[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
STRENGTHENING AMERICA'S MIDDLE CLASS:
EVALUATING THE ECONOMIC SQUEEZE
ON AMERICA'S FAMILIES
=======================================================================
HEARING
before the
COMMITTEE ON
EDUCATION AND LABOR
U.S. House of Representatives
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, JANUARY 31, 2007
__________
Serial No. 110-2
__________
Printed for the use of the Committee on Education and Labor
Available on the Internet:
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______
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COMMITTEE ON EDUCATION AND LABOR
GEORGE MILLER, California, Chairman
Dale E. Kildee, Michigan, Vice Howard P. ``Buck'' McKeon,
Chairman California,
Donald M. Payne, New Jersey Ranking Minority Member
Robert E. Andrews, New Jersey Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia Peter Hoekstra, Michigan
Lynn C. Woolsey, California Michael N. Castle, Delaware
Ruben Hinojosa, Texas Mark E. Souder, Indiana
Carolyn McCarthy, New York Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts Judy Biggert, Illinois
Dennis J. Kucinich, Ohio Todd Russell Platts, Pennsylvania
David Wu, Oregon Ric Keller, Florida
Rush D. Holt, New Jersey Joe Wilson, South Carolina
Susan A. Davis, California John Kline, Minnesota
Danny K. Davis, Illinois Bob Inglis, South Carolina
Raul M. Grijalva, Arizona Cathy McMorris Rodgers, Washington
Timothy H. Bishop, New York Kenny Marchant, Texas
Linda T. Sanchez, California Tom Price, Georgia
John P. Sarbanes, Maryland Luis G. Fortuno, Puerto Rico
Joe Sestak, Pennsylvania Charles W. Boustany, Jr.,
David Loebsack, Iowa Louisiana
Mazie Hirono, Hawaii Virginia Foxx, North Carolina
Jason Altmire, Pennsylvania John R. ``Randy'' Kuhl, Jr., New
John A. Yarmuth, Kentucky York
Phil Hare, Illinois Rob Bishop, Utah
Yvette D. Clarke, New York David Davis, Tennessee
Joe Courtney, Connecticut Timothy Walberg, Michigan
Carol Shea-Porter, New Hampshire
Mark Zuckerman, Staff Director
Vic Klatt, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on January 31, 2007................................. 1
Statement of Members:
Altmire, Hon. Jason, a Representative in Congress from the
State of Pennsylvania, prepared statement of............... 9
Hare, Hon. Phil, a Representative in Congress from the State
of Illinois, prepared statement of......................... 10
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio, prepared statement of................... 10
McKeon, Hon. Howard P. ``Buck,'' Senior Republican Member,
Committee on Education and Labor........................... 3
Prepared statement of.................................... 8
Wall Street Journal article, ``Career Journal: Class of
'07 Gets Plenty of Job Offers''........................ 4
Wall Street Journal article, ``Pension Plans Take Healthy
Turn--Rising Markets Aid Big Firms' Funds; Failure Risk
Lessens''.............................................. 6
New York Times article, ``Looking for the Angry Populists
in Suburbia''.......................................... 7
Miller, Hon. George, Chairman, Committee on Education and
Labor...................................................... 2
Sanchez, Hon. Linda T., a Representative in Congress from the
State of California, prepared statement of................. 11
Sarbanes, Hon. John P., a Representative in Congress from the
State of Maryland, prepared statement of................... 12
Statement of Witnesses:
Appelbaum, Eileen, director, Center for Women and Work,
Rutgers University......................................... 17
Furchtgott-Roth, Diana, director, Center for Unemployment
Policy, Hudson Center...................................... 19
Hacker, Jacob, Ph.D., professor, Yale University............. 14
Johnson, Kellie, president, Ace Clearwater Enterprises, Inc.. 21
Prepared statement of.................................... 23
Miller, Rosemary, flight attendant........................... 16
Weller, Christian, senior economist, Center for American
Progress................................................... 25
STRENGTHENING AMERICA'S MIDDLE CLASS:
EVALUATING THE ECONOMIC SQUEEZE
ON AMERICA'S FAMILIES
----------
Wednesday, January 31, 2007
U.S. House of Representatives
Committee on Education and Labor
Washington, DC
----------
The committee met, pursuant to call, at 10:30 a.m., in room
2175, Rayburn House Office Building, Hon. George Miller
[chairman of the committee] presiding.
Present: Representatives Miller, Kildee, Payne, Andrews,
Hinojosa, Tierney, Kucinich, Wu, Holt, Davis of California,
Bishop, Sanchez, Sarbanes, Sestak, Loebsack, Yarmuth, Hare,
Clarke, Courtney, McKeon, Castle, Ehlers, Platts, Kline, Davis
of Tennessee, and Walberg.
Staff Present: Tylease Alli, Hearing Clerk; Jody Calemine,
Labor Policy Deputy Director; Molly Carter, Legal Intern,
Education; Alejandra Ceja, Senior Budget/Appropriations
Analyst; Sarah Dyson, Administrative Assistant, Oversight;
Carlos Fenwick, Policy Advisor for Subcommittee on Health,
Employment, Labor and Pensions; Michael Gaffin, Staff
Assistant, Labor; Gabriella Gomez, Senior Education Policy
Advisor; Ryan Holden, Senior Investigator, Oversight; Lamont
Ivey, Staff Assistant, Education; Brian Kennedy, General
Counsel; Thomas Kiley, Communications Director; Danielle Lee,
Press/Outreach Assistant; Stephanie Moore, General Counsel; Joe
Novotny, Chief Clerk; Megan O'Reilly, Labor Policy Advisor;
Lisette Partelow, Staff Assistant, Education; Rachel Racusen,
Deputy Communications Director; Julie Radocchia, Education
Policy Advisor; Michele Varnhagen, Labor Policy Director;
Daniel Weiss, Special Assistant to the Chairman; Andrew
Weltman, Legal Intern, Labor; Michael Zola, Chief Investigative
Counsel, Oversight; Mark Zuckerman, Staff Director; James
Bergeron, Counselor to the Chairman; Robert Borden, General
Counsel; Kathryn Bruns, Legislative Assistant; Steve Forde,
Communications Director; Ed Gilroy, Director of Workforce
Policy; Rob Gregg, Legislative Assistant; Jessica Gross, Deputy
Press Secretary; Taylor Hansen, Legislative Assistant; Victor
Klatt, Staff Director; Lindsey Mask, Director of Outreach; Jim
Paretti, Workforce Policy Counsel; Molly McLaughlin Salmi,
Deputy Director of Workforce Policy; Linda Stevens, Chief
Clerk/Assistant to the General Counsel; and Loren Sweatt,
Professional Staff Member.
Chairman Miller. The Committee on Education and Labor will
come to order, and welcome to all of the members of the
committee and to our panel and to the audience.
We are here today to discuss the economic squeeze on
America's families and to learn what we can do to strengthen
and grow America's middle class. This is a key priority for our
committee in this Congress, and that is why this is the
specific subject of our first and second hearings.
During the first hundred hours, I was pleased that two of
the committee's bills designed to help hard working families
passed the House with overwhelming bipartisan support. We acted
to increase the minimum wage to $7.25 an hour, a long overdue
increase necessary as more families reach the middle class and
to help them pay for the basic necessities. Even Wal-Mart
supported the bill to increase the Federal minimum wage because
it knows that every dime in increase will be put right back
into the economy, and as they noted, their customers did not
have sufficient funds to pay for the basic necessities.
We also acted to cut the interest rate in half on
subsidized Federal student loans, a critical boost to those
students trying to decide whether they can afford to take on
and pay back a significant debt necessary to finance a college
education today.
These are the kind of middle class concerns that we intend
to focus the Nation's attention on every week in this committee
and to take action to address these concerns in a way that
strengthens and expands the middle class. While the business
pages across America show the profits and productivity are up
for many corporations, we know that that is only half of the
economic story. The other half of the story is how middle class
Americans are struggling to keep it all together as their
health care bill, gas bills, grocery bills go up faster than
their wages.
As I travel across the country, I hear from workers who are
laid off from good paying manufacturing jobs and wound up with
new jobs that pay far less than the ones they lost. I hear from
workers whose companies just dumped their pension plans,
forcing them to scramble to find another way for security. I
hear from workers whose basic expenses for housing, food,
education, transportation and health care are going up even
while their paychecks stay about the same.
Today parents are justifiably concerned their own children
are having a lower standard of living in adulthood than they
have had.
In a recent poll, 59 percent of American workers say they
have to work harder to earn a decent living than did workers 20
or 30 years ago. Sadly, the American economy has grown more
unequal than any time since Franklin Roosevelt's New Deal. We
don't have to accept the middle class squeeze as a fact of
life. We can promote policies that will make work pay, help the
middle class become more secure in their health care, more
secure in their nest eggs and more confident of their future.
I believe that we can have a strong and growing economy
that benefits everyone, not just a privileged few.
Today we are going to hear from a panel of distinguished
witnesses who will talk about what has made our economy so
unbalanced, what we can do to make it fair for their workers
and their families. I look forward to hearing from each of you
on this issue of paramount importance.
First, I would like to yield to the senior Republican
member of the committee, Mr. McKeon, for an opening statement.
Mr. McKeon. Thank you, Mr. Miller.
Chairman Miller, I want to thank you for holding this
hearing today, and I welcome each of our witnesses. This
committee plays a key role in policies impacting the quality of
life for all Americans of all ages and of all incomes.
I am especially grateful to have six of these Americans
here with us today ready to provide their testimony on the
state of our consistently growing economy. Mr. Chairman, I have
never been one to engage in class warfare, and I am not about
to start here. I have always found that while pitting one class
against another often makes for good politics, it rarely makes
for good policy.
Instead, I would like to focus this morning on where we
have been, where we are and where we are going from an economic
policy perspective because frankly, I think Members in both
parties have a good story to tell when it comes to our economy.
At the start of this decade the dot-com bubble had burst,
financial events around the world compounded the problem and we
found ourselves sinking into a recession. Congress responded
quickly not by adding more layers to the Federal bureaucracy
and micromanaging our economy back to health but by cutting
taxes for every single person in this room and literally in
every room in America. The years that followed have witnessed
dramatic economic growth. Even after the September 11th
terrorist attacks and the launch of the global war on terrorism
and on that strong economic foundation, we have set into motion
many important policy reforms, including several that were born
right here in this very committee room.
In the wake of the corporate scandals, we enacted the first
meaningful pension reforms in a generation ensuring workers'
retirement savings will be there for them when they need it
while restricting excessive golden parachutes, executive
compensation accruals and adding stability into a system in
dire need of reform. And to your credit, although coming late
to the game and particularly after neglecting to offer a
comprehensive pension reform plan of your own, many on your
side of the aisle joined with us last summer to send the
President a pension bill and send the American people a message
that we are serious about protecting their retirement savings.
We have given Americans more control over their health care
savings than ever before through the establishment of health
savings accounts, an effort that has gained significant
bipartisan traction.
Unfortunately, similar efforts to reign in out-of-control
medical liability lawsuits and on this committee, in
particular, to provide small businesses and their workers an
easier path to access affordable health care have run into a
partisan wall, but we will keep trying.
On education, we have laid the foundation for a strong
workforce through the No Child Left Behind Act. We have worked
together to put college within reach for low and middle income
families by extending college savings plans, making college
tuition tax deductible for low and middle income families, and
beginning to hold colleges accountable for their role in the
college cost crises.
We began strengthening math, science, and critical foreign
language programs to enhance our global competitiveness, and we
have modernized our job training system to meet the new
realities of the 21st century economy. Is there more work to
do? Absolutely.
But anyone who ignores the progress we have made, so much
of it in a bipartisan way, is more concerned with party
politics than with proactive policy, and I strongly urge them
to take a closer look at the facts.
More than 7 million new jobs have been added to our economy
since August of 2003, spanning more than 3 years of
uninterrupted job growth. The unemployment rate is holding
steady at 4\1/2\ percent, lower than the average of the 1970s,
1980s and 1990s. Many workers' combined earnings of benefits
have hit an all time high rising some 10 percent since the
start of this decade. The average 401(k) retirement savings
plan is now more than 65 percent more valuable than it was in
2002.
The pension plans of our Nation's largest employers ended
2006 with more than 100 percent of the assets needed to pay
pensions indefinitely, a 20 percent increase in 4 years.
And analysts project that this year's college graduates
will enter the most lucrative job market in years, with
employers planning to hire some 20 percent more graduates this
year than last year.
With these thoughts in mind, Mr. Chairman, I would like to
include in the record two recent news articles published in the
January 23rd, 2007 Wall Street Journal entitled Pensions Plans
to Take Healthy Turn, and Class of 2007 Gets Plenty of Job
Offers as well as a January 28th of 2007 New York Times article
detailing a sharp increase in a worker's wages.
Chairman Miller. Without objection.
[The information follows:]
[From the Wall Street Journal, January 23, 2007]
Career Journal: Class of '07 Gets Plenty Of Job Offers
By Erin White
Employers are diving back into the fountain of youth.
This year is shaping up as the strongest for college recruiting
since the downturn earlier this decade, colleges report. Traditionally
heavy recruiters, including management consulting firms, investment
banks and accounting firms, are intensifying college recruiting
efforts. They're also facing more competition from other employers in
such fields as technology, consumer products, government and even
nonprofits.
Employers plan to hire 17% more graduates from the class of 2007
than they got from the class of 2006, according to the National
Association of Colleges and Employers. That would make this year the
strongest job market since 2000-2001, the association says. More than
half of the surveyed employers said they planned to increase hiring;
only 5% planned a decrease. Salaries were forecast to rise 4.6%,
according to another survey by the same group.
``We now again have the nice problem of having to help some of our
students choose among multiple job offers,'' says Jack Tinker, director
of recruiting at the career office of Connecticut College. Mike Hendel,
interim director for the career center at Carleton College in
Northfield, Minn., says he, too, is counseling students deciding among
``two or three really good offers.''
Behind the increased recruiting are a relatively strong economy,
growing business demands and heady corporate profits. Employers created
about 1.8 million additional jobs in 2006. Average weekly earnings rose
4.5%, compared with a 3.2% increase in 2005.
Some companies are also planning for future work-force needs as the
baby boomers' retirement looms. Employers ``are finally starting to get
the message that [they] really need to do more'' with college
recruiting as baby boomers age, says Dan Black, director of campus
recruiting for the Americas at Ernst & Young LLP.
At New York University, close to 40% of seniors have job offers,
which is more at this point in the year than in any year since 1998-99,
estimates Trudy Steinfeld, executive director of career development.
Salaries are up about 5% to 10% since last year, and companies are
offering bigger signing bonuses--up to $10,000, she says.
At the University of Chicago, 119 companies conducted on-campus
interviews with seniors during the fall quarter, compared with 93 a
year earlier. Employers posted 180 jobs in that quarter, up from 135 a
year before. Recruiting mainstays such as management-consulting and
financial-services firms are active at Chicago, but so are nonprofits
and public-service groups: About 15 such organizations have expressed
interest in an April career fair, compared with none at this time last
year, says Meredith Daw, co-director of career advising and planning
services.
At a November job fair in Boston, the 12 sponsoring schools turned
away at least five employers clamoring for space. At the University of
California, Los Angeles, officials squeezed 10 additional employers
into a job fair last week that they had initially limited to 100
employers. Many of the companies attended a fall fair but need more
recruits.
Christopher Bothur, a Connecticut College senior, in the fall
accepted a job in an analyst-training program at Deutsche Bank AG.
Earlier, he had spoken briefly with the bank about a possible summer
internship, but he spent the summer working for the United Nations in
China.
When he returned to school, the bank called him, whisked him to New
York for interviews and offered him a position that will include stints
in New York, London and China. ``The job kind of fell into my lap,'' he
says. Mr. Bothur says his base salary alone will be roughly twice as
much as it would have been at the think-tank jobs he was considering.
College career counselors say the tone of campus recruiting doesn't
approach the dot-com era frenzy, among employers or students. Students
saw older friends and siblings suffer through the downturn earlier this
decade, and they understand that the job market could tank again. And
while the economy as a whole is strong, sectors such as housing and
autos are suffering.
One employer contributing to the rising demand on campuses is
accounting and consulting firm Deloitte & Touche. The firm is
recruiting about 3,300 seniors for full-time positions in the U.S. this
year, up from fewer than 3,100 last year, says Diane Borhani, head of
U.S. campus recruiting.
To attract candidates, Deloitte is raising salaries and signing
bonuses. Full-time starting base salaries in the U.S. are up about 5%
on average to as much as roughly $60,000 in certain markets. Signing
bonuses for new college hires in consulting range from $6,000 to
$10,000 this year, up from $4,000 to $8,000 last year, Ms. Borhani
says.
Employers also hit campuses earlier. Yum Brands Inc., which markets
restaurant chains including Taco Bell and KFC, sent students welcome-
back postcards and emails in August, the earliest it has ever started
campus recruiting efforts. ``We tried to be there literally the day
that they got to school,'' says Misty Reich, Yum's vice president of
global talent management. Recruiters and senior executives soon
followed.
Companies are also trying to make their recruiting efforts more
personal. The management consultancy Boston Consulting Group sent more
young employees to campus this fall to talk one on one about life at
the firm.
Personal outreach went a long way to recruit Wayne Vonder Heide, a
21-year-old senior at the University of Illinois at Urbana-Champaign,
who recently accepted a management-training position at Kraft Foods
Inc. He interviewed with about a dozen companies last fall, mostly for
sales positions. ``Just seeing how many jobs are out there was really
encouraging,'' says Mr. Vonder Heide, an advertising major with a
business minor. He was confident enough in his prospects that he
spurned follow-up interviews with about four companies.
Around Thanksgiving, Kraft offered him a post in Cincinnati.
Management trainees contacted him and the company invited him to tour
the office there. He met his would-be co-workers; one took him around
the city, including neighborhoods popular with young professionals. ``I
could really see myself getting up every day and going to this office
and getting along well with all of these employees,'' Mr. Vonder Heide
says. ``That was a deciding factor.''
______
[From the Wall Street Journal, January 23, 2007]
Pension Plans Take Healthy Turn--Rising Markets Aid Big Firms' Funds;
Failure Risk Lessens
By Theo Francis
After years of steep underfunding, pension plans are now healthy,
thanks to several years of double-digit investment gains and rising
interest rates, separate studies from benefits consultants suggest.
The pension plans of Fortune 100 companies ended 2006 with 102.4%
of the assets needed to pay pensions indefinitely, according to an
estimate expected to be released today by Towers Perrin, a Stamford,
Conn., benefits consultant. That is up sharply from a low point of
81.9% in 2002, though still below the 125.8% recorded at the height of
the stock-market boom in 1999.
Consultants and pension experts said the change suggests fewer
pension plans are at risk of failing. That bodes well for workers
dependent on the plans for retirement income and for the Pension
Benefit Guaranty Corp., a federally run pension insurer that pays basic
benefits if the plans aren't able to.
``There's no reason why their funding shouldn't have improved--
everything's going in the right direction,'' said Jack Ciesielski, a
pension-accounting expert who writes the Analyst's Accounting Observer
newsletter. While some companies faced serious funding shortfalls, for
many employers ``it was cyclical in nature,'' he added.
Similar findings are echoed by a separate study of pension funding
based on 2005 data, released yesterday by benefits consultant Watson
Wyatt Worldwide. That study found that pensions for a group of 1,000
companies were about 91% funded in 2005, up from a little more than 80%
funded in 2002.
Widespread concern over underfunded pensions and corporate
decisions to freeze or cut pension benefits has helped pension
legislation through Congress last year. The legislation was billed as
shoring up pension plans weakened by a ``perfect storm'' of low
interest rates and poor stock-market performance early this decade. Few
provisions of the new law took effect before this year, so any
improvements they may bring about aren't reflected in the estimates by
the benefits consultants.
Towers Perrin's study examined the 79 companies in Fortune
magazine's list of the 100 largest U.S. firms that sponsored defined-
benefit pension plans. Pension plans are backed by trust funds that
typically pay retirees a set amount each month for life, or a one-time
payout based on that stream of payments. A plan's funded status is a
measure of any gap between the fund's assets and the company's
obligations under the plan.
Stock-market gains were the biggest factor in the plans' recovery,
averaging about 12% in 2006. In addition, rising interest rates likely
reduced plan liabilities by about 3%, Towers Perrin estimated. Interest
rates determine how the company converts future pension payouts into a
liability on its books today.
Company contributions also improved pension funding, with average
contributions rising more than fivefold since 1999. But these
contributions boosted plan funding by only about 1%, Towers Perrin
said.
One factor unexamined in the study: How big a role pension freezes
and cuts have played in improving pension funding. Freezing or cutting
benefits reduces a company's pension liabilities, which means the
existing assets cover more of the company's obligations.
Towers Perrin used publicly disclosed data for each company,
including asset, liability and asset-allocation figures, and took into
account subsequent market returns and interest-rate changes.
Improving plan fortunes could encourage some companies to stop
contributing to their plans, as many did in the late 1990s; however,
pension-industry officials say last year's legislation makes that less
likely.
Separately, new pension-accounting rules taking effect this year
mean companies must start reflecting net pension liabilities on the
balance sheet, instead of recording them in a footnote as they have for
years. Under Towers Perrin's projections, ``on average, the Fortune 100
will be booking an asset'' rather than a liability for their plans,
said Bill Gulliver, Towers Perrin's chief actuary for human-resource
services.
The transition from prior accounting rules to the new ones,
however, mean that the Fortune 100 companies are likely to see a
combined decrease in shareholders' equity of about $160 billion,
improved from prior estimates of $245 billion, Towers Perrin said.
Watson Wyatt's study showed that plan funding improved by about $10
billion in aggregate between 2004 and 2005. Investment returns improved
funding by about $114 billion, and company contributions added about
$51 billion, offset by the growth of benefits for employees in the
plans, Watson Wyatt said.
``The bottom line is, things are getting better,'' said Mark
Warshawsky, Watson Wyatt's director of retirement research and a former
Bush administration Treasury official. He said preliminary estimates
for 2006 show further improvement.
Still, Watson Wyatt's analysis shows that pension assets were
invested about 64% in stocks, on average--meaning another sharp
downturn could wreak havoc with pension funding once again.
______
[From the New York Times, January 28, 2007]
Looking for the Angry Populists in Suburbia
By David Leonhardt
In his confrontational response to President Bush's State of the
Union address on Tuesday, Senator Jim Webb of Virginia said that he was
going to focus on only two topics. One, as everyone knew it would be,
was Iraq.
But before he turned to the war, the new senator spoke about
something else: an economy that he said made it seem ``as if we are
living in two different countries.'' In one, stock prices, corporate
profits and executive pay are rising. In the other, the middle class is
barely scraping by.
Mr. Webb said the situation was reminiscent of the early 20th
century, when robber barons were raking in wealth and ``dispossessed
workers at the bottom were threatening revolt.''
It was the sort of speech that one might have expected during a
deep economic slump. Yet it came instead as most workers have started
receiving significant pay increases for the first time in years and as
polls show that most Americans think the economy has grown stronger.
This contrast was arguably the most significant part of the speech.
As they plan their strategy on Capitol Hill and begin the 2008
presidential campaign, the leaders of the Democratic Party are betting
that the temporary swings of the economic cycle no longer have the
political power they once did.
Instead, they say, the economic shocks of recent years--
technological change, globalization, the decline of labor unions and
business icons like Ford Motor Company--have left many swing voters
feeling anxious and insecure about the future.
After years of fighting losing battles against tax cuts, Democrats
argue that this economic anxiety has altered the political landscape,
making swing voters open to a new role for government--a form of what
Representative Rahm Emanuel of Illinois has called ``suburban
populism.''
With issues like energy policy, immigration and health care having
gone largely unaddressed in recent years, Democrats see a way to define
themselves as the party that can help Americans survive the 21st-
century economy.
An unanswered question, though, is whether suburban populism can
still have appeal during good economic times.
''The little ups and downs of the economy are not what's bothering
the average American, as much as it is the feeling that there are large
forces that buffet them around,'' said Senator Charles Schumer of New
York, whose book laying out an agenda for the party was published last
week. ``In the past, the attitude was, `Get government out of the way.'
And now it's, `Gee, I may need it.' ''
Amy Klobuchar, a freshman senator from Minnesota, pointed out that
her state had one of the strongest economies in the country, yet she
still based her winning campaign largely on people's economic worries.
``They feel insecure,'' Ms. Klobuchar said last week. ``And the point
of this is, they're right.''
This strategy certainly has risks. Tax cuts--with a heavy dose of
optimism thrown in--have been a much better political bet than populism
for decades now, and Republicans are sticking to this script. During
his address last week, Mr. Bush described the economy as being ``on the
move,'' and he is scheduled to visit Peoria, Ill., this week to call
attention to recent wage gains. Republicans are pushing for an
extension of the tax cuts passed during Mr. Bush's first term that they
say are a major cause of the current boom.
The economy emerged from a recession in late 2001, after the first
tax cut went into effect, but wages for most workers still did not keep
up with inflation for much of the next few years. Only in recent months
has that changed.
In 2006, the average hourly pay of rank-and-file workers, who make
up about four-fifths of the work force, rose 4.2 percent, while the
consumer price index increased only 2.6 percent. The net result--an
inflation-adjusted increase of 1.6 percent--was a bigger annual raise
than any that workers received from the late 1970s to the mid-90s.
The direction of wages has historically been one of the best
predictors, if not the best, of the public mood, and it, too, has been
brightening. In a Gallup Poll conducted in mid-January, the share of
respondents calling the economy excellent or good--52 percent--reached
its highest level since the Clinton administration.
But even with the recent increases, the real hourly pay of rank-
and-file workers has risen only 3 percent since Mr. Bush took office,
according to the Bureau of Labor Statistics. Over the same span,
productivity--that is, the value of what the economy produces per
hour--has risen 18 percent.
Except for a few years in the late 1990s, in fact, pay increases
have been modest for most of the last three decades, which appears to
be contributing to the anxiety. In exit polls on Election Day, fewer
than one in three people said they expected life for the next
generation of Americans to be better than life today.
But even if suburban populism has some appeal, Democrats have been
less clear about how to translate it into policy. During their first
weeks in control of the House, they have passed bills to raise the
minimum wage, to cut the interest rate on federally subsidized loans to
college students and allow government to negotiate with pharmaceutical
companies over the cost of drugs sold through Medicare.
But none of the bills has yet passed the Senate, and even if they
do, they are unlikely to have a big effect on most middle-class
families--the target audience of the new suburban populism.
Some Democrats, in the party's center and on the left, are starting
to push for broader ideas. In his new book, Mr. Schumer calls for
biometric employment cards to reduce illegal immigration and a
crackdown on tax evasion by the wealthy, among other measures. Tom
Vilsack, the former Iowa governor who is running for president, is
arguing for a push on new energy technology partly to ``elevate our
economy above global competition.''
It is still not clear how much can be done by a party that, for at
least another year, will lack a clear leader. In his speech last week,
Senator Webb cited two populist role models, Andrew Jackson and
Theodore Roosevelt, both of whom were presidents, not Congressional
leaders.
But the coming year will give the party's leaders a chance to hone
its message--and to see how long the current economic boom will last.
______
Mr. McKeon. Now is this not utopian, Mr. Chairman? Most
definitely not. But at the same time, it is unmistakable proof
that our pro-growth policies are strengthening our economy,
creating jobs and spurring investment, and we are doing all of
this without adding new layers of government and disguising it
as innovation or competitiveness. Rather, we have unleashed the
entrepreneurial spirit that drives Americans and filled in the
gaps with meaningful reforms that are making a real difference
for students, workers, and retirees.
That is something to be proud of, Mr. Chairman, and indeed
that is something to build upon.
[The statement of Mr. McKeon follows:]
Prepared Statement of Hon. Howard P. ``Buck'' McKeon, Senior Republican
Member, Committee on Education and Labor
Chairman Miller, thank you for convening today's hearing, and I
welcome each of our witnesses. This Committee plays a key role in
policies impacting the quality of life for all Americans, of all ages,
and of all incomes. I'm especially grateful to have six of these
Americans with us today, ready to provide their testimony on the state
of our consistently growing economy.
Mr. Chairman, I've never been one to engage in class warfare, and
I'm not about to start here. I've always found that, while pitting one
class against another often makes for good politics, it rarely makes
for good policy. Instead, I'd like to focus this morning on where we've
been, where we are, and where we're going, from an economic policy
perspective * * * because, frankly, I think Members in both parties
have a good story to tell when it comes to our economy.
At the start of this decade, the dot-com bubble had burst,
financial events around the world compounded the problem, and we found
ourselves sinking into a recession. Congress responded quickly, not by
adding more layers to the federal bureaucracy and micromanaging our
economy back to health, but by cutting taxes for every single person in
this room and--literally--in every room in America. The years that
followed have witnessed dramatic economic growth, even after the
September 11th terrorist attacks and the launch of the Global War on
Terrorism. And on that strong economic foundation, we've set into
motion many important policy reforms, including several that were born
right here, in this very Committee room.
In the wake of the corporate scandals, we enacted the first
meaningful pension reforms in a generation--ensuring workers'
retirement savings will be there for them when they need it, while
restricting excessive ``golden parachute'' executive compensation
agreements and adding stability into a system in dire need of reform.
And to your credit, although coming late to the game and particularly
after neglecting to offer a comprehensive pension reform plan of your
own, many on your side of the aisle joined with us last summer to send
the President a pension bill--and send the American people a message
that we're serious about protecting their retirement savings.
More--We've given Americans more control over their health
care savings than ever before, through the establishment of health
savings accounts--an effort that has gained significant bipartisan
traction. Unfortunately, similar efforts to rein-in out-of-control
medical liability lawsuits and--on this Committee, in particular--to
provide small businesses and their workers an easier path to access
affordable health care have run into a partisan wall. But, we'll keep
trying.
On education, we've laid the foundation for a strong workforce
through the No Child Left Behind Act. We've worked together to put
college within reach for more low- and middle-income families by
extending 529 college savings plans, making college tuition tax
deductible for low- and middle-income families, and beginning to hold
colleges accountable for their role in the college cost crisis. We've
begun strengthening math, science, and critical foreign language
programs to enhance our global competitiveness. And we've modernized
our job training system to meet the new realities of a 21st Century
economy.
Is there more work to do? Absolutely. But anyone who ignores the
progress we've made--so much of it in a bipartisan way--is more
concerned with party politics than with proactive policy. And I'd
strongly urge them to take a closer look at these facts:
More than seven million new jobs have been added to our
economy since August 2003, spanning more than three years of
uninterrupted job growth;
The unemployment rate is holding steady at 4.5 percent--
lower than the average of the 1970s, 1980s, and 1990s;
Workers' combined earnings and benefits have hit an all-
time high, rising some ten percent since the start of this decade;
The average 401(k) retirement savings plan is now more
than 65 percent more valuable than it was in 2002;
The pension plans of our nation's largest employers ended
2006 with more than 100 percent of the assets needed to pay pensions
indefinitely--a 20 percent increase in four years; and
Analysts project that this year's college graduates will
enter the most lucrative job market in years--with employers planning
to hire some 20 percent more graduates this year than last year.
With these thoughts in mind, Mr. Chairman, I'd like to include in
the record two recent news articles published in the January 23, 2007
Wall Street Journal entitled ``Pension Plans Take Healthy Turn'' and
``Class of '07 Gets Plenty Of Job Offers,'' as well as a January 28,
2007 New York Times article detailing a sharp increase in worker wages.
Now, is this utopia, Mr. Chairman? Most definitely not. But at the
same time, it is unmistakable proof that our pro-growth policies are
strengthening our economy, creating jobs, and spurring investment. And
we're doing all of this without adding new layers of government and
disguising it as ``innovation'' or ``competitiveness.'' Rather, we've
unleashed the entrepreneurial spirit that drives America--and filled in
the gaps with meaningful reforms that are making a real difference for
students, workers, and retirees. That's something to be proud of, Mr.
Chairman--and indeed, that's something to build upon.
______
[The statement of Mr. Altmire follows:]
Prepared Statement of Hon. Jason Altmire, a Representative in Congress
From the State of Pennsylvania
Thank you, Chairman Miller. It is a great honor for me to serve on
the Committee this Congress and I look forward to working under your
leadership to address some of the most important questions facing our
country.
I would like to extend a warm welcome to all our witnesses. I thank
you for coming to Washington to testify and am eager to hear your views
on how we might best help the middle class.
The purpose of today's hearing is to examine the degree to which
the middle class, the backbone of America, is being squeezed out and
left behind. This is a very real issue that, as I am sure all my
colleagues know, is among Americans' top concerns. I hear it everywhere
I go back in my district.
Where once a family on a single income could pay for a college
education and count on reliable health care and retirement benefits,
now families with dual incomes are stretched to their very limits and
leveraged to the hilt. Even as they work harder than ever, the middle
class's purchasing power is diminishing. Paying for their children's
college tuition is, for most families, merely a pipe dream. Likewise
for affordable family health care benefits and a secure retirement.
Mr. Chairman, this is an untenable situation. America's working
families deserve more. I am fundamentally committed to ensuring the
long term health and viability of the American middle class, and I know
this Congress is as well. We will work tirelessly to improve access to
higher education and healthcare, to secure Americans' retirement
benefits, and to guarantee that all Americans share in America's
wealth.
Thank you, Mr. Chairman, for your leadership on these issues, I
appreciate the opportunity to work with you. I yield back the balance
of my time.
______
[The statement of Mr. Hare follows:]
Prepared Statement of Hon. Phil Hare, a Representative in Congress From
the State of Illinois
Thank you Mr. Chairman. America's middle-class families are under
great economic strain. Average incomes have become flat and prices for
basic needs such as healthcare, housing, energy and education have
skyrocketed.
Families are not able to save for retirement or prepare for unknown
risks or crises. Therefore, our middle class is in great danger of
eroding, which will have disastrous impacts not only on the U.S.
economy but also on the global economy.
It was my goal in coming to Congress to try and eradicate the fear
workers have of losing their jobs to economic factors; make it easier
for families to send their kids to college; and ensure everyone has
access to affordable healthcare. But, how do we do that? I believe
there is no one solution, but Congress must take measures to create
economic stability and security through education, income equality and
business investment in American employees and products.
Questions for the panel
Mr. Hacker, how do we reverse The Great Risk Shift and do
we need to tackle the superficial things first, like lowering
healthcare costs, or address the entire economy as a whole?
Mr. Hacker, you talk about the erosion of hope and
opportunity in your statement, which Ms. Miller also speaks to in her
remarks about struggling to live in the middle class. There have also
been studies cited today that this sentiment is widespread across the
United States. How can Congress restore hope in our workforce and
create opportunities not yet realized?
Mr. Weller, why are wages stagnant and why are businesses
not investing in their employees like they used to? What kind of
incentives can we provide businesses to become more employee or
American invested?
Ms. Furchtgott-Roth, your testimony cites strong economic
growth statistics and a positive prognosis for the future. However,
this is in direct conflict with the statements of the other panelists,
especially Ms. Miller who in representing the middle class today. In
fact many of the constituents I talk to in my district do not believe
claims about a strong U.S. economy. Which outlook are we to trust and
do you think this conflict in our information is a cause of the
problem?
______
[The statement of Mr. Kucinich follows:]
Prepared Statement of Hon. Dennis J. Kucinich, a Representative in
Congress From the State of Ohio
Mr. Chairman, as we will hear from today's witnesses, families
across the nation are experiencing increased financial pressures and
too often failing to reap the rewards of their own productivity. Many
middle class workers who have labored tirelessly to support their
family are now faced with job insecurity and financial concerns. Too
often, the overriding themes of many workers lives have become themes
of increasing debts and diminishing protections. The pressure they now
face largely stems from circumstances beyond their control,
circumstances that we as Members of Congress must work to rectify.
Many families of middle class workers now teeter on the edge of
economic stability. Every American can attest to the growing costs of
necessities such as home heating oil, child care, and healthcare. As
wages have failed to keep pace, many workers are placed in a precarious
financial situation. Forced increasingly to rely upon loans and credit
cards to make ends meet, families can find themselves one extended
hospital stay or temporary job loss away from bankruptcy. The system
designed to protect families in these situations is broken, and must be
mended by this Congress.
Outsourcing, once primarily a concern for manufacturing jobs, is
now a growing concern for white collar jobs as well. Workers in my home
state of Ohio have long known the consequences for workers when jobs
are shipped overseas. The effects of trade policies such as NAFTA have
led Ohio to post the sixth highest unemployment rate in the nation in
the most recent numbers reported by the Bureau of Labor Statistics.
Workers and their families are left in an insecure world, with
diminishing protections and in need of a helping hand.
No longer can our nation turn a blind eye to the effects of lax
enforcement of labor laws, inadequate social support systems and faulty
trade policies. This Congress must take the necessary steps to ensure
that workers and their families are on stable economic ground. We have
the ability to better protect and aid our constituents, and we must
move towards the goal of security for workers as we begin this new
Congress.
______
[The statement of Ms. Sanchez follows:]
Prepared Statement of Hon. Linda T. Sanchez, a Representative in
Congress From the State of California
Mr. Chairman, I thank you for convening this hearing on the state
of the American middle class. Unfortunately, the middle class is
suffering the consequences of years of fiscally irresponsible economic
policy. For working and middle class Americans, our economy presents
greater obstacles to success than in previous decades.
The dire straits that many middle class families find themselves in
are simply not in line with the success and growth in the economy
overall. In so many areas, the middle class is besieged. But in the
past twelve years, Congress has abandoned its responsibility to defend
hard-working American families--building obstacles to their progress
and blocking Democratic efforts help Americans help themselves.
Worker productivity is at historic levels: American workers today
produce 70 percent more goods than they did at the end of the 1970s. As
a nation, America is richer than it was a generation ago.
Incongruously, the workers responsible for American increased
productivity and economic growth have not fairly shared in the wealth
they have created. As middle class families are squeezed between
stagnant wages and rising prices for homes, education, and healthcare,
the income disparity between them and the richest 5 percent of families
has widened. I salute you, Mr. Chairman for taking on the challenge of
closing this gap.
Financial security has also declined for many American families.
The majority of American families cannot weather an emergency without
tapping into the equity in their homes--if they are lucky enough to be
homeowners. Many middle class families have had to borrow more money
just to make ends meet. Personal savings have depleted, making middle
class families vulnerable to even brief periods of unemployment or
substantial emergency medical costs.
Our healthcare system is in crisis. About 47 million Americans,
including millions of children, still lack access to health insurance.
Even for many of the insured, vital goods and services, including
prescription drugs and annual check-ups, remain uncovered. Working
families should not have to choose between paying for their medical
bills and other necessities. Health care spending is expected to
continue to rise well above inflation for years to come. Unless we take
action to control these soaring costs, millions more American families
will lose access to appropriate care that can reduce emergency and
acute care costs later.
One traditional path Americans have used to improve their
circumstances and reach the middle class, the labor union, has been
hampered and hindered. Workers who wish to organize themselves to
bargain for better pay and benefits and improve their working
conditions have faced severe challenges. Too many corporate employers
engage in systematic and illegal campaigns of harassment and
intimidation against workers who want to band together to achieve
common interests and better their lots in life. This practice has even
spawned its own small industry of private ``consulting'' firms whose
sole purpose is to coach employers in methods, both legal and illegal,
of preventing workers from exercising their right to choose to form
unions. I look forward to addressing this alarming development so that
more Americans are free to achieve the dream of economic independence.
We must also work to ease the burden that higher education costs
pose to middle and working class families. Financial barriers should
never prevent a qualified student from going to college, and that is
why America has long since made a commitment to help all Americans
afford a higher education. Student financial aid is one of the best
investments that this country can possibly make. There is no better way
to lift people out of poverty, build strong communities from the
inside, and give our youth hope for their future than by providing an
affordable education.
Fair wages are essential to a just society and to the growth of the
middle class. In this regard, the 110th Congress is off to a great
start. We recently passed the Fair Minimum Wage bill to increase the
minimum wage to a more realistic $7.25 an hour by 2009. But that bill
is just a down payment. I look forward to working with the Members of
this Committee to help hard-working Americans rise up and improve their
lives and lifestyles.
Our agenda in this 110th Congress must focus on working families.
America's middle class is working hard and producing more than ever,
yet is faced with an unprecedented burden of costs and expenses. Our
success as a country depends on them; their success, right now, depends
on us. Let's work to ease the burden on America's hard-working middle
class, protecting the security and opportunity of the American dream.
______
[The statement of Mr. Sarbanes follows:]
Prepared Statement of Hon. John P. Sarbanes, a Representative in
Congress From the State of Maryland
Mr. Chairman, I want to thank you for holding this hearing to
examine the growing struggle of America's Middle Class. I am new to the
Congress and to this Committee, but I am not new to the plight of the
Middle Class. In my prior career in health care and education, I have
witnessed how the most basic of opportunities are increasingly out of
reach for those families and communities that have traditionally formed
the bedrock of American society.
America has long been known as the land of opportunity. The idea of
the American Dream is that no matter your background, if you are
willing to work hard and play by the rules, you will be able to provide
for yourself and your family. In recent years, it seems that this
promise, this bargain that has long made the American worker the most
innovative and productive worker in the world, has begun to wear thin.
I want to share with the Committee a story of a woman I met during
my campaign. She is the mother of three college age students, a
professional woman who commutes from Odenton, Maryland to her job at
one of the federal agencies here in the District. She is the Middle
Class. She told me she doesn't know how her three children will be able
to afford college. Then she looked me right in the eye and said
something that sent a chill up my spine. She said ``I did everything
they told me I was supposed to do. My husband and I worked three jobs
between us, we saved our money, and we told our kids if you work hard
and study, you can make it in America. And now we can't afford to pay
for college.''
In this one statement, we hear what so many Americans are saying,
which is we worked hard and played by the rules, and we believed in an
America that would reward that, and now we've discovered that it's all
a cruel trick
Mr. Chairman, with great facility, this Administration has invoked
the American dream while cynically advancing an agenda that
disproportionately benefits the wealthiest among us and calls on
everyone else to work harder for less. The American people know a bad
deal when they see one. And they are counting on this Congress to
restore the bargain with the Middle Class.
I'll close, Mr. Chairman, by noting this, and it is something we
should take to heart as representatives who have been called upon to
serve. In making policy, we should always consider: How does this
affect the majority of Americans? How does this impact the working
families of America? If we keep those fundamental questions in mind as
we do our jobs, we will make good public policy and we will build back
a strong and vibrant Middle Class. Thank you, Mr. Chairman.
______
Chairman Miller. I thank the gentleman.
Our panel this morning is a distinguished group of
individuals. We will begin with Jacob Hacker, who is a
Professor of Political Science and Resident Fellow of the
Institution of Social Policy Studies at Yale University. He is
also a Fellow of the New America Foundation, a former Junior
Fellow of the Harvard Society of Fellows. He is the author of
several books. The title of his most recent book is The Great
Risk Shift: The Assault on American Jobs, Families, Health
Care, and Retirement. Currently he is heading a Social Science
Research Council project and cochairing the National Academy of
Social Insurance's 2007 conference. His articles and opinion
pieces have appeared in the American Political Science Review
of American Prospect, the Boston Globe and the New York Times.
Rosemary Miller currently works as a flight attendant for a
major airline based in San Francisco. She has completed two
Bachelor's Degrees and a Master's and chose to go to work as a
flight attendant in 1990 because of the opportunity to
structure her schedule, maximize the time spent at home raising
two children as well as the genuine love of the profession.
Rosemary is the single mother of two children and lives in
Reno, Nevada, having to commute to San Francisco for her flight
assignment.
Eileen Appelbaum is a Professor and was Director of the
Center for Women in the Workforce in March of 2002. She was
promoted to Distinguished Professor in July 2006. Formerly she
was a Research Director at the Economic Policy Institute here
in Washington and a Professor of Economics at Temple
University. She has studied both high road and low wage
employers. She is the author of, among other books, The New
American Workplace and Manufacturing Advantage. She has
recently published a report, ``Achieving a Workable Balance,''
which examines employers' experiences and employee leaves and
turnovers. Dr. Appelbaum has published widely on the economic
developments in the U.S. and other countries and has authored
numerous articles on the workforce, part-time employment, the
service sector of the economy and the labor markets experience
for women.
Diana Furchtgott-Roth is a Senior Fellow at the Center for
Employment Policy at the Hudson Institute here in Washington,
where she was formally the Chief Economist of the Department of
U.S. labor from February of 2003 to April of 2005. Previously
she served as the Chief of Staff of the President's Council of
Economic Advisers and she is a weekly economic columnist with
pieces published in the Washington Post, the Financial Journal,
The Wall Street Journal, the Los Angeles Times, among others.
And her area of expertise is in labor economics tax policy and
economic regulation.
Kellie Johnson is the President of ACE Clearwater
Enterprises in Torrance, California. ACE Clearwater is a metal
forming company manufacturing formed and welded assemblies for
the aerospace and power generation industry. Ms. Johnson joined
the family business of ACE Clearwater Enterprises in 1984,
working in all areas from purchasing to production control. Ms.
Johnson was promoted President in 1989 and by 1995 they doubled
the annual sales to over $20 million. In 1999, her company was
named one of America's top 25 small manufacturers by Industry
Week Magazine. Ms. Johnson sits on the Board of Directors on
the National Association of Manufacturers and was named a
member of President Bush's Manufacturing Council in March of
2006.
Christian Weller is a Senior Economist for the Center of
American Progress, where he specializes in Social Security and
retirement income, macroeconomics and the Federal Reserve and
international finance. Prior to joining American Progress, he
was on the research staff at the Economic Policy Institute,
where he remains a Research Associate. Dr. Weller has also
worked for the Center for European Immigration Studies at the
University of Bonn, Germany, the Department of Public Policy at
the AFofL/CIO here in Washington. Dr. Weller has been a
frequent guest on news programs and all of the major networks,
and he holds a Ph.D. In economics from the University of
Massachusetts at Amherst.
Welcome to the committee.
We will hear your testimony. We will begin with an initial
5-minute presentation by each of the witnesses. The light will
be green and then it will go to, if everything works right, it
will go to yellow which suggests you might want to start about
wrapping up, and then red, of course, is at the end of the 5
minutes. We will allow you to complete a thought and a sentence
so it will be coherent.
And Jacob, we will begin with you.
STATEMENT OF JACOB HACKER, PH.D., PROFESSOR, YALE UNIVERSITY
Mr. Hacker. Thank you and good morning, Chairman Miller,
Ranking Member McKeon, and members of the committee. I am
honored to speak with you today about the economic condition of
the American middle class.
Without mincing words, I believe that the condition can be
described as serious and unstable. Over the last generation, in
nearly every facet of middle class economic life, health
insurance, pensions, job security, family financial economic
risk has shifted from the broad shoulder of government and
corporations onto the backs of American families. I call this
transformation the great risk shift, and I think it is at the
heart of the economic anxieties that many middle class
Americans feel.
The United States, as you know, has a distinctive framework
of economic security, one that relies heavily on employers to
provide essential social benefits. But today this framework is
eroding and risk is shifting back onto workers and their
families. Employment based health insurance has cracked
substantially, leaving nearly one in three non-elderly
Americans without coverage for some time every 2 years.
Meanwhile, even as pension coverage has stagnated, there
has been a dramatic movement away from traditional guaranteed
defined benefit plans towards individual account style, defined
contribution plans which leave much of the risk and
responsibility of retirement planning on workers themselves.
We hear much today about inequality. The growing gap
between the rungs on our economic ladder. But the shift that I
am talking about is better described as insecurity, the growing
risk of slipping from the ladder itself, and insecurity is
clearly what more and more Americans feel. In an election night
policy commissioned by the McArthur Foundation--excuse me--the
Rockefeller Foundation last year, fully three-quarters of
voters, Republicans and almost as large a proportion of
Democrats, said they were worried about their overall economic
security.
Now let me emphasize that this is--these are not just
concerns or problems of the poor or poorly educated. Insecurity
today reaches across the income spectrum, across the racial
divide, across lines of geography and gender. Increasingly, all
Americans are riding the economic roller coaster that was once
reserved for the working poor.
For example, personal bankruptcies and home foreclosures
are stunningly more common today than a generation ago, and
most who experience these dislocations were in the middle class
before they did. Indeed, the segment of the population most
vulnerable to these trends are families with children, in part
because they are drowning in debt. In 2004, personal debt
exceeded 125 percent of income for the median, married couple
with children.
We will hear more at this hearing about the squeeze between
income and expenses that helps account for rising middle class
debt.
But another factor to consider is that incomes themselves
have become more unstable. Research I have done using the Panel
Study of Income Dynamics, a study that has tracked thousand of
families from year to year since the 1990s, shows that not only
have the gaps between the rungs on our economic ladder
increased, what has also increased is how far people have
slipped down the ladder when they lose their financial footing.
For example, a recent study shows that a chance that Americans
will spend short periods in poverty has increased substantially
since the 1970s for every age group. Now it is common to say
that trends like these either cannot be addressed or that
addressing them will hurt our economy. I think both claims are
false.
The great risk shift is not an inevitable occurrence. In an
economy as rich as ours there is really no compelling reason
why we could not shore up and update some of the buffers that
protect families from economic risk to help them prosper in our
increasingly dynamic, increasingly flexible and, yes,
increasingly uncertain economy.
Which brings me to the second misleading claim, that
providing Americans with a basic foundation of security will
drag our economy down. We cannot and we should not ensure
Americans against every risk they face, but it is a grave
mistake to see security as opposed to opportunity. We give
corporations limited liability, after all, precisely to
encourage entrepreneurs to take risks. If the middle class are
to make the investments necessary to thrive in our new economy,
they need an improved safety net. The American dream. The
economic promise of this great Nation is about security and
opportunity alike, and ensuring the vibrancy of that dream will
require providing security and opportunity alike.
Thank you.
Chairman Miller. Thank you.
STATEMENT OF ROSEMARY MILLER, FLIGHT ATTENDANT
Ms. Rosemary Miller. Thank you, Chairman Miller, for
inviting me to this important hearing on the challenge facing
the middle class in this country. It is an honor and privilege
to be here today. Again, my name is Rosemary Miller.
Eight weeks ago I began my 18th year as a flight attendant.
In 1990 I set aside my Master's and Bachelor's Degree and my
career in education and chose to become a flight attendant
because it was a profession that would allow me more time at
home and with my children, and for most of my career I have
been able to balance the requirements of the demanding full-
time job with the needs of an active family.
However, in the past several years the airline industry
employees have been at the forefront of a trend that is
repeating. It is throughout our economy. We are working longer
and longer hours for less and less pay. We have seen our
benefits slashed simply to keep the most basics of health care.
Our pension pans have been frozen or terminated, and our
employers have used bankruptcy laws to shred union contracts,
turning back the clocks on decades of progress we have made on
turning our jobs into decent, stable careers.
Since entering bankruptcy, my employer is imposing drastic
wage and benefit reductions that include requiring me to work
20 percent more hours for 40 percent less pay. I am away from
home so often that I am absent from many of the important
events in my girls' lives that I vowed I wouldn't miss, and I
am so angry and frustrated that I will to have withdraw the
very small sum I was able to set aside for the beginning of my
girls' college careers and use it to pay the mortgage instead.
I would, however, like to emphasize that I am not here
today just to speak for myself or my industry. I am here to
speak on behalf of all of the workers of the middle class, your
constituents. I could be a nurse sitting here today. I could be
a firefighter, a police officer, electrician, a plumber. We are
the people who install your cable TV, who truck your groceries
from farms to supermarkets, who check you into your hotels and
who teach your kids. We are the city and county civil servants
who run your communities, the bus drivers who get you to work
every day, and we are here to impress upon you what it is
really, really like in this country's current economy.
Some economists and bureaucrats in Washington tell us that
the numbers show the economy is growing, unemployment is low,
and things look rosy. Well, those numbers don't show the whole
picture. The reality is that middle class Americans are under
tremendous strain. We are watching as our wages plummet from 10
years ago and more. We are watching our benefit packages strain
and our pensions disappear. Every single day we are having to
choose between a dentist appointment and the electric bill,
between prescription medication and groceries, between braces
for our kids or new brakes for our one aging car.
Please consider me for just these 5 minutes to be the face
and voice of millions of Americans who can't be here today, for
the woman with cancer who says the thought of the senior
executives at my company taking bonuses at the same time they
are demanding a 40 percent wage cut from me while I am
literally fighting for my life makes me sicker than the cancer
ever has; the pilot with over 30 years of experience who is
outraged that when he began with his airline there were four
senior vice presidents on the payroll and at last count there
were 37; the woman whose husband lost his job of 28 years to
outsourcing and had to start over for 7.75 an hour. I could
spend hours telling you these stories, but I know I need to
move on.
What do we, the middle class workers of this country, think
is wrong? Well, we think the executive compensation packages
that are wildly disproportionate to the contribution that these
employees make to the overall health is wrong; that a CEO can
terminate all of the company employees' pensions while keeping
his own $4.5 million one is wrong. Allowing corporate robber
barons to reward themselves with pension bonuses upon bringing
the company successfully through bankruptcy is wrong.
``successfully'' is a horrible choice of words. How can it be
successful when so many employees' livelihoods are shattered in
the process?
The average worker in this country has to battle for just a
modest cost of living increase while CEOs who in the 1960s made
20 times what a worker made now makes 400 times as much. That
is not just wrong, it is obscene.
What else is wrong?
Bankruptcy laws. Something has to be done about health
care. College costs, pension plans. I have items to say on
these but I know I need to sum up.
So what I would like to say is ask you to notice one thing.
We are people who live modest lifestyles. We are not here in
our remarks today to ask for new boats or a vacation home in
Aspen or luxury cars. We are not asking for a 30,000 square
foot home or cosmetic surgery for a nicer nose. We are just
here to tell you that we need livable wages. We need a home
that we can own, affordable health care, comfortable
retirement, security and reasonable means to provide for our
children's education. It is unconscionable to me that in this
country of all others it is such a struggle to simply live
modestly.
I know that there are many issues facing our government
today, but when you, the Members of Congress, walk onto an
airplane or check into a hotel or send your kids to school,
when you go to the grocery store or pick up the phone to call
police, you expect us to be there to do our jobs. Now we are
asking you to do yours, which is listen to us and hear us not
because we are Democrats or Republicans or Independent or
whatever, listen because we are the vast majority of tax paying
Americans. We are your neighbors, we are your friends, we are
your own family. And we are here to tell you that we are having
a really, really hard time out here.
Thank you again for inviting me to testify. I would be
happy to answer any questions.
Chairman Miller. Thank you.
STATEMENT OF EILEEN APPELBAUM, DIRECTOR, CENTER FOR WOMEN AND
WORK, RUTGERS UNIVERSITY
Ms. Appelbaum. Thank you very much for inviting me to speak
to you today.
Despite strong productivity, growth and expanding economy,
middle class families are caught in an economic squeeze.
Incomes have not kept pace with rapidly rising health, tuition
and housing costs, and in fact we are 5 years past the end of
the last recession and it is only now that middle class
families see their incomes rising back to the level they had
achieved prior to that recession.
To keep up their living standards, middle class families
are working more hours and so they are caught in a time squeeze
as well as caught between the demands of trying to be
responsible employees and the needs of being responsible family
members.
Recent productivity growth in the U.S. has been nothing
short of remarkable. We have had really exceptional
productivity growth. In the boom years from 1995 to 2000,
productivity and real median family incomes rose together. But
since 2000, despite the fact that productivity has continued to
increase, real wages have not increased at the same pace. In
fact, they have been largely flat, increasing only slightly in
the last 6 years.
The result is that we have a widening gap once again
between productivity growth and wage growth. We have been here
before and we know how the story ends and it is not a pretty
end.
The main reasons for this disconnect between wage growth
and productivity growth are not that difficult to identity.
This committee has dealt with some of them already. The decline
in the real value of the minimum wage has undermined the floor
that supports middle income earnings. The unionization has left
middle class Americans with no bulwark against greed in the new
winner-take-all economy. Difficulties organizing unions have
left many workers without effective representation or voices in
the workplace. Labor markets, where employers and employees
once met to negotiate over the distribution of the economic
pie, are today viewed as a tournament with many losers and just
a few winners, symbolized by the unseemly increase in CEO pay.
Many of the occupations that are projected to experience
large increases in employment over the next 10 years are not
footloose. They are not going any place else, and yet they pay
very low wages. The reason is that employers are able and are
in fact shifting the risks of an uncertain marketplace onto
their most vulnerable employees, as Dr. Hacker has pointed out.
The consensus politics of the old Keynesian model has broken
down because the interest of today's multinationals no longer
coincide with the national interest in rising incomes, a
growing middle class and a competitive domestic economy, and
the accelerated decline of manufacturing capacity in the past 5
years has not only eroded incomes, but it has undermined our
ability to compete in world markets. We have a huge negative
trade balance that threatens not only the U.S. economy but the
economic stability of the world economy. Even the IMF is
advising us on this particular topic.
It is only in the last few months that average group real
wages have begun to rise. We have seen an increase in the last
couple of months in median wages, but middle class families are
still way behind. Productivity increase in the last 5 or 6
years has risen by 18 percent while hourly wages are up just 3
percent, and this increase in hourly wages is dwarfed by the
increase in corporate profits. But my concern is that even this
small advance in middle class wages is likely to be short
lived.
I want to point to a couple of storm clouds on the horizon
that threaten not just middle class incomes, but are a
challenge for the sustainable prosperity and growth of the
economy itself.
The first, which you may or may not have noticed, is that
productivity growth has slowed down considerably. After 10
years of substantial growth, if you look at the third quarter
of 2005, the third quarter 2006, the latest data that we have,
that increase of productivity in that year is down to 1.5
percent. That is where it was from '73 to '95, in that era of
slow productivity growth. This is a problem that we are going
to have to think about how we are going to confront. The
busting of the housing bubble has already shaved a point or so
off of GDP growth in 2006 and threatens to do more in 2007.
There is going to be a correction to the ballooning trade
deficit. If you want to ask me questions about it, I will
answer. Let me just say that working families need policies
that support them in the roles as workers and as caregivers
that make the domestic economy more competitive, that sustain
growth and prosperity. We need a renewed commitment to full
employment. It is true that unemployment is low now, but we do
face storm clouds and we must be sure that we have that
commitment.
The correction to our ballooning trade deficit when it
comes will result in rising prices and declining real wages for
American workers. If we fight that inflation with rising
interest rates, we will have rising unemployment. And so I hope
that we will move in this Congress towards policies that shore
up the U.S. expansion as they enable the middle class to share
in the economic fruits.
Thank you.
Chairman Miller. Okay. Thank you.
STATEMENT OF DIANA FURCHTGOTT-ROTH, DIRECTOR, CENTER FOR
UNEMPLOYMENT POLICY, HUDSON CENTER
Ms. Furchtgott-Roth. Thank you very much for inviting me to
testify today.
America's economy is in superior shape today. We have got
the news that GDP grew at 3.5 percent last quarter and 3.4
percent for the entire 2006, even higher in 2005. And this
growth was achieved in spite of high oil prices and in spite of
talk of a housing slump.
Over the past year, the economy has created 1.8 million
jobs, of which 1.6 million are in the private sector. This
Friday I can assure you that more job gains will be announced.
And the Bureau of Labor Statistics will announce that an extra
810,000 jobs, approximately, will be added to the count of
payroll jobs that were created between April 2005 and March
2006.
The unemployment rate is only 4.5 percent, down from 4.9
percent a year ago and lower than all industrialized countries
except Japan. The number of unemployed was 6.8 million last
month compared with 7.3 a year earlier. So we are making
progress. Many people say that the jobs created have just been
hamburger flipping jobs, but this is not borne out by the data.
Employment in industry that pay above average wages, such as
professional and business services and educational and health
services, are expanding rapidly.
Why then in this strong economic picture is there talk of
economic security and dissatisfaction? This economic insecurity
can't be proved with the data. According to Karlyn Bowman of
the American Enterprise Institute, the Nation's leading analyst
of policy rules, people are feeling secure about all aspects of
the economy with the exception of health care. In other words,
other than health care, people feel that their economic well-
being is strong.
One reason for the media angst is the perception that the
gains are not distributed equally and some people are falling
behind, but the latest Consumer Expenditure Survey shows that
differences in per person spending by the lowest and highest 5
percent of income earnings are dramatically different. Spending
is very important because it determines our current standard of
living and our confidence in the future. It shows how much
money Americans have.
The top 50 percent of earners pay 97 percent of income
taxes so all of their income isn't available for income. The
lower income Americans at the bottom, the bottom percentiles
receive food stamps, housing subsidies, Medicare and Medicaid.
So they consume more than their income. Middle class Americans
have assets in pension and individual retirement accounts that
are not included in income. Therefore, spending is a far better
guide to well-being than pre-tax income. Last year Americans in
the top group spent two and a half times as much as the bottom
group on a per person basis and 1.8 times as much as the middle
class. This is not major inequality. And some households with
low incomes are not poor. A full 30 percent of those in the
bottom fifth own their home free of mortgage compared with only
17 percent in the top group. Many are retired in the bottom
quintile and are living off Social Security, pensions and
accumulated savings.
Aside from tax payments and transfer receipts, why is
spending inequality per person less than many popular measures
of income equality? There are fewer people per family per
household in the bottom quintile. 1.7 people. This increases to
2.5 people in the middle quintile and 2.5 people in the highest
quintile. Furthermore, people in the highest group have more
earnings. They have 2 earners per family. So in the lowest
quintile there are many families without any earners not
because they can't find jobs, but because many are retired.
A glance at per person spending over the past 20 years
shows that all groups are spending more in real terms. Everyone
has grown richer over the past 20 years. The lowest quintile is
spending 14 percent more than 20 years ago and the top quintile
is spending 16 percent more.
Now a quick look at unemployment shows how lack of
education affects workers. Last month the unemployment rate for
adults without a high school diploma was 6.6 percent. It was
only 2 percent for those with a Bachelor's Degree.
Reforming education remains the most effective way of
increasing incomes and there has just been a book published
called Tough Times, Tough Choices. This is published by the new
Commission on the Skills of the American Workforce, written by
a prestigious bipartisan group chaired by Charles Knapp,
President Emeritus of the University of Georgia, and members
included New York City Chancellor Joel Klein and also John
Engler, who is President of the National Association of
Manufacturers. The report tries to fix our education system. It
proposes a set of core examinations. It proposes more school
choice. It proposes more education both for the children and
for adults.
So to sum up, in a global economy, education and innovation
are the keys to high standards of living and job security. We
can help people gain security in the workforce not by pricing
them out of a job by increasing mandated benefits and minimum
wages, but by improving opportunities and upward mobility
through better education.
Thank for the opportunity for testifying today.
Chairman Miller. Thank you. Ms. Johnson.
STATEMENT OF KELLIE JOHNSON, PRESIDENT, ACE CLEARWATER
ENTERPRISES, INC.
Ms. Johnson. Good morning, Chairman Miller, Ranking Member
McKeon, and members of the committee.
My name is Kellie Johnson, and I am President of ACE
Clearwater Enterprises located in Torrance, California. I would
like to thank you for the opportunity to appear today on behalf
of ACE Clearwater Enterprises, our employees, and to speak
about how manufacturers are strengthening America's middle
class by providing high paying jobs and benefits.
ACE Clearwater was founded by my grandfather more than 50
years ago. We are a third generation, privately owned family
business. I am passionate about manufacturing. Manufacturing is
the engine that drives our economy and has created the middle
class. I also feel very strongly about education and workforce
development. Our Nation's ability to maintain its global edge
in technology and innovation hinges on its ability to educate
and train people for the jobs of the 21st century.
ACE Clearwater is a small manufacturer. We employ 172 of
the best men and women in our industry. But we are crying for
more skilled workers.
I am proud to say that we are a preferred aerospace
supplier. Most of our customers are the prime OEMs, Lockheed
Martin, Northrop Grumman, Honeywell, Boeing and Textron.
Demands they put on our supply base is great, and in order for
us to stay competitive in this global economy we have had to
continuously reinvent ourselves, make huge investments in our
engineering capabilities and capital equipment through
technology on our shop floor. The only thing that is limiting
us in growth is that we cannot find enough people to fill the
jobs that we currently have.
Last year we interviewed 191 people and of those 191 we
hired 28. These are great paying jobs with great benefits,
opportunities for career advancement, on-the-job training,
tuition reimbursement, but we cannot find the people that have
the skills that industry needs. Currently we have 12 open
positions. These are our biggest challenges. This is affecting
the future of my company and the lives of the 172 men and women
that work in the company.
As I said, our customers put great pressure on us. In the
past they would come to us and ask us to build to their
specifications. Today they come to us with a concept and ask us
how would you design it. Design it for us, manufacture it for
us. Once you have manufactured it, we expect a price reduction
next year. In some cases, our customers expect 6 percent price
reductions year over year and they expect us to get this
through productivity gains. We say how can you do that. We do
it with the men and women on the shop floor that are innovative
and creative and skilled, that are problem solvers and thinkers
who know how to make things and embrace the technology that is
available today in modern manufacturing.
We know that 70 percent of the new jobs in the future are
going to require more than a high school education. That is why
I am reaching out with other manufacturers across our country
to work with the community colleges to communicate with them
the kind of skills that industry needs. Recently the OECD
report placed the United States tenth for people ages 25 to 34
with a high school diploma. This is a road to failure.
We need to raise the awareness of our workforce crisis with
business leaders, educators and policy makers and we need to
identify solutions at the State, Federal, and local levels that
will promote communities and drive a skilled workforce. We
believe community colleges are key in providing active training
and lifelong learning.
We also need to encourage young people to get into
manufacturing. We need to reverse the trend of people that are
not getting into the math and sciences. We need to develop our
future engineers and scientists and technicians.
The National Association of Manufacturers has launched a
national campaign called Dream It, Do It to try to attract more
people into the workforce. Young people have a bad perception
of manufacturing. It is dirty and boring and monotonous,
dangerous, and that simply is not the case in today's modern
manufacturing environment. We are constantly bringing second
and third graders through our shops so they can see firsthand
the kind of exciting careers that exist in a factory, high
school students, career teachers, tech teachers. In fact, a
couple of years ago when we were bringing a high school group
of students through our machine shop, a supervisor was
addressing them and talking about his typical day. A student
raised their hand and said why would I want that job, you stand
on your feet all day and do the same old thing. I would rather
make web sites. And our supervisor responded, ``I didn't go to
college, but I have vocational training, I make $72,000 a year
and parts that I have designed and built are on the planet
Mars.''
Now maybe that kid only heard $72,000 a year, but so what?
We have to get these kids involved in manufacturing. They are
our future. Manufacturing is what has created the middle class,
and we cannot afford to lose it.
I would invite every member of this committee next time you
are in southern California to come to ACE Clearwater so you can
see what we are doing there. It is exciting, it is rewarding.
It is challenging. You can really make a difference.
I appreciate the opportunity to speak today, and I welcome
any questions.
[The statement of Ms. Johnson follows:]
Prepared Statement of Kellie Johnson, President, ACE Clearwater
Enterprises
Good morning, Chairman Miller, Ranking Member McKeon and members of
the committee. My name is Kellie Johnson and I am the President of ACE
Clearwater Enterprises located in Torrance, CA. Thank you for the
opportunity to appear today on behalf of ACE Clearwater Enterprises,
its employees and to speak about how manufacturers are strengthening
America's middle class by providing high paying jobs and benefits.
I am here to speak about an issue I feel very strongly about,
education and workforce development. Our nation's need to maintain its
global edge in technology and innovation hinges on our ability to
educate and prepare people for the jobs of the 21st century. ACE
Clearwater is a family owned and operated business incorporated in the
State of California and has been building complex formed and welded
assemblies for the aerospace and power generation industries for over
50 years. As a third generation leading our company I can say it is
more difficult than ever to find the talent we require. We need to
raise awareness of our workforce crisis with business leaders,
educators and policy makers. We must identify solutions at the local,
state and federal levels while promoting policies that strengthen
communities and drive a skilled workforce. Our 172 employees are in a
word, awesome, together we make some really incredible components, if
it can fly, we have parts on it. ACE's customer base includes the U.S.
Government and virtually all the prime OEM's, cutting edge companies
like Honeywell, Lockheed Martin, General Electric, Boeing, Northrop
Grumman and Textron, in addition to many international customers. I am
proud to note that in 1999, Industry Week recognized ACE Clearwater as
``One of America's Top 25 Small Manufacturers''. Our current annual
sales approach $28 million, and our payroll is nearly $120,000 per
week.
As you know, the United States continues to be on the cutting edge
of new technologies, innovative ideas and out-of-the-box thinking, we
are a very creative country, with a dynamic and highly motivated
workforce. But we have an URGENT problem, and it requires our immediate
attention, put simply our workforce is aging and our supply of skilled
workers is in decline. The manufacturing sector has experienced a
nearly 40% growth in demand for highly skilled workers, while demand
for low skilled workers continues to decline.
We employ a lot of people who like to make things, many have
hobbies that include model ship building, custom guitar building , and
even a couple of guys who build radio controlled jets * * * lots of
folks who, like me, appreciate the shop floor. ACE is a mini city, lots
of areas dependant on each other, and like any community it requires
some highly skilled people to keep it growing.
Our customers used to give us a blueprint and say make this, now
they give us (CAD) computer assisted drawings and ask us to tell them
how we can make it better, lighter, faster and cheaper. These
challenges require a highly skilled and motivated workforce, and to do
this, America needs to recognize there is a skills gap, and it is
growing. A recent OECD report on education says it all. The United
States ranks # 1 in adults 45-64 with a H.S. diploma, we are in 5th
place with adults 35--44, and a dismal 10th place with adults 25-34
with a basic H.S. diploma. This is a roadmap to disaster. The reality
is 75% of new job growth requires some level of post-high school
training.
Like any manufacturer, at ACE, our employees are our greatest
asset. We maintain a competent workforce through selective recruiting,
training, involvement and empowerment at all levels. Our people are
integral to the R&D process. For many projects, our people are the key
to innovation on the factory floor. Responsibility is also important.
All our employees are empowered to stop the production process and ask
questions if they feel something is wrong. Our core value is ``We do
the right thing.''
According to the Employment Benefit Research Institute, 84% of
manufacturers nationwide provide health care benefits to their
employees, a level of coverage second only to government. Accordingly,
to attract and retain the best talent, ACE provides health, dental,
vision and life insurance for its employees. We currently cover 75
percent of employee insurance costs. We also provide a 401(k) plan, of
which about \1/3\ of the employees participate as well as 7 paid
holidays. Our vacation package is very generous, with an average
vacation time of 3 weeks. A typical employee at ACE has been with us
over 10 years.
Our benefits package is also very competitive, and we have been
able to maintain these benefits with minimal affect to employee costs.
ACE's overall benefits package is equal to 24 percent of our total
payroll.
My company, like many others, continues to find ways to provide
generous benefits in a time when the costs of such benefits realize
double-digit increases from year to year. A June 2005 Survey of
executives by Advanced Technology Services indicated that between 2000
and 2004, increases in benefits accounted for more than half of the
increase in manufacturing compensation.
I could tell you many stories about how we work with employees
during difficult times, but Kimberley is the most recent. She was
having some problems with her pregnancy and needed multiple doctor
visits each month during her final trimester. She did not want to lose
hours by taking off too much time, so we adjusted her work schedule to
fit her particular need, it was a win-win for everyone. We have also
had several fathers ask us to do this for them as well. It is in every
employers best interest to work together to help people when these
situations arise. We want them back, and we want them excited to come
to work !
Manufacturing careers are great jobs with good benefits. In 2005,
manufacturing employees earned an average of $66,000 a year in wages
and benefits compared to employees in the remainder of the economy that
earned about $54,000--a 22 percent difference!
The manufacturing industry is what makes this country great, and we
cannot afford to lose it. More than one in six private sector jobs in
the U.S. depend on the manufacturing base, and manufacturing accounts
for about 12 percent of GDP.
While I am proud to share with the members of this committee the
success we have experienced, all is not well. In fact, ACE Clearwater
currently has 12 open positions.
They include: manufacturing engineers, welders, and machine
programmers and operators. Our biggest challenge is finding skilled
personnel. We hire summer interns and recruit from several
universities, technical & community colleges and local high schools to
train the next generation of engineers and technicians. A shop
mentoring program encourages senior operators to assist younger people
in augmenting their skill levels.
Tony is an excellent example of how we are constantly encouraging
people to learn new skills, and grow with the company. He started as a
welding assistant, helping with cleaning the parts prior to weld and
fitting them up. Eager to become a welder, he approached his supervisor
with his dream. Practicing during his lunch break, we could see his
drive and ambition. Through in-house training, and supplemental off
site instruction paid for by ACE, he is now the lead welder, and helps
to train others like him.
ACE Clearwater is doing its best to provide good quality jobs, but
we must see a resurgence in this country of educational skills programs
to stress that people can make a great living through the many
opportunities that manufacturing has to offer.
We face a daunting challenge. A 2005 Skills Gap survey conducted by
the National Association of Manufacturers revealed that more than 90
percent of respondents stated that they could not find enough skilled
production employees, including front-line workers, such as machinists,
operators, craft workers, distributors, and technicians, to fill their
job openings. The same survey also indicated that more than 80 percent
of respondents could not find qualified workers to fill their job
openings.
The challenge for manufacturers is how to attract, retain, and
motivate a high-performance workforce. The challenge for government is
how to improve the quality of education in our primary, secondary, and
post-secondary school systems. There must also be improvement in job
training programs to address the continuous demands of training and re-
training of workers. In addition, we need to reverse the decline in
U.S. students who study science and engineering.
A manufacturing worker today must have math and science skills and
the ability to problem-solve, think analytically, communicate via
written and spoken word, and work in teams as well as autonomously.
However, many job applicants have insufficient reading, writing, and
communications skills, and they have inadequate basic employability
skills, such as attendance, timeliness, work ethic, and problem-
solving. Last year we interviewed 191 applicants and hired 28, had the
proper skills been there I can state we would have hired a lot more.
Our growth is only limited by our ability to meet our customers
ever challenging demands. And that means a skilled, motivated and
excited workforce. Few of the skills needed to succeed in the workplace
are taught in the schools, nor do students understand how what they are
learning will translate into their future careers. There must be better
alignment between education and training systems and the needs of
employers and the business community. Increased communication and
collaboration among manufacturers, government, educators, and parents
would help to alleviate the skills gap shortage.
ACE Clearwater is doing its part to remain vibrant despite a
competitive global economy and ever increasing government regulations,
but its ability to do so in the future is predicated on the
availability of a highly skilled and adaptive workforce. The
manufacturing industry is providing economic opportunity to America's
workers, but as manufacturers suffer, so too does the nation's overall
economic health.
Thank you for the opportunity to testify, and I am glad to answer
any questions you may have.
______
Chairman Miller. Thank you very much.
Dr. Weller.
STATEMENT OF CHRISTIAN WELLER, SENIOR ECONOMIST, CENTER FOR
AMERICAN PROGRESS
Mr. Weller. Thank you very much for inviting me today. It
is an honor to be here. In my testimony today I will address
what I consider to be the source of middle class anxieties, the
rise in economic insecurity.
In the fall of 2006, the joint report by the Center for
American Progress and SCIU, titled Middle Class in Turmoil,
found that within a few years after the end of the last
business cycle in 2001, all gains made in the financial
security by middle class families during the 1990s had
disappeared. Despite an economic recovery that has lasted more
than 5 years, middle class families are struggling to pay for
home, health insurance, transportation, and their college
education due to labor market recovery and higher prices for
other important items.
To pay for these necessary expenditures, middle class
families are borrowing record amounts of money leaving them
unable to put away much extra cash for rainy days. Families are
unable to save for an emergency. Job growth of this business
cycle has been less than one-fourth of previous business cycles
and real wage growth has been declining for most of this cycle.
The typical family's incomes did not rise between 2000-2004
even after increasing median family income in 2005. The typical
families still had almost $1,300 less than they did in 2000. At
the same time, the cost of families' top five expenditures,
medical care, housing, food, household operations, including
energy, have risen more than twice as fast as the cost of the
smallest five items. To maintain their day-to-day necessary
consumption, families took on a record amount of debt
equivalent to 131 percent of disposable income in the third
quarter of 2006. The increase in debt to income after 2001 has
been more than four times faster than the increase in debt to
income during the 1990s.
In line with the rise of indebtedness, debt payments have
also increased to the highest level on record. In the third
quarter of 2006, families paid on average 14.5 percent of their
disposable income in interest, up from 13 percent in the first
quarter of 2001. That is 28 percent faster than the gasoline
expenditure increase during that same time. The share of
families capable of weathering this financial crunch has
decreased. Less than a third of families must accumulate wealth
equal to 3 months of income. The share of families with 3
months of income and financial wealth declined from 39 percent
in 2001 to 33 percent in 2004. This erased all gains in
financial security made during the 1990s and left families more
vulnerable than they were in 1989.
We wanted a control in our study for labor force changes,
so we created what we called a typical family, a dual income
earner couple between the ages of 35 and 54 with earnings in
the middle of the 60 percent of the income distribution. The
share of these incomes declined from 29 percent in 2001 to 18
percent in 2004, which is well below the 21 percent recorded in
1989, which was already very low.
Declining wealth and fewer savings pose significant risks
to middle class families facing unemployment. The weakest job
growth rate since the Great Depression means that people who
lost their job had a much harder time finding jobs than before.
Long-term unemployment in this business cycle averaged 17.5
weeks, the highest average for any business cycle since World
War II. As a result, a spell of unemployment can be quite
costly for families. Less than half of all families could
weather a bout of unemployment in 2004, down from 55 percent in
2001.
Within 3 years, all gains in financial security will meet
according to this measure during the 1990s advantage. Medical
emergency is an even bigger risk for the financial security for
middle class families. Ever rising health care costs
consistently outpace overall inflation leaving more and more
employers to shift more and more of those costs to their
employees through higher premiums, co-pays and deductibles or
to drop health care coverage altogether. As a result, the cost
of a typical medical emergency jumped to an estimated $3,700 in
2004 from $2,800 in 2001. The share of families who could
sustain a medical emergency consequently went from 36 percent
in 2004 compared to 44 percent in 2001. Again, the drop is
sharper for typical middle class families and middle income
dual earners.
As new data becomes available, we have updated those
numbers for 2005 and the trends continue despite the trends in
the labor market.
This research establishes two crucial policy goals from my
perspective. First, workers need to see stronger income gains
in the economic expansion that requires a high minimum wage, a
level playing field for workers who want to bargain
collectively in improvements to their income tax credits, among
other steps.
Second, I think public policy should help families build
wealth by strengthening defined benefit plans, improving
defined contribution plans, raise health insurance coverage,
among other important steps.
Thank you very much, and I will be happy to answer any
questions.
Chairman Miller. Thank you very much and thanks to each of
you for your presentation. I think there is enough here to
stimulate some discussion. So thank you so much.
And your entire statements will be placed in the record. I
know some of your written presentations were longer than your
oral presentations and we appreciate that.
Let me see if I can get to what appears to me a little bit
of a different take on this discussion, and this is for the
entire panel. Aside from tax payments and transfer receipts,
why is spending inequality per person less than any popular
measures in equality and, prior to that, if I read this
correctly and that is a big if, but if I read this correctly,
the suggestion is that the inequality that we see discussed
very often in the press and in journals and papers and
certainly in the halls of Congress and the so-called income
disparity issues you suggest aren't as they appear because the
levels of spending among the various quintiles within the
population are much less than that discussion of disparity and
on inequality would suggest.
Ms. Furchtgott-Roth. Right. That is correct, sir.
Chairman Miller. Okay. What I don't understand and I would
like others to comment is you suggest that the--for food and
housing that, you know, that the top 20 percent earners spent
$3,441 in food per person and then the bottom spend $1,792 per
person. I don't know that that tells me what they are eating,
and what have you, and I don't know what percentage of that, of
their income is dedicated to food.
And in the other categories on questions of health care,
again, I don't know the health status of the top quintile and
the lower quintile. Are you counting insurance payments in
that? Is that included, insurance, or is that out of pocket
expenses?
And then the other one is the idea that there is the
substantial amount of consumption going--among all of these
segments of the economy, the question is are people--what is
the difference in terms of reliance on second earners in the
family to generate that total household income? And secondly,
what is--how much of that consumption is backed up by debt as
opposed to income among those?
Ms. Furchtgott-Roth. Well, these are really excellent
questions, and it is a very difficult subject to follow but the
basic point is that spending for the bottom quintiles is higher
than their incomes because they receive transfer payments that
are not listed in income. So for example, we have had people
say today that CEO compensation is unfair and perhaps what
Madonna makes after a concert is unfair. But that is not always
a measure of their well-being because the CEO gets taxed.
Chairman Miller. But on that point, if I might, the case of
somebody who gets food stamps, the decision has been made that
they have insufficient income to provide an adequate diet for
that family.
Ms. Furchtgott-Roth. That is right. So what we do is we
take--we tax the top half, and the top 50 percent, according to
the Congressional Budget Office, pays 97 percent of the taxes.
And there are transfers that go to the bottom in terms of food
stamps, housing subsidies, and you observe in the bottom
quintiles people spend more than their observed income. People
in the top quintile spend less than their observed income. They
can't spend all of their income because they pay taxes.
So when you look at these things and you also divide it up
on a per person, per family basis, because there are more
people per family in the top quintile than the bottom quintile.
So you wouldn't expect----
Chairman Miller. With all due respect, when the people in
the bottom quintile get all done spending their income, they
have an inadequate diet, health coverage and pension. When the
people in the top get done spending their after-tax income,
they have also sheltered a huge amount of income in the
retirement plans. We have--we don't know the status of their
health care plans in terms of corporate benefits. And they have
enough--they have enough discretionary income left over that
they really in many cases don't spend it even when you lower
the tax rate. This is not spending in necessity.
It seems you are comparing a class that is spending out of
necessity for the necessities, food, health care, and what have
you, and people who are then spending after they can cover all
of the necessities and then add on to that. I don't quite get
what the comparison is.
If I quickly might indulge, ask leave of the committee if
we might have a comment from one or two others on this.
Mr. Weller. I think the issue of spending inequality is
somewhat an outcome based measure. If we want to look at
inequality of something that tells us where policy should be
going, I think mingling in issues such as transfer payments
skews the picture somewhat. I think overall, at least what our
research shows, is that families in the middle income, not so
much at the bottom, are struggling to pay for typical middle
class items, housing, health insurance, and that explains the
sharp run-up in debt level. So you have got to remember debt
levels relative to income rose four times faster after 2001
than before that. And that cannot be explained with behavioral
changes or can only be explained with the overall economic
fundamentals, weak income growth, weak wage growth, weak
employment growth, the rapidly rising prices. And I would say
that those measures are a better measure of capturing what we
want to know where policy should be going in the future.
Ms. Appelbaum. I don't think it is news to anybody that
rich people spend less than what they earn and poor people
spend more than what they earn.
And to Dr. Weller's point, the middle class has been doing
this by using their house as an ATM machine, as we know. The
amount of equity taken out of their houses to support their
consumption over the last 5 or 6 years has been huge. Now that
housing prices have stopped rising, this is no longer available
to them. This is a huge problem for two groups of workers in
particular: Those who are approaching retirement and who are
counting on the equity in their houses to make up for their
lack of pensions and for their lack of their savings, and this
is a problem of the middle class, not of the wealthy, who in
fact have been able to save for their own retirements.
And the second group are people who were encouraged, shall
we say, to move into subprime mortgages to buy houses at the
peak of the market at rates that are not going to be sustained
and will not be able, as we see from the rising foreclosure
rates, will not be able to make the higher mortgage payments
they are now being asked to make and who are losing everything.
They are losing not only their house but all of the savings
they put into it.
Chairman Miller. Thank you.
Mr. McKeon.
Mr. McKeon. Thank you, Mr. Chairman. As you said, there is
room for lots of discussion here. I am--the opportunity
overwhelms me.
I have listened to each of you, and you each have a
different story to tell, and you are all experts in what you
are talking about.
I spent a lot of time visiting businesses, manufacturers,
lots of different businesses and I see--I see everywhere there
is a demand for people to fill the jobs.
Ms. Miller, you have been caught in a rough industry for a
few years that have had tremendous problems and especially
since 9/11 where it is amazing that all of them are still
around even though most of them are in bankruptcy, or some of
the large ones are.
But I talk to people. You mentioned nurses. They are
paying--around the country they are paying hiring bonuses to
try to hire nurses from one company to another company. Great
demand for nurses, great demand for teachers. I talked to a
school that provides teaching for beauticians and barbers. They
can't begin to fill the ranks. Truck drivers. They can provide
40,000 truck driving jobs a year. We can't get enough people
going into teaching. Everywhere. I see 4\1/2\ percent
unemployment. We used to consider 6 percent full employment.
And yet I hear these stories about how bad things are.
I am wondering where personal responsibility comes into any
of this. Should the government be responsible for people having
hard times? When I hear about hard times, I try to think--I
look at young people compared to when I was young; in fact, I
have lived too long. I grew up and I know that--how much a loaf
of bread was and how much a pound of meat, wienies. I used to
work in a market. A gallon of gas when I was a kid, 25 cents.
But I also remember the Carter years in the 1970s when we had
gas lines, and we said that the next year gas prices were going
to be 3, 4, $5 a gallon.
And yet always we seem to make it through, and we end up
consuming a whole lot more. My parents, they struggled just to
get food on the table, and then I look now, the struggle is a
bigger house, more cars, bigger cars. You mentioned boats. I
understand you are not looking to buy a boat but, man, we are
selling lots of boats. All of these things.
After listening and reviewing some of this testimony, I
can't help but notice a common thread through some of it. There
is an apparent lack of confidence in the American people to
make decisions for themselves, manage their finances, care for
their families, plan for their future.
I must say that this is jarring because it underscores a
sharp difference in philosophy here in Washington. Some of us
trust American workers and their families; some of us don't.
Over the course of the next few years, I think we will see the
stark difference come into focus time and again, particularly
on this committee.
Ms. Johnson, of all the panelists you are the one with the
most experience in supervising and working with rank-and-file
workers that we are here to discuss today. What do you make of
this theme that I have noticed throughout some of the testimony
today, and do you find that those you work with back in
southern California are incapable of assuming risk, are ill-
prepared for challenges in the workplace, and ill-suited to
deal with the new realities of the 21st century, or do you find
that yourself, like me, a little more confident in the
workforce?
Ms. Johnson. I have all the confidence in the world with
our workforce. I know it is an overused cliche when we say
people are our greatest asset, but when you look at a small
company, the labor percentage in terms of cost to sales is not
that large when you put in raw materials and outside processing
and the other costs that go into our product.
We spend numerous hours training our employees. They have
embraced being cross-trained because they recognize that that
brings more value to them and more security in their job. Our
workforce is crying out for training. They want to advance
their careers, they want to learn how to use new technologies.
Of course, they want to buy new cars and homes and send their
kids to college. But my opinion, the workforce that we have and
the people that I deal with on a day-to-day basis, I have all
the confidence in the world that they are responsible and
capable of managing their own lives.
Mr. McKeon. I have been very concerned about the cost of
education. The last 20 years it is going up four times faster
than the rate of inflation. Is that the government's
responsibility? Why is that happening? Most of that money is
going to college professors, right? In some cases, football
coaches. Where can we get a handle on that? How do we rein in
the costs of education, because it is more and more important.
We used to lose a lot of jobs going to other countries
because of low wages. We are going to start losing them because
we don't have an adequate trained workforce, and they are
turning out enough people, and they are turning away people at
schools, and a lot of people can't afford to go to school. How
do we get a handle on those costs?
Ms. Furchtgott-Roth. Well, one thing we can do is make more
use of community colleges. Forty-five percent of freshmen in
the United States are in community colleges. They have
vocational training, can stay for a 2-year program, then
transfer to a State university, or you can just go there, take
a few classes.
We spend $15 billion, the Federal Government, on job
training, and a lot of these funds could be used better by
channeling them to workers and allowing them to take courses in
community colleges. Community colleges train most of the
nurses. They are having to turn away nursing candidates, by the
way, because their programs are full.
So expanding community colleges and channeling more funds
into those is one way out of the education cost squeeze.
Ms. Appelbaum. If I might just comment on that as well. The
issue that we can find when we look at higher education and
compare it as a proportion of income to what other things cost,
is, as Ms. Johnson has pointed out, manufacturing is the answer
to productivity growth, so we have had enormous growth. It is
not clear that you can get those kinds of productivity growth
in higher ed or in education in general. It is the reason that
as a country we have agreed to subsidize education. If we left
it to private resources, just a small fraction of people would,
in fact, be able to afford a college education.
I think--I agree with the idea that we have to think about
how to use resources more efficiently. At the Center for Women
and Work we have done a lot of work on distance learning and on
the means to use technology to reach people who are working
full time at low wages and can't go to school. But the bigger
problem, it seems to me, is that we have something like 52
percent--we have 52 percent of high school grads going on to
postsecondary, including community colleges, but less than 30
percent graduating with 4-year degrees.
Chairman Miller. We have got to stop this discussion for a
second.
Mr. Kildee.
Mr. Kildee. We have votes coming up. I don't know the
answer to this question, but I am not an attorney, so I will
ask it anyway. How does the status of the middle class--and I
will address this to Mr. Hacker first--how does the status of
the middle class in Western Europe or other areas compare to
the status of the middle class here in the United States?
Mr. Hacker. It is a very good question, and, in fact, just
the other day I was giving a lecture to my students comparing
some of the recent statistics, so hopefully they are at my
disposal now.
The first thing to say is that American--middle-class
Americans, the median American is relatively rich in
international perspective because we have a much richer economy
than most other countries. However, if you go even down to the
lower levels of the middle class, say, people at the 40th
income percentile, then you actually have many European nations
have income levels that are higher.
The most striking difference between the U.S. and Europe
really has to do with both the security or stability of income.
It is much more unstable in the United States. People have
much--have to rely much more on their own initiative or on
their employers for health insurance, pensions and so on. And
also it is much more unequal as we all know from the
comparative statistics.
Interestingly, most Western European nations have not seen
the same kind of increase in income and equality that we have
seen in the United States. It has gone up in some of them, but
it has certainly not been as dramatic. I think what we can say
is that the United States has had an enviable economic
performance compared with other countries, including Europe,
and that there are strains that we see in Europe that we don't
see in the United States that are worth taking into account.
But at the same time the middle-class citizens of European
countries have greater economic security, clearly, and
especially if you are--there is less inequality in those
countries, and especially as you move slightly below the exact
middle of the income distribution, their standard of living is
actually in many cases higher than in the U.S. for comparable
populations.
Mr. Kildee. Am I right that the fragility of the middle
class status in this country is something of grave concern? I
mean, you have a middle-class person, and they have an economic
crisis come upon themselves, in 2 months they are having a
difficult time making their mortgage payments; are they not? So
there is a certain fragility among our middle-class people.
Mr. Hacker. I think that is the main concern we have heard
from many of the panelists today and the main concern that I
have expressed. It is really not denying that Americans are
richer than they used to be, that is clearly the case, but
those riches have been accompanied by increasing economic
risks, and it is thinking about ways in which we can ensure
that people who have climbed up the economic ladder, who have
made it into the middle class, can stay there when dramatic
events occur in their life.
That is the kind of challenge I think we have to worry
about with health care, pensions plans, with how to deal with
the increasing amount of structural employment; that is, people
displaced from a job for which they develop specific skills and
then have to gain new skills or spend periods of time outside
the labor market before they can reenter.
So we really need to worry about not just the standing at
any point in time of the middle class, but how secure they are
against precipitous drops in that standing.
Chairman Miller. We have four votes on the floor. I am
going to try to get Mr. Walberg in for a question at this point
if you would like to. And then we will break and come back, get
back here at 12:15, and on our side will be Mr. Andrews, Mr.
Tierney and Mr. Loebsack, Mr. Courtney, Mr. Davis, Mr. Ehlers,
Mr. Castle, who was here and gone.
Let me just ask you, does this raise a logistical problem
with any of the panelists? Can you stay with us if we take a
break until 12:15? I don't know if people have flights or what.
Thank you very much. We will be back here and try to start
right at 12:15 if we get through these votes. Thank you.
[Recess.]
Chairman Miller. Thank you for being here and returning
promptly. We will begin with Mr. Ehlers.
Mr. Ehlers. Thank you, Mr. Chairman. I am sorry I missed
much of the hearing, but I was in a markup just down the hall.
Fortunately, I was able to hear the testimony the of several
individuals, particularly Ms. Johnson, and I just want to
comment that what I heard from her is right on. It is exactly
what we are experiencing in Michigan with our manufacturing,
and I suspect it is a national phenomenon.
In the old days when I walked in a factory and took a tour,
there was a whole line of lathes, machinists working on the
lathes, turning the screws by hand, measuring with micrometers.
Today when I walk in a factory in my district, there is a
$700,000 milling machine, computer-operated, and a technician
operating it who earns 70- to $80,000 a year.
Times have changed. Schools have not changed, and in
particular students are not getting the work. I think it is
very important for us on this committee to recognize that the
educational institutions have to change to accommodate the
needs of the world out there that they face now and that these
students are going to face, and I have been all over the U.S.
trying to get the message across. We have to change our
educational system, particularly math/science education. We
have to prepare the students of today for the jobs of tomorrow,
and we have just not been doing it.
There are some schools that are doing a fantastic job, many
that are not. There are many aspects of the problem, one of
which is teachers who are good teachers who want to teach math
and science well, but have never learned it, never been taught
properly, and have not learned science and math itself, and not
learned how to teach it properly.
So I just wanted to go on the record thanking Ms. Johnson
for her comments and the rest of you as well, their supporting
comments.
That is the direction we have to go. I appreciate what No
Child Left Behind has done. We are now beginning the phase of
testing in science, but we are not going to count it toward
yearly progress for some years. I think we should change that
and start counting it immediately. This is not something that
can wait, this is something that we have to do fairly soon.
I would just like to ask Ms. Johnson if she would like to
make any further comments along that line?
Ms. Johnson. In regards to the qualifications of teachers
that are in the field of teaching math and science, I would
agree that they need to have, in many cases, more real-world
experience. Math and science, when the children are learning it
in the classrooms, they need to have the ability--I am not sure
if I am using the right word--contextual learning so they can
apply what they learned in the classroom to real-world
experience. And I think that there needs to be better
collaboration between industry and education so that we can get
people that are actually out on the shop floor and utilizing
the technology that is available and sharing that with the
teachers so that they have a better understanding of the kind
of skills that are necessary and how they can better teach
their children the math and the science and apply it to a real
skill.
I am very much supportive of the No Child Left Behind, but
I feel that no child should leave without a skill, and that
there should be a clear path for them in terms of whatever
their life situation is, that they can pursue what fits them.
In regards to getting industry more involved, I believe
that there should be better partnership is the only way that we
are going to be able to proceed and take the next step.
Mr. Ehlers. Thank you very much.
Just continuing on that thought, we have developed some
programs, Mr. Chairman, which I think work very well, the
partnership programs in the Department of Education, also the
National Science Foundation, but they have not been adequately
funded, and the word has gotten out. I think the appropriate
role of the Federal Government, and without impinging on local
school boards and State boards of education, is simply to
provide the professional development for teachers so that they
get the education they need to properly teach these courses, as
I call it, for the jobs of the future, and that they feel
comfortable doing it and can do a good job.
I have worked with the schools for many years. I never talk
about or blame the teachers because they simply haven't had the
opportunity to learn the appropriate subject matter and
methodology for these courses. But when they do, they are very
excited about it, and they are eager to do the job properly.
With that, Mr. Chairman, I yield back.
Chairman Miller. Thank you.
Mr. Andrews.
Mr. Andrews. Thank you, Mr. Chairman. I thank all the
witnesses.
Dr. Furchtgott-Roth, in your discussion of the superb
economy that, in your view, we are experiencing, one of the
points on which you rely--I read an article you wrote on
December 11th, 2006, called Richer Than You Think, and in the
article you say, and I quote, we can see indications of
prosperity all around us. The boom in self-storage facilities
catering to middle-class America has come about because our
possessions have outgrown the capacity of our homes.
Are there data to support that claim, that the boom in
self-storage facilities is people that have too much furniture
for the house they are living in because of prosperity?
Ms. Furchtgott-Roth. There has suddenly been more and more
Americans using these self-storage facilities, and they are
using them to store something--obviously not using them to
store nothing.
Mr. Andrews. Absolutely. You would concede, wouldn't you,
that one of the reasons that people may be doing this is they
used to live in a larger home, and they lost their job, and now
they moved to a smaller home and have to store their furniture
somewhere? Is that possible? Do you have any data on that?
Ms. Furchtgott-Roth. The rate of home ownership is
increasing. The average size----
Mr. Andrews. Do you have any data on your claim that the
reason self-storage facilities are booming is because people
are so prosperous?
Ms. Rosemary Miller. Could I say something?
Mr. Andrews. I am going to come to you in a minute, but I
want the doctor to answer the question.
Ms. Furchtgott-Roth. I think it is a reasonable assumption
that when people have a self-storage area, then they are
putting things in it, and the size of our homes is getting
bigger.
Mr. Andrews. Do you think one of the reasons might be that
people can't afford the rent where they used to live, and maybe
they now moved in with family members because they can't afford
an apartment? Is that possible?
Ms. Furchtgott-Roth. I am sure there are people for whom
that is true, but that is not a systematic problem in the
American economy today.
Mr. Andrews. I don't have much time. You are the one who
made the claim that the reason for this boom in self-storage
facilities is all this prosperity. Are their data for that
claim or not?
Ms. Furchtgott-Roth. There are data showing increasing
prosperity, increasing purchases. Retail sales were at a high
last month.
Mr. Andrews. Are there data that show that the reason that
more self-storage facilities have opened up is because
prosperous people need room to store their furniture, yes or
no?
Ms. Furchtgott-Roth. It is a logical argument to make under
the circumstances looking at current economic conditions, and
it is true systematically about the American economy.
Mr. Andrews. Does that mean no or yes?
Ms. Furchtgott-Roth. I am not familiar with all the data
regarding it, and so I can't answer the question.
Mr. Andrews. Even though you made the claim.
If I may, Ms. Miller, the Ranking Member a minute ago made
a reference, and I am sure it was in good faith because that is
the kind of person he is, that personal responsibility is one
of the keys to people achieving more economic success. I wonder
if you could describe for us a typical day for you with your
14-year-old, your 12-year-old living in Reno and commuting to
San Francisco. Can you tell us what a typical day is like for
you and how much personal responsibility you engage in?
Ms. Rosemary Miller. It is difficult for me to do anything
but tell you my own experience and the experience of the people
that I work with and the experience of people that I speak
with. I am uncomfortable with the numbers and the confidence
that so many place in the numbers because those numbers don't
translate to what is happening in my life.
The issue of personal responsibility is a very important
one for me. I put myself through college. I worked six jobs
from freshman year through the years until I graduated. I grew
up in a family where none of us, and I come from a big family,
were able to pay for college. We had to pay for it ourselves.
I went to college, I got my degrees, and I made a specific
decision based on my personal priorities, which was my family,
to join a workforce or a profession that didn't use my degrees,
but it used my energy, it used my intelligence, it used my
people skills. And I worked for a company for many years that
was run by employers who showed personal responsibility.
Personal responsibility is not just the purview of
individual workers, it is the purview of the people that run
companies; it is the purview of the people that represent those
companies in legal situations and that sort of thing. I look
back at the 18 years that I have spent at this company, and I
can't think of any moment where I was irresponsible.
At this moment in my life, I happen to have no consumer
debt, which is a personal, personal goal for me, and it is
not--it is not the norm though. I know that there are people in
my--peers that have consumer debt and that sort of thing.
Chairman Miller. It is very difficult for me to interrupt
you, but I am going to have to because----
Mr. Andrews. I thank the witnesses. My time has expired.
Chairman Miller. I am sorry.
Ms. Rosemary Miller. No worries. Thank you.
Mr. Kline. Thank you, Mr. Chairman. We have a vote on the
way.
Thank all the witnesses for appearing today, and as always
there is never enough time.
Just a couple of things. Ms. Miller, I found your story
very compelling, and since I, like most Members here, fly
thousands and thousands of miles and many, many hours on
airlines, on Northwest Airlines, who I understand to be your
employer, but whoever the large carrier is, and certainly we
couldn't do that without the professionalism and attention of
the flight attendants.
However, just looking at your testimony, you volunteer that
we could replace ``I'' with ``me,'' and you talk about such
careers as pilots and mechanics and nurses, like my wife and
niece, and firefighters. What are you basing that expertise on?
I understand that you are a flight attendant. Are you a nurse
and a firefighter and so forth?
Ms. Rosemary Miller. No. I think what I was trying to say
is that the person sitting here giving testimony today could be
one of a number of American workers.
Mr. Kline. Or could not be. Some of those professions could
be doing very well, presumably. Thank you. I just wanted to be
sure.
You also mention that you are in a squeeze, and you are
trying to pay for a home and so forth, and yet--and I am sure
that is true, I am glad you are debt free, but there is no
question that home ownership is at the highest in this country
than it has ever been, including for minorities.
Ms. Johnson, also a very compelling story. I have a small
manufacturing company in my district run by a woman also, and
she is having so much difficulty finding employees that they
have gone to the practice of in the third--what would be the
third shift starting up the machines, loading them up with
steel and starting them up, and then turning off the lights and
going home. I said, don't you even have a night watchman? No.
They just lock the doors and go.
And the point is that there is productivity sometimes
without employees, of course, but mostly her biggest issue--and
I find it increasingly as I travel around the district--the
biggest problem that employers are having are finding qualified
workers. Sounded to me like that was your story.
Three years ago when I traveled around, the biggest issue
was the cost of health care. And I am not meaning to imply that
is not still an issue, but clearly there is difficulty in
finding employees. How long has this been a concern of yours?
Ms. Johnson. I have recognized for more than 6 years now
that we are going to be experiencing a work skill shortage, and
it is something on my radar for a while, particularly because
where I grew up in southern California surrounded by the large
prime aerospace companies. Most of my friends' parents either
worked for one of those companies or owned their own machine
shops. And I noticed that so many people that were in my
generation were not getting--following their parents'
footsteps, whether it is because their parents felt there was
something better for them, or, like me, they might have been
the first child in the family to go to college, and so they are
pursuing other things.
So it has been something that I have been addressing and
realize is going to become a crisis. It has been in the last
couple of years, for example, we had a minimum average of 10
positions that remain unfilled.
Mr. Kline. Let me interrupt for a minute because I am going
to run out of time, and we do have to go vote. I think that Ms.
Furchtgott-Roth mentioned that one of the things we can do to
ease the shortage of employees is have more people go to
community colleges. And certainly we have, I would claim, some
of the finest in the country in my district in community
colleges. Would that apply in your position; graduates of
technical training or community colleges, would that help the
situation for you?
Ms. Johnson. Definitely, yes.
Mr. Kline. Thank you, Mr. Chairman. I yield back.
Chairman Miller. Mr. Tierney.
Mr. Tierney. Thank all the witnesses. I think their
testimony has been very helpful today in framing this issue and
the circumstance. We always listen to the data. It is great to
hear the academics say it, and we want to know how to interpret
it, but I think, Ms. Miller, your real-life situation
determines it pretty well.
I don't think you are alone in that. I know preschool
teachers at $21,000 a year, people working for General Electric
who make engines who had their jobs off-shored. I know college
professors who are now adjunct professors instead of tenured
professors who are making far less with no benefits. We can go
on and on.
I don't think your circumstance ought to be diminished one
single bit. I think you reflect a great number of people, not
all of them, and I want to thank you for the bravery of coming
here and telling this story and how it has helped us identify
the situation.
Similarly, Ms. Johnson, I want to thank you. I was a small
businessman for over 20 years, president of the Chamber of
Commerce. I think you reflect a whole pile of people out there
who understand that part of the solution is education. We have
had a problem with the White House on a serial basis cutting
vocational and technical education, cutting job training
programs, and I am hoping there is some reflection here that we
can work in a bipartisan way to improve that situation. We
cannot keep chopping millions of dollars off of job-training
programs and a President saying that vocational education isn't
a worthy experience, where we know from our experience the
opposite is true.
Another thing you haven't experienced, I have aerospace
companies in my district that have been told by either the
government, which is their customer, to make it cheaper even if
it means going offshore to Mexico or overseas to Sweden, in the
case of Volvo for engines, or, in another circumstance, a
company that was owned by a Canadian company told them
basically go north or south, but get cheaper on us.
So I just want to ask Dr. Appelbaum, tell us a little bit
about the impact of trade and the trade deficit on jobs and
people that might, in fact, be in this middle-class squeeze
that Ms. Miller was talking about.
Ms. Appelbaum. Thank you for that question. I agree with
Ms. Johnson about the fact that manufacturing is the engine of
productivity growth and of innovation, and I am very concerned
about the fact that we have treated manufacturing with such
disdain. It is not only that we are not training young people
to go into skilled manufacturing jobs, it is that we are not
investing in this country in high-value-added manufacturing.
And it is not just a problem in terms of middle-class
incomes, I think it is a problem that is going to come back and
bite us as a country. We know that one of the things that is
going to have to happen is that the dollar is going to have to
fall against other currencies, or, to put it another way, China
currency is going to have to rise against ours. We had a fall
of the dollar against European currencies, and we have seen
just in the last month that that has definitely improved our
ability to export to countries like Europe.
But what we really have to see--because our trade deficit
is unsustainable. We have the IMF telling us that we are a
threat to economic stability in the world. What really has to
happen is two things. One is our currency has to fall relative
to the currencies of low-wage countries, and the second thing
is we have got to think creatively about enhancing our domestic
manufacturing capacity.
A better exchange value will enable us to export, but for
us to actually be able to carry out those exports, we have got
to have the manufacturing capacity here. And your point about
off-shoring is very well taken. As recently as a decade ago, we
produced--90 percent of the manufactured goods we consume in
this country were produced domestically, and now we are down in
10 years to just 75 percent and falling.
So you raise a very good point there.
Mr. Tierney. It is big in my district.
Chairman Miller. We have a minute left on the vote.
Mr. Tierney. Dr. Hacker, let me just ask you a question
before you leave. I thought your statement that corporations
get a liability shield, protection from liability, in a number
of different ways as well as numerous incentives and tax breaks
and whatever, why shouldn't middle class and others get some,
as you, I think, phrase in other writings, structures of
security that we used to have? If we are not going to get them
through the employer, if they are going to cut back on defined
benefit pensions, cut back on contributing to both current
employee health insurance and retiree health insurance, can you
give us some direction of what would be an appropriate Federal
Government role that wouldn't by Mr. McCain and others perhaps
be seen as a lack of self-discipline? But what might people use
to help them in those situations?
Mr. Hacker. Thank you very much for the question. You are
absolutely right that I think that middle-class Americans, just
like entrepreneurs, need to have some basic protections against
economic risks if they are going to have the confidence to
invest in their futures, to make the choices and the
investments, the ones that we talk about when we talk about
personal responsibility that can advance their family and
advance our economy.
I don't think this is just an analogy. I mean, if you look
throughout American history, the periods of middle-class
prosperity and strength are precisely periods where we invested
in the middle class: The GI bill for education and home
ownership; through Social Security and Medicare to ensure that
people had security in old age and during their working life,
that they didn't have to fear that they wouldn't be secure in
old age.
So I think we need to draw on these positive past examples,
but update them to our new 21st century economy. I think this
is actually a place where we could have a really useful
bipartisan discussion. Both Republicans and Democrats premised
much of their action in the past on the idea that employers
would continue to carry out these responsibilities, would
continue to take on these burdens. We subsidize these benefits
heavily through the Tax Code. We often tried to regulate them
to make them work better, and we have seen that even more
recently with the Pension Protection Act. The one inevitable
reality about that is that we can't make corporations spend
money on these benefits and offer them if they do not want to,
right? We could certainly mandate that they do it, but that
would only hurt our competitiveness and hurt corporations even
more.
So we need to recognize that some of these sources of
security that are so important to middle-class Americans have
to move outside that direct employment relationship. I think
there are multiple ideas out there. We need to have portable
health benefits, for example, whether that means we expand
programs for low-income workers, or, as I prefer, that we
create a new option for middle-class Americans to buy, secure
public or private insurance; whether it means that we make sure
that 401K retirement plans are available to all workers even if
their employers don't offer them and offer new subsidies for
those plans that are particularly generous to middle-class
workers and lower-income workers who are most at risk of not
achieving their retirement savings goals; whether it means we
try to work around the margins at least of our unemployment
insurance system to ensure that more than just a third of
workers who are unemployed are receiving some kind of
unemployment benefits; and think about, for example, having
some kind of wage insurance or protection against big drops in
one's earnings when we lose a job in, say, a high-wage sector
and have to move into a low-wage sector.
These are not ideas that are without precedent, they are
not ideas that would necessarily divide us across ideological
lines or partisan lines if we have a realistic discussion about
how we would do it, how we might pay for it, and how this would
be a new partnership between the public and private sector.
Ultimately we are talking about a new social contract for
the American workforce.
Mr. Tierney. Thank you.
Ms. Woolsey [presiding]. Thank you for being so patient
with us and staying. Chairman Miller is going to come back, Mr.
Loebsack is coming back, and I have a series of questions, and
then you will probably be free.
I do have an observation. I can do this now because there
is nobody that is butting up against my time until somebody
else gets here. I am sorry I was late, but I was at a Foreign
Affairs hearing also.
I was watching the people behind you, the folks, and the
room was jammed when I first got here to hear your testimony,
probably most of whom were middle-class folks, and they had the
saddest looks on their faces, I can tell you. They know what
you are saying is true. They want a solution, and they can
watch themselves and know about their kids. I just looked at
them. I mean, it was just really sadness on their faces. Your
giving us straightforward testimony is very much appreciated,
and I thank you.
Now, Dr. Appelbaum, forgive me, I didn't yet read all of
your testimony, but I have heard your responses to people, so I
am asking you a question related to one of your responses, and
you were talking about and reporting that productivity in the
United States actually is growing, and that is something for us
to celebrate.
So my question is who is paying attention to who benefits
from this growth, and how much would it help the middle class,
the working class, if the benefit actually was shared at least
equally with them?
Ms. Appelbaum. Yes, that is a very good point. We have had
10 years now of healthy, remarkably strong productivity growth,
although I did caution that in the past year it has slowed
tremendously, so that is a storm cloud that we are going to
have to keep an eye on.
For the first 5 years, in fact, middle-class income rose
along with the productivity growth. We had a brief period of
shared prosperity, a slight narrowing of wage inequality, and I
think there was a sense of optimism in the country. Things did
look like they were getting better; people could see their
incomes rising. This has disappeared.
We continue to have the strong productivity growth, but we
do not have the same kind of income growth, and I think that
this has created, has contributed a lot to the economic
insecurity. You can't see yourself getting better off.
As of 2005, the last year for which we have data, middle-
class family incomes had not yet recovered 5 years after the
end of the recession to where they had been just prior to the
recession. We may have made it this year, but that is 6 years
to get back to where you were.
I would like to add one thing to the social contract idea
and to some of these ideas, and I know this is an issue close
to your own heart. Most families today have every available
adult in the workforce. They are either single parents, or, if
you have married couples, they are dual-earner families. They
rely on the income of every adult in order to make ends meet.
I think another important aspect of economic insecurity we
haven't addressed here today is what happens when you have a
family member who becomes ill; what happens when you have a
young wife who becomes pregnant; what happens to a couple that
adopts a child? Suddenly you are in a situation where you are
caught between a rock and a hard place. You want to be a
responsible employee, you need to put a paycheck on the table,
and you have a sick child that you need to care for. And just
as we introduced unemployment insurance when he left the family
farm and went to work so there would be some partial wage
replacement if he lost a job through no fault of his own, we
have got to think about how to have partial wage replacement
for people who are facing serious family crises. And I just--I
think a big part of the economic insecurity is the knowledge
that one illness--you are just one illness away from not being
able to pay your bills, going into debt, maybe even losing your
house.
Ms. Woolsey. Right. It may not be your own illness. You are
a perfect straightwoman for me today because then you allow me
to say as the Chair of the Workforce Protection Subcommittee on
this major Education and Labor Committee one of my bills is the
Balancing Act, which actually includes paid family leave and
many other ways to help working parents bridge that gap between
work and family.
So I have a question now for Dr. Weller. My question for
you has to do with organized labor and labor unions, and what
do you think is happening with organized labor, and what
difference do you think that makes to the average working
person?
Mr. Weller. Well, the data we presented today and the
stories we have heard here are the struggles of the middle
class, and I think the most telling numbers are the ones that
Dr. Appelbaum just presented that compensation has not kept
pace with productivity growth. Clearly we need to institute
policies to help that, to bring that together. The minimum wage
is a good first step. It helps at the bottom 10, 12 percent of
the labor market, but it is not a middle-class policy.
The only policy that we really know that helps to
strengthen the link between productivity growth and
compensation growth is unionization. Unions have declined.
There are less than 8 percent in the private sector in terms of
coverage. In the public sector they are larger, although there
are limits to what they can do, and clearly the labor law is
stacked against unions. The elections for unions are often
cumbersome. Penalties on employers are miniscule; it often
takes years until those penalties are imposed, and then often
they just require back pay.
I think it is an important first step to really level the
playing field. I think the Employee Free Choice Act which has
been promoted a number of years now is an important first step
to level the playing field for workers who want to bargain
collectively. It is still a democratically guaranteed choice to
join a union, not join a union, but we really need to level the
playing field because unionization is the most powerful tool to
strengthen the link between economic growth, productivity
growth and wages.
Look back at the 1960s. We did have very strong economic
growth, strong productivity growth, strong profit growth, but
we also let many families share in the gains of the fruits of
their labor, and the primary tool here really was the union
movement, the labor movement and strong coverage in the private
sector.
Ms. Woolsey. Thank you.
We have Mr. Bishop back. So, Mr. Bishop, your turn.
Mr. Bishop. Thank you very much. Actually, I am not back, I
am here for the first time. I regret that I was not here to
hear the testimony, but ironically I was in a subcommittee
meeting at which we had a spirited discussion on maintenance of
Davis-Bacon protections. And in my view, Davis-Bacon is one of
the instruments of public policy that has both built and
maintained the middle class. And so that debate was, I think,
apropos of the discussion we are having here.
I was a college administrator before I came to the
Congress, and I serve on the Higher Education Subcommittee, and
I know that one of the discussions that was taking place this
morning was a discussion about increased debt load. And you
know that we have just passed a measure that hopefully will
ultimately take on the force of law to cut student loan
interest rates. But I guess my question is we are going to be
reauthorizing the Higher Ed Act hopefully this term, and how
would you advise us in terms of what we might want to say to
colleges in terms of their obligation to help students with
debt counseling, and also what might be their obligations in
terms of holding down the indebtedness that college students
will encounter? I don't know who to direct that to. Dr. Hacker.
Mr. Hacker. What I can say, I think, very quickly, and then
I would like to hear the opinions of the other members of the
panel, is that I think that this is an absolutely crucial
issue. This increasing debt load is one of the most important
reasons, I think, why people are concerned about the future,
their future economic security, because simultaneously we have
come to believe and understand that going to college is a
critical precondition of success in the market, and yet the
cost of college has gone up, and the debt loads are coming up.
I think this is another illustration of the point I was
making before to Representative Tierney about how some of the
major risks that people take on like debt are often investments
in their futures, and therefore I think one thing I would just
put on the agenda is this is not just an issue of education or
college, but it is also a question about whether or not people
have insurance protection, security in their working life,
because if they are investing in skills to gain access to the
market, then they are taking on a lot of burden and putting
themselves at risk at the same time.
It seems to me that for what we know about the effect of
debt on student education choices suggest that the greatest
cost of rising debt really occurs among moderate-income and
lower-income students. We have seen a major decline in Pell
grants as a share of the cost of going to college, and there is
good research to suggest that dropout rates are influenced by
debt loads and financial burdens.
So I think the first order of business has to be focusing
on the students most vulnerable in trying to restore some
measure of support for college financing at the Federal level.
Ms. Appelbaum. I think as a country we are going to have to
decide what we think will make us more competitive in world
markets and whether or not it is worth spending an increasing
percentage of our GDP and investing it in, I would say,
postsecondary training and education.
As we have heard from Ms. Johnson, I think vocational
training is important if it leads to high-skill jobs, community
college, higher education. One of the things that we can say is
if you went back 20 years ago, you would find that the U.S. was
among the leading countries in the number of young people that
we graduated with 4-year college degrees. Now, we have held
constant our share of college graduates, it has not declined,
but in the meantime, other countries, if you think of the U.K.,
for example, where 20 years ago a university degree was an
elite degree, only the elite went to college, it is shocking to
find that they have a higher proportion of young people
graduating from universities than we do.
So if we think we are in a global marketplace, and we think
that higher education is crucial, I think we are going to have
to face up to the fact that we are going to have to invest more
as a country in higher education in order to enable a larger
and larger proportion of our young people, those who come from
middle-class families, people of moderate means, to become
college graduates.
Mr. Weller. Let me jump in very quickly here. The numbers
suggest that the typical student loan amount has risen pretty
much in line with tuition increases, which have been very
sharp. The important piece, however, is that we now see more
and more people coming out of college with very high debt loads
and entering the labor market that has reduced pension
coverage, especially for the age group of 25 to 35, so we are
already creating the problems of the future. Essentially we are
sending people into the labor market with insufficient
resources to prepare themselves for their own future,
especially a future where they have to take on more risks than
in the past.
Mr. Bishop. Thank you.
I know one of the concerns I have is if you look at history
of higher education in our country, it was essentially elitist
until World War II, and then with the advent of the GI bill and
subsequently Sputnik and the national investment in
postsecondary education, it became egalitarian.
My fear is we are on the precipice of becoming elitist
again. I also worry about how debt load influences career
choice, and we are in effect pushing kids--I shouldn't say
kids--pushing graduates out of perhaps public service careers
and into careers that they think will be more beneficial to
them financially. I think we suffer as a country as a result.
Ms. Appelbaum. I agree.
Mr. Bishop. Thank you.
Ms. Woolsey. We have another vote, but we are waiting to
hear from our Chairman to see if he still wants to come back.
So in the meantime I do have a couple more issues to discuss.
One is I don't know if it was Ms. Johnson or Ms. Furchtgott-
Roth, maybe it was one of my colleagues, that said something
about the professors earn too much, therefore we can't afford
to pay our instructors.
Ms. Furchtgott-Roth. It wasn't me, but we do have a
professor here.
Ms. Woolsey. We know he doesn't earn too much. He earns
every penny that we pay him.
My question would be--and with Ms. Johnson, you know what
recruiting challenges are--how do we recruit topnotch
professors when they can go to high-tech industry and get five
times more and in benefits and the retirement if we don't pay
them topnotch salaries? And then along with that, how do we
expect the most important product we have in this country, our
children, to be educated if we don't pay our educators, our
elementary and secondary teachers and then on to junior
college, et cetera, pay them a really livable wage? So have at
it.
Ms. Furchtgott-Roth. If I could start, this report: Tough
Choices or Tough Times. It is on education. It was authored by
a bipartisan commission, including former Secretary of
Education Riley; Joel Klein, chancellor of New York State
schools, and--New York City school system; and it addresses
this very point, and it proposes dramatically increasing the
pay of secondary school and elementary school teachers to
45,000 to 110,000 because it says that--it is suggesting that
teachers who teach math and science should have B.A.s in math,
in science, but right now they are getting attracted into other
fields, and we need to make up for that differential. So this
is a very real problem on the elementary and secondary school
level.
As far as college professors go, there are professors
competing to get tenure. It is a very competitive process, and
colleges do not seem to have problems attracting qualified
professors. But the elementary and secondary school we do have
problems attracting people in the math and sciences.
Ms. Woolsey. I thank you.
I am going to give the seat back to the Chairman. Mr.
Loebsack would be next to ask questions.
Mr. Loebsack. Thank you. Catch my breath. I am brand new to
the Congress, and I was warned about such situations where I
would have to leave and race for votes. So thank you for
staying here. Appreciate it very much.
I just have a couple of questions, I guess first a comment.
I really appreciate the comments folks made about education not
just because I am a college-professor-turned-Congressman of a
4-year college, but we have a lot of community colleges in my
district, too, and I think they are just fantastic. The other
day when we sent a press release about the student loan rate
cuts, my press secretary left out community colleges, and I
made certain that she put that back in.
But also I am a person who wouldn't be here today had it
not been for the opportunities provided to me. I grew up in
poverty myself. I somehow managed to get a Ph.D. And taught at
a private college for 24 years. And so the value of education,
I think it is fantastic. I am here in Congress today on this
committee because of what I have seen happen in the last 6
years in particular. I don't want to give too long a speech as
such.
But I do have a couple of questions to ask a couple of you
at this point. For example, Dr. Weller, you mentioned something
about collective bargaining. Can you elaborate a little bit on
that, sort of expanded opportunities along those lines?
Mr. Weller. I think, importantly, collective bargaining--
that the role of collective bargaining has diminished
substantially. We used to have over a third of the private
sector labor force covered by collective bargaining by union.
Now it is less than 8 percent. More collective bargaining would
strengthen the tie between productivity growth and compensation
growth, which has weakened substantially in the last few years.
I think there is another important role of labor unions,
and that is often overlooked. They are an important labor force
intermediary. We have talked a lot about education here, and I
think education is extremely valuable. Community colleges could
play a much bigger role. When workers are faced with a
situation where they will lose a job, and we go in and maybe
you should get more training, they say, what do I train for;
that job is going to leave.
Now training through the union is a different entity
because the union has the connections to the employers. He does
know where the next few jobs come from, and there is a number
of interesting efforts in that regard to strengthen the role of
unions to labor market intermediaries, to combine training
programs that exist with the needs of employers in various
industries where the unions are particularly strong such as the
airlines and others, and I think that is an important piece
that is often overlooked as a role of collective bargaining.
Mr. Loebsack. Trade adjustment, community colleges, the
role they play in that as well.
Also, I have a question for you, Dr. Hacker. When you
talked about an improved safety net, can you elaborate on what
you would mean by that? Are you talking about principally
restoring the cuts that have occurred the last 6 years or so,
or something beyond that?
Mr. Hacker. I am really talking about something beyond
that. As I said in response to Representative Tierney, I think
an improved safety net really has to face up to the central
change that has occurred in the framework of economic security
we have in the United States, and that is the erosion of
employer provision of social benefits, the decline in employer
health insurance coverage, and, I think less recognized perhaps
but equally important, the shift away from guaranteed defined
benefit pension plans towards individual accounts styled
defined contribution plans, which have many merits, but do put
much more risk onto individual workers, and which the evidence
suggests leave middle- and lower-income workers in particular
less well protected.
So I think that a safety net has to go beyond simply
shoring up the programs we have, just thinking seriously about
how we would create a better framework for a more flexible
economy in which people can freely move from job to job without
worrying about losing their benefits, in which people have--as
Dr. Appelbaum mentioned, in which people have two earners in
the workforce have some flexibility so if there is a need for
one parent to be at home for a period of time, in which we are
focused on working-age people, because many of our programs are
really focused on the aged, who were at one time the most
disadvantaged segment of the population but now have reasonably
good protections in many areas.
So I have talked in my work and in my book about a number
of options including expanded defined contribution pension
plans, like universal 401Ks, improved unemployment benefits
that would also perhaps cover some of these family-related
events that Dr. Appelbaum referred to; a better health
insurance framework.
I think here this is the most obvious place where our
system really fails both employers and individuals. It is much
too costly, the coverage is too cramped, and we are seeing more
and more risk shifting onto individuals, not because I think
employers generally have bad motives, but because they are
drowning under these costs. To me those are some of the core
areas.
Mr. Loebsak. One question, Dr. Appelbaum. Ways and Mean, I
believe, yesterday began to talk about trade promotion
authority, fast track. What do you think about an extension of
trade promotion authority at this point, because you talked
about MMCs and trade.
Ms. Appelbaum. Sure. I think the fast track would be a
mistake. I think we have to seriously consider each trade
agreement on its own merits. I am hopeful that going forward we
are going to see a lot more attention to labor conditions and
to environmental conditions, but in any case I think blanket
approval is just not a good idea.
I think we have got quite a few trade agreements out there.
We are still struggling to make them work for the American
middle class, and we need to go slowly as we go forward.
Mr. Loebsack. Thank you all. Yield back my time.
Chairman Miller. Thank you very much.
If I might take the part of the Chair to have the second
round of questioning here, and if one of you is up against a
flight schedule, leave.
But just I wanted to just to clarify a couple of issues
here. You know, this committee obviously spends an incredible
amount of time and energy on education and trying to integrate
this into the workplace and do a lot of work with association
in advanced manufacturers and the high tech and biotech
industry, which really have career ladders available to skills
and education and certainly in our State of California, but at
the end of the day, in recognizing all of that, and that is
what we should be doing and need to do to be more efficient,
when you see people running in and out of doors here when you
are talking, you wonder what the productivity is.
You know, somebody said we have the numbers and then we
sort of had the experience. And, you know, I represent a
district that was maybe called the first ring of the suburbs in
the San Francisco Bay area in the East Bay. World War II had
dramatic growth, dramatic integration of the workforce with
steel mills, six oil refineries, chemical facilities and all of
the rest of that, and now biotech and high tech and startups
and all of the rest of that.
When you talk to people, they simply are in the process of
making a series of tradeoffs today, whether they are organized
or whether they are unorganized. They have a union or don't.
They are trading hours for health care, which they are going to
pay more for in this agreement, or they are going to get the
same health care and they are going to pay more. Pensions are
open to negotiation. They are trading take-home pay for maybe a
pension contribution. This is the process of negotiating and
employers are in different situations.
But the overwhelming sense, when I talk to my constituents,
is that this is an ongoing process of which they are continuing
to slide down the ladder. They simply don't have enough money.
I attend many conferences on pensions and savings, you know,
the industry and advertisers and people participate in. And
yes, we, you know, 401(k)s have grown in value since we started
401(k)s. But as a retirement vehicle for a population, a number
of people have 401(k)s. They don't appear to be significant. We
have to have more incentives. We want automatic enrollment. We
want employer contributions. We want all of these things, but
the fact of the matter is, it is not there yet for a lot of
these people.
And I just, you know, that is what I think many of us see
in our districts all of the time when we talk to these
families. They are running harder and harder. They are being
responsible. You know what they would really like be able to do
is educate the kids, make sure they can hold on to their house
and have a secure retirement and have the wherewithal to keep
their families together. Kind of a modest American dream, but
they are telling us they are struggling to do this.
And, you know, these are good jobs, you know, refinery
today is an entirely different workplace. It is everybody in
that steel mill is going to that school hall. They are going to
Pittsburgh, Pennsylvania to school. They are going to Korea to
school. They are not about to make another huge investment in
that steel mill and it is going to require everybody in that
steel mill to go to school again.
Those are the same people who are making the investment to
keep their jobs, and they are telling us, ``I am not holding it
together, I can't hold it together.''
Ms. Appelbaum. I think the evidence really supports these
anecdotes that you are hearing about health care costs are
going through the roof. The idea that we hear a lot about it
when we think about--when we hear with the Medicare crisis and
so on. It is not only in Medicare. Health care coverage is
exhausting our companies and exhausting our families so that
shifting of the health care costs on to them is reducing
people's incomes.
Everyone understands they need to be saving for their
retirement. You used to be able to rely on a company pension
but you can't. At the end of the week, if you have paid for
food and medicine, there is no money left to save. It is not a
question that people don't know what they should be doing. It
is they can't figure out how they are going to pay for it.
Mortgages are high. Food costs are high. College tuition is
high. All of the things that people have to pay and to absorb
your own health care costs, insurance costs, these are--really
it is beyond the ability of middle class families to really
support all of this.
Mr. Weller. I think one of the lessons I have learned is
that overall compensation has to keep pace with productivity
growth but on the asset building set on the retirement savings,
we can make it easier for employers and employees to save
money. I think on the pension side, I think there is room to
grow that sector and strengthen that sector, making it easier
for employers to make regular contributions to the pension
plans.
I think the requirements, the regulations are too volatile
for employers. We can also make it easier for employees to
participate in automatic enrollment and all of the things that
were in pension plans.
I think the next thing we have to address is what happens
at the end of somebody's career. How do you get people into
annuities without really charging them tons of money. I think
that is an important challenge. I am hearing proposals there to
introduce low-cost annuities. I think we can do it with two
steps here. You focus on income growth at the same time that
you make it easier for employers to maintain their existing DB
plans.
Chairman Miller. Ms. Johnson, you are on the other side of
this. I am sure you hear this in your employees. I assume that
from time to time, they want a raise. Do they want a change in
whatever that total compensation package is that you offer?
What is your sense? I mean--and I am stunned like you are.
There are really few--there are really few skilled machine
operators in our district, and they are always looking for
workers.
Ms. Johnson. When we talk about productivity gains, I think
that the customer wins, the company wins and the employee wins
and this is from a small business perspective because when we
buy a new piece of technology that allows us to make that part
quicker, faster, cheaper, for our customer. It also creates
more capacity so we can bring on more work. It also allows us
to promote someone that was working on an older piece of
equipment and advances them and trains them on to a newer piece
of equipment so they can command, you know, a higher salary or
a pay rate.
Chairman Miller. What is your sense of when you look at
your workers? $72,000 is a good salary.
Ms. Johnson. Then we add 24 percent on top of that in terms
of what our total benefit package is as well.
The last 3 years we have provided 8 percent increases in
payroll year over year every year for the last 3 years is
between 8 percent. The company has absorbed all of our health
care cost increases. It is only in the last year that we moved
from a $10 co-payment to a $15 co-payment so that no other
costs we have passed on to our employees.
As a small company, we struggle every single day to keep
our employees satisfied, because they are our biggest asset,
and they are what makes us great. But we struggle with, for me,
a $120,000 a week payroll. The 24 percent added benefit cost in
addition to the cost of doing business in the State of
California and some of the constraints that are put on us
there. We do offer a 401(k) that we have not yet contributed
to, and we are trying to put together a retirement plan more
under the lines of a mentoring program. We realize the
struggles and the challenges that our employees face and we
don't want to lose them, and we just try to be creative every
which way that we can.
Chairman Miller. Thank you.
Mr. Hacker, did you want to comment on this? I thought you
were going for your mike. If not, I would recognize Mr.
Sarbanes because I am borrowing his time here.
Mr. Sarbanes. Thank you, Mr. Chairman.
I just have one question, and Dr. Hacker, you may be in the
best position to answer it.
There is the individual personal perspective that we bring
to these issues, and Ms. Miller, you spoke beautifully about
the perspective, I think is shared by millions of Americans.
And that is, you know, individuals are hurting, individual
families are hurting and they are being hit between the eyes.
But there is another reason to care about what you had to say,
that doesn't have to do with you personally. It has to do with
the society, and I am interested in what the public investment
needs to be to address the issues that are faced by the middle
class.
So I am not looking at it from the standpoint of the
individual, but rather what is good for the Nation, what is
good to strengthen us and to make us more secure, to use your
term. Safety and security, that rhetoric has been captured in
one arena, but if you think of it in terms of people feeling
strong and secure and what that means to our Nation is just as
important.
So a classic example, public investment is what you would
do, say, the cost of college education with Pell grants and
other ways of helping people out. What are some other examples
where public investment could make a tremendous difference in
terms of building back the strength of the middle class that
you could site for us. Two or three or four things that fall
into that category.
Mr. Hacker. I think there are two things that can be made,
and we have talked today about personal concerns about job
security and how strengthened unemployment insurance system or
wage insurance might help that. We have talked about health
care costs and how government could help play a role in
addressing those concerns about taking the concerns off of both
the employees and employers. And we have talked today about
work-family strains that Dr. Appelbaum so eloquently
articulated, and how strengthened leave policies or even paid
family leave could help.
What I want to say are two things: One is that I don't
think that these two perspectives that you articulated are
actually different in a fundamental way. We care about our
economy because it serves people and it serves, in particular,
that great swath of Americans who consider themselves middle
class.
So when someone writes me, as one did a while ago, that I
am sick of working for the economy, I want an economy that
works for me, I actually think that expresses the overall goals
that we should have. There is one perspective we should really
care about, and that is whether the economy is delivering the
well being and security and advancement for our citizens that
we all want. And so I think that these are not opposed
perspectives.
The other thing I want to just stress is that when we say
public investment, almost inevitably we have to think we have
to spend, spend, spend. That is something that is very
difficult in the current fiscal context. And we know the
resources of government are not unlimited and it faces lots of
competing choices.
I want to highlight in a lot of areas we are talking about
using government in an insurance role that will, in the long
term, actually mean our society is not bearing ever escalating
burdens for certain things. So for health care, for example,
the evidence is clear that if we had broader insurance, that we
could also more effectively think about how to control costs
and improve the quality of health care in that context.
So too with pensions. There are huge amounts of subsidies
and moneys that are being poured into our private pension
system and subsidizing 401(k)s. What is the tragedy here is we
are still seeing a rising number of Americans who have the
retirement at risk. We need to find ways to make those
subsidies work better for middle class Americans.
So strengthen both defined benefits, defined contribution
plans in ways that I believe can be done without spending huge
amounts more but just spending it more effectively and thinking
how more government's power can be used to ensure that
Americans have are sharing certain key risks in our economy
that are common.
So I just want to make that point because I think it is
very important that we not lose sight of the fact that a lot of
this is, in fact, how government can create broad risk rules so
all of us can share in common those rare and horrible risks
that really devastate family finances.
Ms. Furchtgott-Roth. I think he is absolutely right. There
are all kinds of chunks of money that this government spends
that are not well used. If you look at Federal job training,
that is 15 billion. If you give those funds to go to community
college, that would be better served. If you take health care,
the President's plan, that would level the playing field, allow
health insurance plans help the 47 million uninsured that is
revenue neutral. That is just another way of reallocating
resources.
If you look at education, the proposals for increasing
teacher salaries, better standards, that is also fairly
relatively neutral because that would mean we don't have to do
a lot with the remedial children that we have to do today.
Mr. Sarbanes. If you will indulge me for a few more
seconds.
I hear in that sort of the notion of, you know, individual
choice is trumpeted but that can be--that can serve as a cover
for creating a society that is about how people can opt out.
And the risk analysis that you provide, I think, is really
about how you can create more opportunities for people to opt
in and share and spread the burden.
And I particularly like your discussion of what is
essentially a pact, a bargain between the government and its
people to try to promote a strong economy and promote
opportunity. And I will just relate quickly that this was
brought home to me a few weeks back, a woman came up to me and
she was talking about the cost of higher education. And she is
a professional. She lives in Odenton, Maryland. She works in
the District of Columbia at one of the Federal agencies. And
she has three children who are college age. And she was
explaining how difficult it is to pay for this. And then she
looked at me and she said, ``I did everything they told me I
was supposed to do.'' and she said, ``My husband and I work
three jobs between us. We saved our money, and we told our
children if you work hard and study, you can make it.''
And now we can't pay for college. And I think she was
reflecting the views of many Americans who say we worked hard,
we play by the rules, and we believed in an America that would
reward that and now we are finding that it is all a cruel
trick. So we have really got to get back to restoring this
bargain, this promise with the American people strengthen the
middle class and lift up the whole society at the same time.
So thank you for your comments.
Chairman Miller. Thank you very much.
My apologies for the delays that took place because of the
votes. Some of these votes were not scheduled for today but
they occurred. I really appreciate you giving us the time that
you gave the committee on this. This is the first in a series
of hearings on this question of growing and strengthening the
middle class in this country, and I hope we would be able to
add you to our faculty from both sides of the aisle as we
continue this discussion. I am sure at some point it will lead
to consideration of policy and legislation. So we would like to
be able to continue to call on your talents and your knowledge.
And so thank you very much.
And without objection, all members will have 5 legislative
days to submit their additional materials for the hearing
record, and with that, the committee will stand adjourned.
Thank you again.
[Whereupon, at 1:35 p.m., the committee was adjourned.]