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"

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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

1Sam 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)

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;

H.R. 4 04 0 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 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 slatamaiil. 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 slalemam listing the nam*, fuD address, a telephone
number where the witness or the designated representative may ba raeched and a topical outline or
summary of the comments and recommendations In the U atatasisant. 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.

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.

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,

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.

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.

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.

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.

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.

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:]

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

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

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.

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.

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

APPENDIX C

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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.

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 '0

Minnesota '

42.7
42.9

Kansas ..\

Rhode Island '

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

24.4

6.5% with 110% threshold

118

18.4

6.5% with 120% threshold

9.7

147

7 5% without threshold

8.5

16.5

7.5% with 110% threshold

7.8

13.7

7.5% with 120% threshold

11.5

8.5% without threshold

4.2

13.7

8.5% with 110% threshold

4.0

11.8

8.5% with 120% threshold

3.4

10.3

9.5% without threshold

1.1

13.3

9.5% with 110% threshold

0.9

9.5% with 120% threshold

0.8

7.4

Insured Unemployment Rate2

1.5% without threshold

$20.8

39.7

1.5% with 110% threshold

12.9

21.3

1.5% with 120% threshold

9.9

15.7

3% without threshold

116

21.5

3% with 110% threshold

8.0

13.6

3% with 120% threshold

6.3

109

4% without threshold

5.0

15.7

4% with 110% threshold

3.9

10.8

4% with 120% threshold

3.2

8.8

5% without threshold

1.3

11.6

5% with 110% threshold

8.4

5% with 120% threshold1

0.9

6.2

Emergency Unemployment Compensation

(Actual impact)

$23.0

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.

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

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.

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,

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

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-

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

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)

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.

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.

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.

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.

(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.

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-

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.

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:]

STATEMENT OF WILLIAM R. BROWN

HOUSE WAYS & MEANS SUBCOMMITTEE

ON HUMAN RESOURCES

In behalf of the Employers' Task Force on Unemployment Compensation

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
0 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.

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.

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.

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.

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.

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?

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.

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-

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.

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:]

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

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,

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

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.

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

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

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

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.

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.

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.

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.

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

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.

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-

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.

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)

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:]

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.

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

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.

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:]

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.

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:]

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

ano Health

Subcommittee on Judiciary and

Education

JIM McDERMOTT

7TH DISTWCT. WASHINGTON

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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.

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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.

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.

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.

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

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

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.

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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:]

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

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

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.

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

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,

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

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

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

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

7The 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

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

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

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.

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.

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.

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.

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

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.

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:]

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 studies1.

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 not2. 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 areas3. 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 courses4.

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 ACT1'
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
training 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 urgent 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 effectiveness 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.

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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 appropriate 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

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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 service 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 0 - 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 0
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

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

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.

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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

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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

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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.

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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.

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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

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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.

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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.

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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

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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

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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.

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Statement Submitted By

The Employer's Task Force on Unemployment Compensation

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..."

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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

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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.

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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

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 (DM 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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7TH DISTRICT WASHINGTON

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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

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

281

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.

ISBN 0-16-046417-X

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