolidation than that proposed in the 
Administration's Act. 

The Reemployment Act would establish a voluntary program of cash incentive grants and 
waivers of the current law to encourage states to establish networks of one-stop career 
centers. The key requirements of a one-stop career center system would include: creating 
business-led, local Workforce Investment Boards; establishing one-stop career centers that 
provide a comprehensive array of services and information; integrating separate, federal 
education and training programs under the centers; establishment of quality assurance 
systems; and creation of a State Human Resource Investment Council. 

The workforce investment board would be composed of five categories of members: private 
sector employers, who would represent the majority of the board, representatives of 
organized labor, and community-based organizations, representatives of educational 
institutions and appropriate community leaders, and a chief local elected official who would 
be a non-voting member. 

A private industry council established under the Job Training Partnership Act could become a 
Workforce Investment Council if it is reconstituted to meet the new requirements of the Act. 
If a state established a one-stop career center system, the Workforce Investment Boards 
(WIB) would assume the function of the private industry council and the Job Service 
Employer Committees. 

NTMA strongly supports the employer dominated makeup of the WIB. The Administration's 
WIB indicates business would hold the majority of seats. NTMA's support would be totally 
contingent on the employer dominated makeup of the WIB. 

NTMA supports the waiver authority from federal laws for states to streamline local 
programs. Currently the workforce development system does not serve the needs of 
employers. We believe it is imperative to involve employers in the matching of skills with 
available jobs. Localities are better able to combine their programs without the hamstring of 
a federal mandate on how to do so. 

NTMA believes it is critical that the focus of federal job training programs be shifted. In the 
past emphasis was placed on economically disadvantaged individuals who have minimal work 
experience and low skill and education levels. The REA is right to address the needs of 
employees displaced by public policies such as defense, trade, corporate restructuring and 
defense budget cuts. Many of these workers are already highly skilled but lack the specific 
training necessary for jobs in related fields or other high tech jobs. The tooling and 
machining industry requires craftsmen with an extraordinarily high degree of skill ar.d 
ability. A toolmaker is trained at great expense, usually in a 4-year, 8,000 hour 
apprenticeship program. More and more of our shops now use computer-aided design and 
computer-aided manufacturing in the production of tools and parts to a precision of a few 
millionths of an inch. 

The rewards of such training are documented by the numbers of employees who mastered 
their craft and went on to own their own business. The tooling and machining industry is 
one of the most highly paid careers, ranking among the top ten. NTMA supports retraining 
for dislocated workers and non-college bound youth, both of whom have been served by 
NTMA's training programs. This activity supplies our industry with a pool of skilled labor 
unattainable through the vocational education system. 

The retraining goals and objectives of the Reemployment Act have the full support of 
NTMA. NTMA believes that business involvement in a local governance system, particularly 
the local workforce investment boards is critical to our support. We would like the 
Reemployment Act to specify a business-led governance structure chaired by top level 
business leaders. NTMA urges lawmakers to recognize not only the needs of the dislocated 
worker but also the employer as the customer in this bill. Only through a strong role would 
tooling and machining companies feel responsible for the system in their local labor markets, 
and ensure that the system meets the skill needs of a competitive economy. Only through the 
strong role of business in identifying existing jobs, will dislocated workers and others in need 
of retraining be served by an integrated system. 

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