[House Hearing, 113 Congress]
[From the U.S. Government Printing Office]



 
   UNINTENDED CONSEQUENCES: IS GOVERNMENT EFFECTIVELY ADDRESSING THE 

                          UNEMPLOYMENT CRISIS?

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON ECONOMIC GROWTH,

                  JOB CREATION AND REGULATORY AFFAIRS

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 14, 2013

                               __________

                            Serial No. 113-2

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 PETER WELCH, Vermont
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on Economic Growth, Job Creation and Regulatory Affairs

                       JIM JORDAN, Ohio, Chairman
JOHN DUNCAN, Tennessee               MATTHEW A. CARTWRIGHT, 
PATRICK T. McHENRY, North Carolina       Pennsylvania, Ranking Minority 
PAUL GOSAR, Arizona                      Member
PATRICK MEEHAN, Pennsylvania         TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee          GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington             MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming              DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSantis Florida
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 14, 2013................................     1

                               WITNESSES

Casey B. Mulligan, Ph.D., Professor in Economics, The University 
  of Chicago
    Written Statement............................................     5
    Oral Statement...............................................     7
C. Eugene Steuerle, Ph.D., Institute Fellow and Richard B. Fisher 
  Chair, The Urban Institute
    Written Statement............................................    25
    Oral Statement...............................................    27
Andrea L. Carter, Owner and President, Carter Machine Company
    Written Statement............................................    39
    Oral Statement...............................................    41
Chad Stone, Ph.D., Chief Economist, Center on Budget and Policy 
  Priorities
    Written Statement............................................    46
    Oral Statement...............................................    48
The Honorable Stacy G. Reece, Former Member of the Georgia State 
  House, Franchise Owner, Spherion
    Written Statement............................................    56
    Oral Statement...............................................    58

                                APPENDIX

The Honorable Jim Jordan, a Member of Congress from the State of 
  Ohio, Opening Statement........................................    90
The Honorable Gerald E. Connolly, a Member of Congress from the 
  State of Virginia, Opening Statement...........................    92


            EFFECTIVELY ADDRESSING THE UNEMPLOYMENT CRISIS?

                              ----------                              


                      Thursday, February 14, 2013

                  House of Representatives,
Subcommittee on Economic Growth, Job Creation, and 
                                Regulatory Affairs,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2 p.m., in Room 
2247, Rayburn House Office Building, Hon. Jim Jordan [chairman 
of the subcommittee] presiding.
    Present: Representatives Jordan, McHenry, DesJarlais, 
Collins, Meadows, Bentivolio, DeSantis, Cartwright, Duckworth, 
Connolly, Pocan and Horsford.
    Staff Present: Brian Blase, Professional Staff Member; 
Linda Good, Chief Clerk; Tyler Grimm, Professional Staff 
Member; Christopher Hixon, Deputy Chief Counsel, Oversight; 
Michael R. Kiko, Staff Assistant; Kristin L. Nelson, Counsel; 
Jaron Bourke, Minority Director of Administration; Devon Hill, 
Minority Research Assistant; and Brian Quinn, Minority Counsel.
    Mr. Jordan. The Subcommittee on Economic Growth, Job 
Creation and Regulatory Affairs will come to order. I want to 
welcome our new members, and we have two of them here today, 
Mr. Meadows and Mr. Collins. I'm glad to have you part of the 
committee. And, of course, the ranking member Mr. Cartwright, I 
want to welcome you and your team as well. We've had a great 
relationship working with the minority party the last 2 years, 
and I would like to think before that. Mr. Kucinich and I have 
been on this committee for 4 years had a great relationship 
when we were in the minority. So we look forward to working 
with you and your team as we have several hearings here in this 
Congress.
    You got to listen to me do an opening statement and then 
Mr. Cartwright an opening statement, and then we'll get you 
sworn in and get right to it. We have a great panel, some small 
business owners and some experts in the field. We will get to 
you as quickly as we can. But let me just do a quick opening 
statement, and then we'll turn it over to Mr. Cartwright and 
get right to our witnesses.
    Today's hearing is about America's unemployed and 
understanding the failure, the failure of Federal efforts to 
get them back to work. Four years ago this week, an 800 billion 
stimulus spending package was signed into law with the intent 
of creating jobs and jump-starting economic growth. The 
administration justified the stimulus with a report stating 
that as a result of this legislation, the unemployment rate 
would never, never exceed 8 percent and would be 7 percent and 
falling by February of 2011.
    Obviously that didn't happen. That unemployment rate is 
still hovering around 8 percent, representing 12.3 million 
Americans out of work. When we also count the broader universe 
of people seeking work, the unemployment rate climbs to over 14 
percent. We are still in the jobs crisis, and we must 
understand why.
    Since 2007, there have been at least a dozen new or 
expanded Federal safety net programs. For example, various 
unemployment insurance and food stamp programs have increased, 
and eligibility has been expanded. The most drastic of these 
changes came via the 2009 stimulus law. These additions to the 
way the Federal Government assists the unemployed have in their 
totality collectively changed the incentives faced by those 
seeking work.
    One of our witnesses today, Professor Mulligan of the 
University of Chicago, has done groundbreaking research that 
shows that as a result of our layered social safety net 
programs, there is a large number of American households for 
whom the reward for working is zero or negative when compared 
to the benefits received while unemployed. In other words, a 
person might have more income to use or save as a consequence 
of working less. Professor Mulligan estimates that in 2009 
approximately 4 million individuals, 4 million of our fellow 
citizens, would either not benefit at all from returning to 
work or, even more troubling, would actually be worse off 
financially from getting a job.
    No one believes that President Obama or my colleagues on 
the other side of the aisle wish to prolong the time Americans 
spend without jobs. The focus of today's hearing is on the 
unintended consequences that too often stem from well-
intentioned policies.
    In addition to our expert economist this afternoon, we'll 
also hear from two job creators who have experienced this 
unsettling phenomenon firsthand as they try to hire people and 
they get reasons why, no, it is better off if I don't take the 
job that you are offering and that you need to better your 
business.
    Some may charge that the arguments presented here today are 
uncompassionate to folks struggling to find work, but nothing 
could be further from the truth. Of course we believe in a 
safety net for those who have fallen on hard times, but people 
must not be made worse off as a result of that safety net. What 
is truly not compassionate is penalizing people for going back 
to work. We need to rethink and reorganize the way we 
administer our social safety net so that we empower people 
rather than dooming them to a life of dependency.
    That is our focus today.
    Mr. Jordan. And with that I will turn it over to our 
ranking member Mr. Cartwright. The gentleman may proceed.
    Mr. Cartwright. I thank you, Chairman Jordan. I certainly 
look forward to working with you and the members of this 
subcommittee on issues and policies relevant to strengthening 
our economy, creating jobs and ensuring reasonable regulation 
of markets.
    I would like to welcome our witnesses here today. I look 
forward to hearing your testimony and your perspectives on 
government policies to address the unemployment crisis that has 
resulted from America's longest and deepest economic downturn 
since the Great Depression. Of course, President Obama 
inherited an economy in free fall. It was losing over 700,000 
jobs a month. GDP was contracting at an annual rate of 6 
percent. The Great Recession was characterized by a 10 percent 
unemployment rate, the highest level of unemployment in 30 
years.
    Congress responded to the economic crisis by passing the 
Recovery Act. The law included stimulus funding to create new 
jobs and spur the economy, as well as several provisions that 
expanded and enhanced safety net programs and tax policies 
intended to support the unemployed and encourage their efforts 
to regain permanent employment.
    These policies provided critical assistance to individuals 
facing hardships from the loss of employment. Those policies 
also helped stimulate economic growth by stabilizing the 
decline in demand. Economists have estimated that without the 
Recovery Act and other fiscal policies, unemployment would have 
topped 11 percent, costing nearly 4 million jobs, and that 
recession would have been far worse.
    Throughout our history we've seen the government soften 
recessions through investments in our country which help inject 
needed capital into the economy and create jobs, and therefore, 
I am extremely concerned that the pending across-the-board 
spending cuts demanded by the Budget Control Act will damage 
our still fragile recovery. Slash-and-burn cuts at a time when 
the economy is growing slowly will stifle growth and intensify 
the hardships faced by many Americans.
    Economists have estimated that the sequestration will cause 
our economy to shed as many as 2 million jobs. We're busy 
worrying about unintended consequences of unemployment 
insurance when we should be worried about the unintended, but 
clear-as-day consequences of a sequester that will put an 
additional 2 million people out of work. Instead we should 
choose to make critical investments that would significantly 
grow the economy and address this unemployment crisis.
    During past economic crises our country has been in far 
greater debt when put in the proper perspective as a proportion 
of GDP. At the end of World War I, in 1946 the debt-to-GDP 
ratio stood at almost 122 percent, but we were able to 
gradually lower our debt because government investment in 
public infrastructure spurred decades of immense growth. Our 
greatest generation came back from war, and our government led 
the way by giving people an education through the GI bill, and 
lifting them into the middle class by putting people to work on 
the Interstate Highway System, and by engaging engineers and 
scientists to put a man on the moon.
    If we want to reduce the deficit, which is a goal all of us 
share, then getting our economy going is the surest way to do 
that. Between 2008 and 2009, Federal tax receipts fell by 17 
percent, $419 billion, the largest year-over-year drop in 70 
years. Corporate tax receipts fell by 54 percent in 1 year. 
Deficits are more than just about spending; they are also about 
the economy and revenues by investing in getting our economy 
going, which will for a time increase the deficit. In the long 
term the deficit will shrink far faster as tax receipts grow.
    That's why sequestration is not the right approach. We need 
targeted investments so that in the future we can have a more 
productive economy and more jobs for our citizens. Congress 
needs to have a balanced approach, raising revenues and cutting 
unnecessary programs, to get the budget on the right path.
    Infrastructure investment was a part of the Recovery Act, 
it was proposed in President Obama's American Jobs Act, and it 
was emphasized again in the President's State of the Union 
Address earlier this week. It's time we take action, propose 
initiatives, invest in improving school and transportation 
infrastructure that will create jobs throughout the country. 
This is how the Federal Government can continue to effectively 
address the unemployment crisis, and I thank the chairman for 
calling this hearing and look forward a productive dialogue on 
these issues.
    Mr. Jordan. I thank the ranking member for his statement.
    Let's get right to our panel. Dr. Casey Mulligan is 
professor of economics at the University of Chicago. A great 
tradition that university has is of producing outstanding 
economists.
    Dr. Eugene Steuerle is the Richard B. Fisher Chair and 
Institute Fellow at the Urban Institute. I want to thank you 
for being with us today.
    Ms. Annie Carter is the co-owner and president of her 
family business, Carter Machine, in Galion, Ohio, so I am 
especially glad to welcome Annie. Galion is part of the Fourth 
District of Ohio.
    And we also have Dr. Chad Stone, who is the chief economist 
at the Center on Budget and Policy Priorities.
    And I will yield to the gentleman from Georgia to introduce 
our last witness.
    Mr. Collins. Thank you, Chairman Jordan.
    I am pleased to introduce Stacey Reece. He is a 
constituent, a former State representative, and longtime member 
of the Gainesville, Georgia, community.
    Mr. Reece is a 15-year veteran of the professional 
recruiting and staffing industry. He is co-owner of Spherion, a 
national professional recruiting and staffing franchise. Mr. 
Reece graduated from the University of North Georgia and 
University of Georgia banking school. He served as the vice 
president of the First National Bank in Gainesville for almost 
15 years prior to entering the staffing industry. Mr. Reece 
also served two terms in the Georgia House of Representatives 
where he served on committees as economic development, 
appropriations, and held other various leadership roles.
    I am pleased to welcome Mr. Reece, and I appreciate you 
testifying before the subcommittee today.
    Thank you, Mr. Chairman. I yield back.
    Mr. Jordan. Thank you, Mr. Collins, and thank you all for 
being here. We have--pursuant to committee rules, all witnesses 
are to be sworn in before testifying, so if you will please 
stand and raise your right hand.
    Do you solemnly swear or affirm that the testimony you're 
about to give will be the truth, the whole truth, and nothing 
but the truth, so help you God?
    Let the record show all witnesses answered in the 
affirmative.
    I have got one more thing to do before we get to Professor 
Mulligan. Members have 7 days to submit opening statements for 
the record.
    And, Doctor, you are recognized. You know how it works. You 
get 5 minutes, and I'm a nice guy, so keep it close, and you'll 
be fine. And then we go right down the list.

                       WITNESS STATEMENTS

                 STATEMENT OF CASEY B. MULLIGAN

    Mr. Mulligan. Thank you, Chairman Jordan, and Ranking 
Member Cartwright and members of the committee. I appreciate 
the opportunity and honor to discuss with you today how public 
policy has changed the reward to work. A multitude of programs 
affect that reward and thereby affect who is employed.
    The monetary reward to work can sometimes be zero or worse, 
because retaining or accepting a job creates tax expenses and 
denies subsidies with a combined value that sometimes exceeds 
the paycheck from working. Nobel laureate James Tobin was a 
leading Keynesian economist and key advisor to President 
Kennedy, and he pointedly described 100 percent implicit tax 
situations. He said that they caused needless waste and 
demoralization. It is almost as if our present programs of 
public assistance have been consciously contrived to perpetuate 
the conditions they are supposed to alleviate.
    The monetary reward to working is the difference between 
the resources a person has available to use or save if she 
works and what she has available if she does not work. People 
without jobs or otherwise with low incomes sometimes receive 
benefits from safety net programs. The benefits are rarely 
called taxes by the laymen, but economists understand the 
benefits to have many of their characteristics of tax rates, 
because a program beneficiary loses some or all of her benefits 
as a consequence of accepting a job.
    The more income that a person receives when not working, 
the less is the reward to working. The combined effect of taxes 
and subsidies on the reward to accepting a new job can be 
summarized as a job acceptance penalty; that is, the effective 
amount that is lost from paying taxes and replacing benefits 
associated with not working. I like to express that penalty as 
a rate, namely, as a percentage of employee compensation. Now, 
if there were no penalty, then that rate would be zero. But the 
job acceptance penalty rate can also be large; it can sometimes 
equal or exceed 100 percent, which means that a person might 
have more resources available to use or save as a consequence 
of working less.
    Legislation that cuts or credits taxes, so to speak, can 
nonetheless reduce the reward to working and increase the job 
acceptance penalty rate if it cuts taxes more for those who 
work less.
    The reward to working matters. High penalty rates are 
associated with small incentives to seek, create and retain 
jobs. The consequences of high penalty rates are felt all over 
the economy, even by people whose individual penalty rates 
might not be all that high.
    At the same time that safety net programs implicitly tax 
job acceptance, they also implicitly subsidize layoffs, because 
the programs absorb some of the income and production that 
employer and employee lose when an employee stops working. Now, 
America absolutely must have taxes and safety net programs even 
though they reduce the reward to working in subsidized layoffs, 
but if this Congress wants to understand what is happening in 
the labor market, it would be counterproductive to approximate 
penalty and subsidy rates as zero or to assume them to be 
eternally constant regardless of what incentives are embodied 
in new legislation.
    Unemployment benefits are, of course, now available longer 
into unemployment spells than they were 6 years ago. But also 
don't forget that new modernization provisions now provide 
benefits in a variety of circumstances when they were formerly 
unavailable. While it lasted, the Recovery Act also added a 
bonus to weekly unemployment checks and helped unemployed 
people pay for their health insurance. The Food Stamp Program 
expanded in a variety of dimensions.
    The combined effect of these and other changes through 2012 
was to reduce the reward to work for most of the nonelderly 
population. Among the 23 million layoffs experienced by 
nonelderly American household heads and spouses during the 
recession, at least 4 million of them had penalty rates near or 
above 100 percent.
    I brought a chart with me today and the height of the bar 
in that chart is the average penalty among those 4 million 
layoffs. One hundred percent means that the entire compensation 
from the job offer, fringe benefits and all, would be devoted 
to paying added tax expenses and replacing withdrawn benefits. 
It did not have to be this way. The bar on the right shows what 
would have happened to the same 4 million penalties if there 
had been no Recovery Act. The white space at the top is the 
reward to working. It's what's left over after expenses are 
paid and withdrawn benefits are replaced. Yes, that reward is 
small compared to all the expenses, but it was something, and, 
by looking at the left bar, we can see how the Recovery Act 
completely erased it.
    The chart also shows us how several programs combined to 
create these penalties. Unemployment insurance is the single 
largest disincentive, but without the others the reward to 
working would have been pretty large. It's no surprise that 
layoffs surge and unemployment durations lengthen during the 
recession, at the same time when new laws were adding to layoff 
subsidies and adding to job acceptance penalties. A presumably 
unintended consequence of the recent safety net expansions has 
been to reduce the award to working and thereby keep employment 
rates low, keep unemployment and property rates high, and keep 
national spending low longer than they would have been if 
safety net program rules had remained unchanged.
    Thank you.
    Mr. Jordan. Thank you, Doctor.
    [Prepared statement of Mr. Mulligan follows:]
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    Mr. Jordan. We will go next to Dr. Steuerle.

                STATEMENT OF C. EUGENE STEUERLE

    Mr. Steuerle. Thank you, Mr. Chairman, Mr. Cartwright and 
members of the subcommittee. I appreciate the opportunity to 
testify before you today on labor force participation and our 
Nation's tax and social welfare systems.
    I begin by putting all of this into a much broader context 
that goes beyond just what's happened in the Great Recession. 
Modern society must begin to adjust to a very different labor 
force dynamic than prevailed in the last half of the 20th 
century. At that time baby boomers, women, and a more educated 
young population entered the workforce. Today all of those 
forces of growth for labor force as well as their positive 
impact on being able to come out of recessions and promote 
demand have gone by the wayside. And today we also face 
extended joblessness among the young, the unemployed and the 
disabled. Labor force participation among the young, 
particularly men, has trended downward for the past three 
decades, only exacerbated by the Great Recession.
    Evidence shows that prolonged periods of labor force 
separation create longer-term problems. They depress future 
earnings for such workers, work habits can dissipate, and 
feelings of depression can set in.
    Now, consider whether our social welfare system is starting 
to adjust to these new circumstances. These systems have 
largely been devoted over time to providing higher levels of 
consumption to people, but consequently have added to the 
disincentives for work and saving.
    Now, one can disagree, and there is disagreement in the 
literature, on the extent of past successes, yet still agree 
that at the margin we ought to be shifting more of our dollars 
towards government programs aimed at opportunity, those that 
favor education, work and saving, and put less emphasis on 
consumption.
    Now, our social welfare system affects work in two ways. 
First, the additional consumption provided to people or income 
is often sufficient for some of them simply to reduce their 
labor supply; and, second, a major focus of this hearing, 
families can face prohibitively high penalties for additional 
work.
    Consider particularly households with children. Right now 
our combined tax and spending systems encourage labor force 
participation until family income reaches the poverty level. 
This has actually been a positive aspect of welfare reforms and 
earned income credit reforms in previous decades. That is, we 
have favored movement into the workforce except for the 
unemployment case that Dr. Mulligan points to. But after 
reaching about poverty level, low- to moderate-income 
households often face marginal tax rates of about 50 to 60 
percent merely if they participate in universally available 
programs like food stamps, now SNAP, the earned income credit, 
and soon, by the way, the new health exchange subsidies, which 
also have their own implicit tax rate on additional earnings.
    How benefits change with income levels is shown in figure 1 
in my testimony. Meanwhile, households who participate in other 
programs such as limited entitlement programs such as the 
Temporary Assistance for Needy Families or housing subsidies 
often face tax rates of 80 to 100 percent. And again, these 
figures are independent of the unemployment compensation 
examined by Dr. Mulligan.
    The problem of high effective marginal tax rates facing 
low-income workers especially affects households looking to 
move out of poverty toward middle-class status. I deem this the 
``twice poverty trap.'' Now, one thing have we learned from 
public finance is the taxes have significant effects on 
portfolio behavior even if there is less certain effect on work 
and saving. Not getting married has now become the major tax 
shelter for low- and moderate-income households with children 
facing these high marginal tax rates. By avoiding marriage they 
avoid the high tax rates that would be implicitly borne by the 
household when they marry and they combine their incomes and 
thereby lose benefits.
    These high tax rates and marriage penalties arising in 
these systems occur in part because of the piecemeal fashion in 
which they are considered. Congress has designed so many direct 
and indirect taxes and phaseouts that it can have little idea 
of how it affecting the true returns to work for large portions 
of the population.
    So just to give you some idea of these implicit taxes and 
where they sit, they are everywhere. They are in TANF; in SNAP, 
or food stamps; they are in Medicaid and the new health 
exchange subsidies; they are in PEP and PEAS, which we just 
reenacted as part of the recent tax reforms; they are in Pell 
grants and student loans; American Opportunity credits and 
Lifetime Learning tax credits; housing vouchers or low-income 
housing tax credits; child tax credits or income credits; 
Medicare Part B and Part D; Social Security exemption from 
taxation of supplemental security income; school lunches and 
Child Care and Development Fund; Head Start and Early Start; 
Special Supplemental Nutrition Programs for Women, Infants and 
Children, or WIC; child independent care tax credits; 
retirement saving credits; premium assistance credits; and 
unemployment compensation, workers compensation. All of these 
have implicit tax rates in them.
    My point simply is this, that our modern economy requires 
modern approaches to social welfare and taxation. Many 
compromises I believe can cut across traditional liberal and 
conservative boundaries by maintaining a progressive agenda, 
yet emphasizing better the work, education and saving 
requirements required for the modern economy and required for 
the modern worker to succeed. At a minimum we need to begin 
approaching our wide assortment of programs, benefit phaseouts 
and tax rates in a much more integrated fashion. It's hard to 
design programs well if we lack even basic understandings of 
all the ways they interact.
    Mr. Jordan. Thank you, Doctor.
    [Prepared statement of Mr. Steuerle follows:]
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    Mr. Jordan. Ms. Carter, you're up.

                 STATEMENT OF ANDREA L. CARTER

    Ms. Carter. Thank you for inviting me to testify today.
    Mr. Jordan. Make sure your microphone is on there.
    Ms. Carter. Thank you for inviting me to testify today. My 
name is Annie Carter. I am the president and co-owner of Carter 
Machine Company. We are located in Galion, Ohio. Our company 
designs, repairs and manufactures hydraulic and pneumatic 
cylinders mainly for the steel industry, and baling industry, 
recycling industry, large presses, material movement. We 
currently have 57 employees, but we would greatly benefit by 
having an effective employee rate of about 70 to 75 people.
    Manufacturing was the foundation and the backbone of this 
country, and it is now considered something that people will do 
if they don't have any other choices. Our company is comprised 
of 50 percent administrative staff, such as engineers, 
production, purchasing, computer programmers, human resources, 
and 50 percent skilled labor. Our business is a custom design 
business. We--our company is built on a quality platform, and 
we require machinists and staff that have above-level skills in 
order to make the products that we market. This can include 
older-style manual equipment and also sophisticated CNC 
equipment.
    It's very difficult for us to find people that want to do 
any of those jobs, let alone run the older, manual, more 
sophisticated, let's say, skill-related machining than the 
regular CNC-type equipment.
    We have a real need for manufacturing or skilled trades in 
our area. We have a true deficit through many of our companies. 
Our individuals are proud to be machinists, they are proud of 
our product, and they take their jobs very seriously and 
consider themselves something more than what they are 
considered today in the outside world by people that are 
looking for jobs.
    We've reached a point in society where it's not honorable 
to learn a trade or to perfect a skill. It's considered as 
something, again, people do when they don't have anything else 
to do. I've spoken to high school students many times who are 
consistently fed the career path through college. They don't 
know what a trade job is, and they don't consider that an 
option for them in the long term. I don't think they believe 
they can make a living at the trades because of what they're 
being taught. And they really don't have any exposure anymore 
through wood shop, metal shop, any of those things in the past 
that were part of the curriculum in school.
    We continue to receive comments from students that, you 
know, that's going to be a hot and dirty job, and I'm just not 
interested in doing that type of work. In our area it has 
become very obvious that work is an option, not a necessity. 
Programs intended to be a bridge from one employment situation 
to another have turned into lifestyle choices, again, not a 
necessity to get a job.
    Our experience in our hiring practice would say that 8 out 
of 10 of the people that we hire, offer jobs, consider for 
employment would prefer to stay on benefits than to learn a 
trade or to have a longtime career with pay and benefits. Often 
we hear, I have X number of weeks left on unemployment; I'm 
going to ride it out, then look for a job. I think there will 
be an extension on unemployment, and I won't need to look for a 
job. I've been on unemployment for 2 years, and when it runs 
out in a couple weeks, will you have any openings then? The 
starting training wage for this job is less than I make on 
unemployment; I will stick with unemployment until it runs out. 
And one of the significant ones for our area, because we have 
had some companies close that were higher wage levels, I made 
more on my last job than your starting wage, and I'm making 
more on unemployment now, and, you know, I don't need to get a 
job right now because I can use these benefits.
    Our county is comprised of about 43,000 citizens. About 20 
percent of them are receiving some form of assistance or 
another, and that continues to grow. Our condition in our 
county is not uncommon; we hear this from other counties as 
well. But we do continue to have a vibrant manufacturing 
culture in our county. Our company, again, has been around for 
72 years, and we, again, have been looking for people for years 
to do the work that we need to do.
    Again, in our area it's far too easy to stay on benefits 
than to attempt to qualify for a job, attempt to transfer a 
job, and continue to hold that job. We have a significant issue 
in our area for people that will start jobs and not finish them 
because they will go back to benefits.
    We very much need help with this issue. We don't need more 
training programs, we don't need more assistance, we need 
willing workers that will take a job seriously, do not come to 
the job with drug and alcohol problems, and are willing to, you 
know, join the workforce, contribute to their communities, and 
offer tax base and, again, value to the community. They have to 
feel that work is more than just a job. So thank you.
    Mr. Jordan. Thank you, Ms. Carter.
    [Prepared statement of Ms. Carter follows:]
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    Mr. Jordan. Dr. Stone.

                    STATEMENT OF CHAD STONE

    Mr. Stone. Chairman Jordan, Ranking Member Cartwright and 
other members of the subcommittee, thank you for the 
opportunity to testify on this important topic. I'll summarize 
my written testimony, which falls into two parts, one focusing 
on the extraordinary macroeconomic situation in which we found 
ourselves since 2007, and the other focusing specifically on 
unemployment insurance.
    There is no doubt that the United States continues to 
suffer a serious unemployment problem in the wake of the Great 
Recession. Five years after the onset of the recession and 3-1/
2 years after the economy turned around and began growing, 
there was still 3.2 million fewer jobs on nonfarm payrolls than 
there were in December 2007, private payrolls are smaller by 
2.7 million, and the unemployment rate hovers near 8 percent.
    You've heard testimony implying that much of this job loss 
can be traced to work disincentives in the 2009 economic 
Recovery Act that discouraged people from seeking or taking 
jobs. I, along with the Congressional Budget Office and, I 
believe, a large number of economists, have a different view; 
namely, that today's unemployment problem stems from the sharp 
contraction in demand for goods and services in the Great 
Recession, and that the legacy of that recession continues to 
be an economic slump in which the demand for goods and 
services, gross domestic product or GDP, remains far short of 
what the economy is capable of producing with the existing 
business capacity and a labor force that includes people who 
are willing to work, but currently can't find a job because the 
affect of weak demand on businesses for the most part is that 
they don't have the sales to justify expansion.
    I don't have PowerPoint for my charts, but the chart on 
page 4 of my testimony reproduces a chart from the latest CBO 
budget and economic outlook illustrating the large gap, 
currently about a trillion dollars, that exists between actual 
demand for goods and services and what we could be producing on 
a sustainable basis with high employment and capacity 
utilization. That's potential GDP.
    Congressional Budget Office projects that we won't get back 
to high employment until 2017. That could be optimistic. The 
Recovery Act did not make the unemployment problem worse. CBO's 
reports on its economic effects show that the 2009 Recovery Act 
had an important effect in keeping GDP from falling even 
further and unemployment from rising even higher than it did. 
Economists Alan Blinder and Mark Zandi have shown that 
aggressive actions by the Federal Reserve, and the financial 
stabilization and fiscal stimulus policies enacted in late 2008 
and early 2009 averted what they say could have been the Great 
Recession 2.0.
    The problem is the policymakers took their foot off the 
accelerator too quickly and started to apply the brakes too 
fast to an economic recovery under the misguided view that 
budget austerity, especially austerity that focused on spending 
cuts, would be expansionary and good for the economy. We now 
know from the experience of Great Britain and the European 
community, and from revised assessments from the International 
Monetary Fund, and other research that austerity is 
contractionary. And contrary to the view that government 
spending is, quote, ``out of control,'' fiscal policy has been 
contractionary for the past couple of years.
    I have another chart in my testimony on page 5 from a 
recent speech by Federal Reserve Vice Chair Janet Yellen that 
shows that Federal, State and local government purchases of 
goods and services--that's the spending that gets into GDP--
have exercised an unprecedented drag on economic growth in this 
recovery not just compared with the average of past recoveries, 
but also in contrast to the expansionary contribution that that 
spending made in the Reagan recovery and in the Bush recovery, 
and it's very notable, the difference.
    That's why it's so important not to let sequestration take 
place as scheduled and to replace it with a more sensible 
approach that balances spending and revenue measures that do 
not exert such a sharp, immediate drag on the recovery, a drag 
that CBO estimates is about a half percent of GDP this year.
    Let me make just a couple of brief remarks about 
unemployment compensation in the Great Recession and the 
ensuing job slump. First I acknowledge that Federal emergency 
UI provided substantially more weeks of benefits than past 
programs did in previous recessions. That's because the depth 
of the recession was much larger. As Roy Scheider said in Jaws 
when he first saw the shark, you're going to need a bigger 
boat, and we needed a bigger boat in this case.
    Second, when jobs are scarce, the likelihood of finding a 
suitable job even with diligent search is much lower than it is 
when jobs were plentiful. Moreover, there are plenty of people 
looking for work who are not receiving UI. So if a UI recipient 
doesn't take a job in this kind of environment, that opens up 
an opportunity for someone else.
    Third, in a weak economy, UI creates demand that wouldn't 
otherwise be there, and that supports job creation, as the CBO 
reports on unemployment insurance and on economic Recovery Act 
have shown.
    Thank you, and I expect we'll have a lively debate about 
incentives and how the economy works.
    Mr. Jordan. Thank you, Doctor.
    [Prepared statement of Mr. Stone follows:]
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    Mr. Jordan. Mr. Reece.

                  STATEMENT OF STACEY G. REECE

    Mr. Reece. Chairman Jordan, Ranking Member Representative 
Cartwright, committee members, thank you for inviting me to 
testify before you today. I'm Stacey Reece, coowner of Spherion 
Staffing and Professional Recruiting. Spherion is a national 
recruiting franchisor, my market is located main office in 
Gainesville, Georgia, and the western part of North Carolina.
    The employees we provide to our clients don't always meet 
their internal hiring criteria; therefore, we believe that the 
employees that we place, we give them an opportunity to work 
for an employer of choice to demonstrate that they are capable 
of meeting the employer's hiring criteria and eventually 
becoming full-time employees of that client. We also belive 
we're an economic barometer. We're one of the first business 
sectors to fill an economic downturn and one of the first to 
see the economy recover.
    Prerecession we observed clients that were hiring 
temporaries permanently begin to keep them temporary. Next the 
clients suspended the hiring of any new temporary workers. It 
then escalated to waves of layoffs for temporary employees. 
That was followed by clients no longer needing temporaries. And 
then finally clients began the process of laying off their 
permanent workers. Our industry was devastated, much like the 
banking industry, the automobile industry, the housing 
industry, and the staffing industry did not receive any form of 
Federal assistance during that time.
    I would like to offer you insight into the almost daily 
obstacles that our recruiters deal with regarding our 
unemployment insurance program and the impact we see the system 
having on qualified and employable job applicants. And let me 
state for the record my testimony is not against providing any 
form of safety net for any unemployed American citizen.
    In late 2009, we began to see hiring returning to the 
economy. We were hit head on with a hurdle we didn't 
anticipate. We had applicants applying for jobs, but only to 
protect status their for unemployment insurance. Just to turn 
down the job, applicants would use the regulation related to 
earning a reasonable percent of their previous pay.
    The reasonable distance to travel to work was also a factor 
utilized to turn down a job. If it was more than 25 miles, they 
didn't have to take it. If it was 26.5, they didn't have to 
take it. If it was 19.5, then they had to consider it.
    Our staff believed that these applicants were possibly 
unemployable to begin with, but as they looked more closely, 
they found that most of the applicants were very skilled, 
capable, and had been on prior jobs for several years before 
being laid off.
    Prior to the recession clients were willing and able to pay 
wages that were above the prevailing market rates. We have 
found that the unemployed who are holding out and choosing to 
stay on unemployment now face the reality that those jobs will 
no longer pay what they once earned. They will look our 
recruiters in the eyes and state, well, I will just stay on 
unemployment. One of our clients that has multiple 
manufacturing, assembly and distribution facilities across the 
United States, and they employ thousands of employees across 
the country, had this to say, quote: ``We've actually had 
applicants say that they had done the math, and they were not 
willing to work for $10 an hour because their unemployment 
check, coupled with gas savings, lunch and uniforms made it 
more attractive to stay home.'' The way they saw it, they would 
be working for $2.50 an hour above what they could get on 
unemployment, so they'd rather stay home.
    This client also interviewed a purchasing professional 
recently, and when the HR director asked him what had he been 
doing since he was laid off from his previous job, he just 
laughed and said, nothing, I'm a 99-weeker. They didn't hire 
him.
    Our other clients state that applicants have told them 
similar stories. One says, I have no interest in getting a job 
because I can live off my spouse's income until the full 
unemployment benefits run out.
    We believe the impact, the continuous extension of 
unemployment, has enabled people that are extremely talented 
and capable of working to continue to remain unemployed. These 
applicants are often bitter and irritated that they cannot 
simply go back to pre-2008 times. In our markets these 
individuals are typically in the pay range of 9 to $12 an hour.
    Once an employee is offered permanent work with one of our 
clients, typically their pay goes up 8 percent, plus benefits, 
paid time off, a progression plan and training, all paid by the 
new employer. It is not only a win for the employee and the 
employer, it is a win for our economy.
    I believe we should stop the extension, implement a strict 
graduated system that would pay full benefits up to 12 weeks, 
and then gradually drop down maybe every 4 weeks after that 
until the benefits are exhausted. At that point if the 
individual is still unemployed, there has to be other viable 
Federal programs that support them, but remove the burden from 
the employer themselves.
    In summary, our economic system is not based on a workforce 
that believes it should be rewarded for not working, nor 
entitled to be maintained by the government. Our current state 
of economic affairs does not dictate that we ask our government 
to sustain our standard of living. It demands that we as 
American citizens reexamine our own values, our wants and our 
desires, and realize that we must face the reality of what 
today is, and adjust our lifestyles accordingly.
    I look forward to the committee members' questions.
    Mr. Jordan. Thank you.
    [Prepared statement of Mr. Reece follows:]
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    Mr. Jordan. Ms. Carter, how many employees do you have at 
Carter Machine today?
    Ms. Carter. Fifty-seven.
    Mr. Jordan. And how many would you have--I mean, if you 
could find people to work and do the kind of expansion you want 
to do and think you need to do to meet your customer and 
clients' demands, how many more people would you have working 
today if you could find those individuals?
    Ms. Carter. Immediately we could use 70 to 75 people.
    Mr. Jordan. Additional or 56 up to 75?
    Ms. Carter. Up to 75.
    Mr. Jordan. So another 20 people you are ready to hire 
today?
    Ms. Carter. Yes.
    Mr. Jordan. How much do you pay your folks?
    Ms. Carter. Generally starting wage is 12 to $14 an hour. 
And they can earn----
    Mr. Jordan. So significantly above minimum wage.
    Ms. Carter. Yes.
    Mr. Jordan. Do you offer a benefit package?
    Ms. Carter. Yes.
    Mr. Jordan. Health care?
    Ms. Carter. Health care, pensions, 401(k), lots of other 
little benefits in there.
    Mr. Jordan. And you can't find people.
    In fact, Ms. Carter and I were at a meeting in our district 
where we had nine employers sitting around a table. My guess is 
all of you, both sides of the aisle, had the same experience. 
We had nine employers sitting around the table. We went around 
the room, and I asked each employer how many folks they would 
hire that day if they could find people to work, who would pass 
a drug test, who would show up on time, who weren't getting so 
much benefits, and giving the same kind of stories you and Mr. 
Reece related. Three hundred twenty-five jobs. And Ms. Carter 
from Galion, Ohio, Crawford County, a relatively small county 
in our district, 50,000 population in the entire county, 325 
well-paying jobs between 12 and $18 an hour. So we are hearing 
this all the time.
    And I think you said in your testimony, Ms. Carter, 8 out 
of 10, 80 percent, of the folks you interview say, you know 
what? I'd rather just stay on the benefits. It's not worth me 
leaving the benefits and coming to work even for a job that 
starts at $12 an hour and has full benefits.
    Ms. Carter. Right.
    Mr. Jordan. So if that's not a disincentive to work, I 
don't know what is. It points to if we got 80 percent of the 
folks--now, think about it, we have 12 million unemployed 
people around the country. Maybe not 80 percent around the 
country, I get that. But Dr. Steuerle in his testimony talked 
about the depression that sets in, the loss of skill that sets 
in, the personal damage that happens to individual Americans 
when they fail to work for a sustained period of time.
    Dr. Steuerle, would you elaborate a little bit on that 
statement? And let me just start here first, too. Dr. Steuerle, 
you work for the Urban Institute?
    Mr. Steuerle. That's correct.
    Mr. Jordan. You don't work for Cato, right?
    Mr. Steuerle. No.
    Mr. Jordan. You don't work for the Heritage Foundation.
    Mr. Steuerle. Urban Institute considers itself a 
nonpartisan. I testify often for both sides of the aisle.
    Mr. Jordan. I understand. We're glad to have you here. So 
if you can elaborate on the phenomena that Ms. Carter described 
in her testimony and Mr. Reece described in his testimony and 
how it impacts that individual.
    Mr. Steuerle. Well, there's no doubt that when people are 
unemployed, they acquire different habits. You and I would 
acquire different habits if we left Congress, if I left my job.
    Mr. Jordan. Maybe get some good habits. I'm kidding.
    Mr. Steuerle. There is a fair amount of evidence, for 
instance, by employers who pay workers comp that if they can 
interact quickly with the person who becomes injured, they are 
much more successful----
    Mr. Jordan. I hear that all the time.
    Mr. Steuerle. --than the person who is laid off 6 or 8 
weeks and other habits form. Now, I'm not saying they--I'm not 
saying in many case these people aren't worthy of help and 
support. In most cases I think they are. But there is the issue 
about how quickly you intervene, and how you intervene, and how 
you interact with them. So there are costs there.
    We've also found just by the way that savings--we're not 
talking about savings very much here, but you start dealing 
with an unemployed population, a population depending upon 
benefits, and it also impacts upon their saving behavior as 
well.
    Mr. Jordan. Let me just take it one step further, because 
we're focused on that individual and that family and the 
negative impact there, but it's got to be broader than that. 
And it is something Ms. Carter related to me in her experience 
and what she sees in Galion, Ohio, but there's a cultural, and 
community, and, frankly, nationwide impact to what's going on 
here because it reflects on your entire community. People 
aren't saving as much, which means they can't spend as much, 
which means they are not getting the skills, they are not 
bettering themselves. It is a broad impact, I would argue, in a 
negative way for our entire culture. Have you looked at that--
in your research have you looked at that as well?
    Mr. Steuerle. I can't say that I've looked at it adequately 
to say that I'm an expert on its aggregate impact upon our 
culture. I think in general my concern--there's actually two 
concerns being expressed at the table here. Some are short-
term, and some are long-term. In fact, a lot of what Dr. Stone 
said and Dr. Mulligan said is actually reconcilable.
    Dr. Mulligan and to some extent I have emphasized supply-
side effects, tax rate effects, incentive effects. Dr. Stone 
has emphasized--I'm not saying there's some disagreement there, 
but he's emphasized the fact that this great financial 
depression caused a lot of unemployment that was probably 
unavoidable. So we might debate to some extent how much each 
one impacts, but they are both there, they're both present.
    Mr. Jordan. No one argued--I mean, Mr. Cartwright in his 
opening statement talked about the economy that this 
administration inherited, no one argues that it was bad and 
headed in the wrong direction. The point here today is what was 
undertaken has not worked. I mean, I said many times if big 
government spending was going to get us out of this mess, well, 
for goodness sake, we'd have been out of it a long time ago 
because that's all the government's done for 4 years, at a 
record rate the largest stimulus bill in history, then piled 
on--more and more piled on top of that. So it just, frankly, 
hasn't worked. That's what we're trying to point to. We 
understand it was a difficult situation for any administration.
    Mr. Steuerle. My concern is not just with how to debate the 
past, but how to debate going forward.
    Mr. Jordan. Well said.
    Mr. Steuerle. Ms. Carter talks about the 20 percent of 
people that are on some form of assistance she has trouble 
dealing with. I--on the other side of my work, I deal with 
things like Social Security and retirement. We are soon 
scheduled to have close to a third of the population on Social 
Security alone. So add these numbers up, and we're doing a 
great deal of finance consumption of peoples for very worthy 
purposes that I just think--I am not just saying we need to 
spend less money, I'm just saying I think we need to start 
emphasizing more work, saving and education to get the 
positive----
    Mr. Jordan. And you would argue--and I will go to our 
ranking member--a comprehensive approach. We know there are--
our research says there are 70 different means-tested social 
welfare programs at the Federal Government your tax dollars are 
involved with. We might be better off and actually help 
families, help our culture, help our country if we didn't have 
70 different programs administered in the various agencies 
across the Federal Government working with the States if we 
focused that on a few that actually had a positive impact. 
That's one of the things we're trying to look at, and we'd 
appreciate your help even though you're from the Urban 
Institute and not Cato or Heritage. I'm kidding, I'm kidding.
    Mr. Cartwright, you're recognized for 5 minutes. No, you 
get 6 minutes if you want.
    Mr. Cartwright. Thank you, Mr. Chairman.
    Dr. Stone, I want to thank you for coming here today, and I 
want to follow up on some of your comments. You mentioned the 
sequestration. Obviously sequestration is going to and it's 
designed to impose across-the-board spending cuts to an economy 
that is still slowly recovering. This is likely to halt any 
further economic growth in the short term, and also impede any 
improvements to our unemployment rate, which is what we're here 
talking about today.
    Now, economists, Dr. Stephen Fuller, examined the impact of 
the sequester and concluded that in 2013, it would cost the 
U.S. economy over 2 million jobs, decrease personal earnings by 
$109 billion, and reduce our Nation's GDP by $215 billion.
    Now, Dr. Stone, I understand that Dr. Fuller's Ph.D. Is 
from Cornell, and yours is from Yale, but is that something you 
can get past, and can you agree with Dr. Fuller on his 
statement?
    Mr. Stone. Well, I can certainly agree on the 
contractionary impact. I'm not sure his analysis didn't include 
not only sequestration, but also the budget caps that are 
already in, which might make it larger than what's due to 
sequestration alone. CBO estimates that the sequestration would 
cut a half point or more off GDP. So there's definitely 
contractionary effect. The exact numbers, that's tough to know.
    Mr. Cartwright. And just so we're all clear, you said 
austerity is contractionary. What does that mean about 
unemployment?
    Mr. Stone. It means that when you enact policies that raise 
taxes and cut spending in an economy where the Federal Reserve 
has limited ability to offset it with interest rate cuts, and 
in an economy where there's already a lot of unemployment, 
unemployment goes up, and GDP goes down.
    Mr. Cartwright. Now, the White House has released a fact 
sheet on how the sequester would impact jobs and economic 
security. This fact sheet identified emergency unemployment 
compensation as one program that would see significant 
reductions itself. These cuts wouldn't only hurt the long-term 
unemployed as they search for permanent employment, but they 
also slow economic growth as the result of a corresponding 
reduction, as you said, in demand for goods and services.
    Dr. Stone, in your testimony you state, and I'm going to 
quote from your submitted testimony, ``A good place to start 
would be to replace sequestration with a balanced package of 
tax and spending measures that do not exert such a sharp, 
immediate drag on the recovery.'' And that's the end of the 
quote.
    Dr. Stone, why is it important that deficit reduction 
measures are carefully designed----
    Mr. Stone. Well, for the reasons that your first question 
raised, that if they're not carefully designed, they impede the 
economic recovery. We can achieve significant deficit 
reduction. My organization has estimated we need about $1-1/2 
trillion more over 10 years to stabilize the debt relative to 
the size of the economy. And if we try to do it all now, we'll 
have that austerity as contractionary problem. But if we phase 
it in, we can still get to where we want to go with respect to 
deficit reduction without hurting the economy in the short run.
    And can I just say about unemployment, unemployment 
insurance has, in fact, been coming down. There are probably 
about 5 million people out of the 12 million on unemployment 
insurance now, so that means that there are a lot of people who 
might be showing up for work who are not on unemployment 
insurance, and certainly the high school students who don't 
have a good work ethic, unemployment insurance isn't the 
problem there. So it's a bigger deal than just the unemployment 
insurance.
    Mr. Cartwright. Well, thank you for those comments. This is 
not the time for broad cuts to programs intended to support the 
unemployed. Cuts like that are projected to worsen the economic 
outlook and the hardships faced by the unemployed that I think 
all of you agree on.
    Our economy is recovering, we've seen 35 months of job 
creation, but the sequester cuts and the uncertainty associated 
with them is going to put a significant drag on our American 
recovery and negatively affect the number of jobs available. If 
we in Congress are serious about making sure our Federal 
Government is effectively addressing unemployment, we have to 
avoid these broad cuts and instead focus our efforts on 
investments that stimulate the economy and create jobs.
    Thank you, Mr. Chairman. I yield.
    Mr. Jordan. Thank you, Mr. Cartwright.
    Mr. Reece, do you think the Federal Government has taken 
its foot off the accelerator? Do you think it's been practicing 
austerity? Just your gut reaction. As a successful business 
owner, do you think the Federal Government's been spending less 
money?
    Mr. Reece. No.
    Mr. Jordan. No.
    Ms. Carter, do you think the Federal Government's been 
spending less money?
    Ms. Carter. No, just in the wrong place.
    Mr. Jordan. Well, you would be right, because we are 
spending a trillion dollars more as a Federal Government than 
we were spending in 2007, so this idea that we've been 
practicing austerity is just not the case.
    With that I would yield to Mr. Collins from Georgia--or I'm 
sorry, Mr. DesJarlais is next, and then Mr. Collins.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    Thank you all for being here today. This is really kind of 
an amazing subject. It certainly should be a bipartisan subject 
because we all are struggling with these high unemployment 
rates, but yet to hear this testimony, there are jobs out 
there, we just got to figure out a dollar value right now that 
can compete against the Federal Government in terms of 
unemployment.
    Just like Chairman Jordan, in my district I visited with 
several employers that right now could hire people. We have a 
rural area that $10, $12 an hour is not enough to entice people 
off their unemployment to go to work, and that is with 
benefits. So certainly we see the same frustration.
    It is something that--I look at why is this happening? We 
all get frustrated at people and say, you know, why are they 
gaming the system so to speak? But yet it's human nature to 
take things for free, right? I mean, if we all go out to a 
restaurant, a fancy restaurant, and we eat and we're full, and 
the waitress comes by with the dessert tray and says, hey, 
would you like dessert? If it costs 8 or $10, you're going to 
say no. But if she says, hey, it's free tonight, you're 
probably going to take some even though you really don't need 
it and you're not hungry.
    So that's kind of what's happening to the American society 
is the government is just offering up all this free stuff. So 
we need to work from within, and we need to work on both sides 
of the aisle to solve this problem.
    Dr. Mulligan, you have much more eloquent ways of putting 
this, but really the safety nets that are supposed to be there 
for people who need it have really turned into hammocks under 
the Stimulus Act; would you agree?
    Mr. Mulligan. We all wish we were in the spot that we could 
just ignore all these programs. Remember, unemployment is not a 
median experience. Unemployment you can measure, you call it 12 
percent, 14 percent. Most people are not unemployed. And 
something bad's happened in your life, and you're in that spot, 
and it's not a hammock time of life, but sometimes your best 
choice in that bad spot is to let the government help you 
rather than let Ms. Carter or Mr. Reece help you.
    Mr. DesJarlais. Psychologically laziness breeds laziness. 
It's much better to be busy. No one likes to sit and watch the 
clock tick by, it's very boring. But as you said, if there's a 
struggle, if you're not in your chosen vocation, it's hard to, 
you know, go to a job that maybe is distasteful, so you get 
caught in this trap. And I think, Doctor, you were also 
referring to that; is that correct? It creates a pattern of 
disincentiveness.
    Mr. Steuerle. That's right. Again, I want to be very 
careful. I think what we're trying to achieve here is a balance 
act, and I think there are ways in which we can meet some of, 
say, the demand concerns that Dr. Stone so eloquently raises, 
but by doing them in ways that tend to subsidize jobs more 
than, for instance, just subsidize either unemployment or in 
some cases just general tax cuts, like the across-the-board 
Social Security tax cut that everybody in this room benefited 
from, but probably had very--you might argue that it slightly 
increased our demand. It might have been better to have some of 
that money go to help people get jobs.
    Mr. DesJarlais. Ms. Carter, you shared several stories 
about why people couldn't work. I think my favorite was a while 
back last year when we were deciding whether to extend 
unemployment, and I saw on a Facebook where somebody was 
telling their friend that it looks like they wouldn't be able 
to go fishing with them on Monday because his wife had 
scheduled him a haircut because it looked like they were 
serious about not extending unemployment this time, and he was 
going to have to go look for a job.
    You know, I wish that was a joke. But I saw several 
references, and that's what you were saying is that people just 
are just not incentivized right now to go get this. So it's our 
job to protect those who are really in need of these safety 
programs. We don't want anybody to suffer, we don't want 
anybody to do without, we don't children not to be fed.
    But the bottom line is we know that these programs are 
being abused; we just can't agree on what extent they're being 
abused. And it seems like any time we try to make a correction 
here in Congress, we get into an argument over maybe the 
Republicans are trying to do too much, and the Democrats are 
trying to protect too many. But somewhere there's got to be 
some common ground here because we know that these entitlements 
are driving our debt. We know health care is a major driver. We 
know entitlements are a major driver.
    So I really appreciate this hearing today because this 
problem is obvious, it should be a bipartisan solution, and we 
need to find a means to rein back these basically entitlements 
and disincentives for people to get back to work. So I know I'm 
stating the obvious, that that is the problem that's before us. 
Does anybody have any quick solutions, anything that you would 
recommend? I will just open that to the panel.
    Yes, Ms. Carter. 
    Ms. Carter. We're not saying that there shouldn't be 
benefits or that they should be eliminated, but there has got 
to be some accountability by employees, potential employees, 
that when we have such a great number of jobs available in our 
county, why is it an option to not take a job? There has to be 
some accountability there. They have to apply for jobs. If 
there's jobs available, people should be taking jobs.
    People that currently work become more and more resentful 
of people who do not work who are supported off of a system 
when you have many Americans who work as hard as they can, and 
everybody knows somebody that's taking advantage.
    Mr. DesJarlais. Okay. And my time has expired, but I think 
what you're saying is that we need to promote a society that 
promotes accountability and responsibility, and we are getting 
away from that. Thank you.
    Mr. Jordan. Thank the gentleman.
    I now turn to the gentleman from Virginia Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    And I must say from the conversation I've just heard, I 
have a sense of deja vu all over again. One wants to know why 
President Obama won the reelection and why Mr. Romney lost. The 
idea that people who are unemployed, it's their own fault and 
they are takers, and unemployment insurance to provide a safety 
net for them is a disincentive to work. Well, good luck with 
that theory, but I can tell you it didn't play in this country.
    Let me ask, Dr. Mulligan and Dr. Steuerle, if I understood 
your answer correctly to Mr. DesJarlais, do you subscribe to 
the theory that ipso facto unemployment insurance actually 
serves as a disincentive to employment in this country?
    Mr. Mulligan. Yeah, I'm not here to testify to what's 
politically correct. I'm here--I'm an economist. I'm an expert 
on the economy.
    Mr. Connolly. I know. I'm asking you about your answer, Dr. 
Mulligan, to Mr. DesJarlais.
    Mr. Mulligan. It is a disincentive. It is a disincentive. 
It reduces aggregate employment, it reduces aggregate spending. 
It may by worth it for helping people, but helping people is 
not free. You have a price. You want to help people, you're 
going to shrink the economy.
    Mr. Connolly. So the reason we have 7.9 percent 
unemployment in part is because we have the safety net of 
unemployment insurance?
    Mr. Mulligan. It's the totality of the programs of which 
the biggest piece would be UI, yes.
    Mr. Connolly. So would it be your belief that we should 
therefore abolish it because it serves as a disincentive, based 
on your testimony, to job creation?
    Mr. Mulligan. I'm sorry, I thought I was clear about that. 
I said we absolutely must have taxes and safety net programs 
even though they discourage work and subsidize layoffs.
    Mr. Connolly. Why would you want something that discourages 
work?
    Mr. Mulligan. Maximizing work is not everything. There's 
trade-offs in life. You want to help people but you want to 
have the economy strong, and there is a trade-off. What I have 
said is what has happened in the last couple of years is we 
have moved in a direction of really too much help and not 
enough efficiency.
    Mr. Connolly. Well, Dr. Mulligan, I'm just trying to follow 
your train of thought. If, as you say, it is a disincentive to 
job creation, or to working, what kind of help is that? I mean, 
why would you--I don't understand why we would want to support 
something like that.
    Mr. Mulligan. Something called moderation. Let's bring, 
maybe bring up my chart. My chart showed a bar and indicated 
the amount of disincentives, okay. One hundred percent is too 
much. Mr. Tobin explained this. One hundred percent is 
overboard. It shouldn't be zero either. It should be somewhere 
in between 100 and 0, and we have gone in millions of cases 
over 100. And that is overboard. It is not a balance anymore 
between two goods. It's gone overboard.
    Mr. Connolly. Dr. Stone, do you agree with that analysis?
    Mr. Stone. I do accept that one of the many effects of 
programs like unemployment insurance and programs that phase in 
and phase out like SNAP, one of the effects is a disincentive 
to work effect. That is one of many effects, and it is not 
necessarily the overwhelming effect. If there are some cases 
where there is 100 percent marginal tax rate on work, then that 
is potentially a problem. But you know, I would have to look at 
those data.
    Now, what Professor Tobin was talking about, who actually 
was a professor of mine in graduate school, was back in the 
time we were talking about a negative income tax of the sort 
that Milton Friedman from the University of Chicago was 
recommending, and that was kind of along the lines of what Dr. 
Steuerle is talking about, which is instead of a whole 
collection of programs, there is a straight set of income 
support, one program.
    Now, we probably need more than one program, but, so, yes, 
there is some disincentive effects. They are nowhere near as 
large, for the most part, or as prominent in people's decisions 
as we might think.
    Mr. Connolly. Are you aware of empirical, in your own 
studies, empirical data that it in fact serves as a 
disincentive to job creation in the aggregate?
    Mr. Stone. Studies have found some minor job, minor 
disincentive effects, but not at 100 percent for the typical 
situation. And as Dr. Mulligan said, there is a trade-off. You 
don't want to get rid of the safety net. You don't want to have 
huge disincentives, and we don't have huge disincentives for 
the most part.
    Mr. Connolly. Well, I leave unsatisfied because I hear from 
the right and the left a sense of dissatisfaction. I would like 
to know a lot more empirically about whether we have got data 
that in fact can support such a contention. And if so, then why 
in the world would we maintain an unemployment insurance 
program.
    Mr. Steuerle. Mr. Connolly, can I just jump in one----
    Mr. Connolly. If the chairman will allow it because I have 
now----
    Mr. Jordan. Yes.
    Mr. Connolly. Thank you, Mr. Chairman.
    Mr. Steuerle. We had a similar debate about welfare 
recipients for some time, about 10, 20 years ago. And one 
result of that debate was we actually boosted something called 
an earned income tax credit. Our earned income tax credit also 
has some negative disincentives.
    Mr. Connolly. I believe that came out of the University of 
Chicago, Dr. Mulligan.
    Mr. Steuerle. Yes, but if I could finish, and just to 
defend myself, I don't consider myself on the right or left on 
this at all, I don't consider my employer as being on the right 
or the left, is I was one of the people in the Tax Reform Act. 
I was coordinating in Treasury. We put forward the first major 
increase in the earned income tax credit. It's from the Tax 
Reform Act of '86. Gradually, that increased earned income 
credit allowed us to displace a welfare system that had more 
negative work disincentives. And I think that combination of 
trade-offs helped solve problems from both left and right 
because we got more work--less work disincentives, not more 
work incentives, but less work disincentives than we had in the 
welfare system, but yet we managed to be able to maintain a 
base of support for people in need. So I think there are ways 
this committee could work on compromises that cut across this 
issue.
    Mr. Connolly. Thank you. Mr. Chairman, thank you for your 
indulgence.
    Mr. Jordan. You bet. It seems to me we have got three 
economists talking about what Mr. Mulligan initially said, 
which is there are trade-offs, and why we want some kind of 
safety net. I think both sides agree with that. There comes a 
point where the safety net incentives are not what we need to 
maximize employment and maximize economic growth.
    Dr. Stone, real quickly, now--I want to try to get two more 
in before we vote.
    Mr. Stone. Fifteen seconds. Most of the empirical evidence 
I have seen about unemployment compensation in this recent 
Great Recession is that only a very small part of unemployment 
is due to the safety net program, or due to the unemployment 
insurance.
    Mr. Jordan. I think Mr. Mulligan's research shows that 4 
million have a complete disincentive to going back to work 
based on unemployment and a host of other things, and that 
would be, if my quick calculation is right, one-third of the 
total unemployment number out there. So that is pretty 
significant.
    Mr. DesJarlais, a quick statement and then we have got to 
votes, but I wanted to give 5 minutes to Mr. Collins.
    Dr. DesJarlais. This is in response to Mr. Connolly. I was 
not trying to sound uncompassionate. Penalizing people for 
working is not compassionate. We need to rethink and 
restructure the way we administer our social safety nets so 
that we are actually empowering people rather than dooming them 
to dependency, and that was my point.
    Mr. Jordan. No, well said. I think we have enough time. Mr. 
Collins a quick 5 and then I want to get--Mr. Horsford was 
actually supposed to go first. I wanted to give you a chance 
before we go vote if we can. The gentleman from Georgia.
    Mr. Collins. Thank you, Mr. Chairman. I think one of the 
things that is important especially from my background is 
uplifting people and empowering them to do work that they feel 
good about, work that they can be encouraged, and also, you 
know, have a job that they can look forward to going to----
    Mr. Jordan. Would the gentleman yield for just one second?
    Mr. Collins. I will always yield, Chairman.
    Mr. Jordan. Just for those members leaving, we will 
reconvene at 3:40, for just--if you want to come back for 
question, I want to give you plenty of time. We will do that. 
The gentleman can proceed.
    Mr. Collins. Thank you, Mr. Chairman. And just following 
through that, is we have got to provide those--Dr. Steuerle, 
you mentioned something in your testimony that talked about 
that the government policies have led to significant long-term 
unemployment over time. But it also, the thing that interests 
me the most, and I think something that we are missing here, 
instead of getting, you know, focused away from where it 
actually--how we do help people and then how we empower them to 
be all that they can be, so to speak. And you mentioned the 
long-term consequences of prolonged unemployment in your 
testimony. I would like for you to elaborate on that a little 
bit more, and especially from the incentive, not only the 
incentive side, but what people lose by not being employed.
    Mr. Steuerle. Well, that's why I have much to add to what I 
already said in terms of habit formation and the consequences 
for depression and things like that. But in point of fact, the 
main way that most of us learn is on the job. We also think of 
education taking place in the school, but in fact, when you go 
work for Mrs. Carter--Ms. Carter, you actually end up getting 
educated as you stay on the job and that is one reason over 
time she is able to promote you to higher levels of work. So 
you are not only losing some human capital by being unemployed, 
but you are losing that educational opportunity that you would 
have on work.
    Again, I don't want to say, and let me be clear, most 
people do not want to be unemployed. I don't want to--I don't 
indicate by any means this is something people want. I just 
think we need to figure out ways to be able to help them more.
    Mr. Collins. Exactly, and I think, that's my point is, is 
people want to work. I believe that that's the genius of the 
American system, that we want to work. We want to provide those 
incentives, and I think that you are providing something that, 
that sometimes we miss in what we do lose for those who are 
actually working. And Ms. Carter's place is a place to do that. 
You learn more than just a job skill. You learn life, and I 
think that is so important.
    One quick question, and I may come back in just a second. 
Mr. Reece, one of the things that you had mentioned in 
employment, is you talked about the cost that they would 
actually in some ways do the cost-benefit analysis, I mean, 
which is a complex thought process to go through. So what you 
really saying is they are not qualified--they are not 
unqualified for the jobs that you could be providing.
    Mr. Reece. No, they are very qualified individuals. My 
belief, and the doctors here are talking about statistics and 
that is great, but I actually know the statistics. They come in 
my office and meet with my recruiters. And they are hung up on 
what they had accomplished in their lives at a certain point 
prior to the recession. And their irritation comes that they 
can't get that same thing. They can't get the $15 an hour job 
today, but they could get the 13 hour--dollar-an-hour job. And 
until they are forced, and I hate to use that harsh word, but 
until they are forced to do something, much like a parent 
sometimes has to force their child to do, then they are going 
to continue to use those benefits until the day they run out.
    It is human nature to want--to not go backwards in life. 
But at some point in time, I think we as people have to make a 
decision. Am I better off stepping back just a little bit, 
taking a lower pay rate to go to work for Ms. Carter and 
letting her train me to be something better? She is investing 
in me, but I'm going to have to invest in her as an employee.
    Mr. Collins. It goes back into the maturity cycle as we 
move forward, and I think people do want to work. And I think 
that's what I want to emphasize here. This is not a negative 
hearing. This is a positive hearing in terms of what we can do. 
And really, and Dr. Steuerle, following up on that I love the 
academic and real world. It is almost like a reality TV show 
here, you know, we have this--and one of the things, Dr. Stone, 
I would like for you to blame, or maybe blame is probably not 
the right word, but discuss the fact of the constriction of the 
economy, the constriction of the economic forces going along as 
a higher reason for why there is up and down employment. And 
there is other things we can talk about, disability; there's 
other things that can go along with this, which have grown, 
amazingly, when jobs were low. It seems like there is a bad 
correlation there. When disability claims have all of a sudden 
now skyrocketed when jobs are available. I ask you, how do you 
reconcile the research that you have done with the real world 
sitting right besides you on each side in the sense of just 
taking it from a constriction standpoint, and not just the 
sense that we are--there may be other things involved here?
    Mr. Stone. I have no doubt that people have shown up saying 
I would like to stay on unemployment and keep--rather than take 
a job. I have no doubt that some small businessmen cheat on 
their taxes. I mean, these kind of things go on, and there is a 
balance of can you--we don't have the resources to enforce 
the--we have chosen not to invest in the resources to support 
the requirement that you search for a job, things like that. 
Our unemployment----
    Mr. Collins. Well, okay, as far as enforcing a requirement 
to go get a job, I mean, that's the intuitive part here. I 
mean, that is a problematic, you know, issue here, and I know 
my time is running out, but I'm--to say to them to put money to 
enforce that, really, sort of defeats or adds to the problem we 
are talking about.
    Mr. Stone. Well, and might not be worth spending just as we 
decide how much we want to spend with IRS audits versus 
accepting a certain degree of----
    Mr. Collins. I understand. All right, I think it is a 
positive discussion. I think it is a first step. Thank you, Mr. 
Chairman.
    Mr. Jordan. Thank you. Mr. Horsford, we have 5 minutes and 
21 seconds in this vote, but they always go long because there 
is only 88 people who have voted. So you can take your full 5. 
You can take part of it and come back, but that is up to you 
because I took you out of order. So are you up.
    Mr. Horsford. Thank you, Mr. Chairman. I appreciate very 
much the panel, and I know people come from a broad perspective 
on this. Prior to coming to Congress, I ran the Culinary 
Training Academy in Las Vegas that trained thousands of people 
for careers in partnership with 26 of our largest employers in 
Las Vegas. And I know, without a doubt, after 11 years of doing 
that work, that people want jobs. They do not want to be on 
food stamps. They don't want to be on long-term unemployment. 
They don't want to rely on assistance. They want a job. But for 
those individuals who cannot find a job, they also need to 
depend on unemployment, and other work supports in order to 
survive.
    And so I would like to just reframe a bit of the 
discussion, because I think we have focused so much on a 
disincentive to work. I would like to focus on an incentive to 
survive. And the fact that people who are unemployed, Nevada 
has higher than the national average unemployment. My 
unemployed constituents are not lazy. They are not immature. 
They have a desire to work, but our economy is not producing 
the types of jobs that they are trained or skilled to do right 
now.
    And so my question is, how can we balance those interests, 
Dr. Stone, to provide us assistance that allows people to buy 
food, pay their rent, and you know, provide for the basic 
necessities for their family as a bridge until they are able to 
find employment?
    Mr. Stone. Well, the point of most of our, and the way most 
of our safety net programs work these days is that there are 
strong work requirements attached to them, and large numbers of 
SNAP recipients have good work histories, are tied into the 
labor force. They fall on hard times; they go on SNAP. It is 
not like it is perpetual not in the workforce. Now, there is 
two issues. There is the short-run issue that this economy is 
really in--still in tough shape, and the income support is 
important, and more important when it is harder to find a job 
than when it is easier to find a job. These incentives, as Dr. 
Steuerle said, you worry about incentives when the economy is 
in strong shape and there is plenty of jobs available and 
people are discouraged from working for one reason or another.
    We have done a lot in our social safety net to minimize 
that outcome. So I think that the trade-off is that we want to 
make sure that people who truly fall on hard times have the 
support they need to get through, and that includes 
unemployment insurance for people who lose their jobs through 
no fault of their own.
    Mr. Horsford. What about the concept of--for those who have 
worked? We have a program that trained people to be guest room 
attendants, food servers. I recall this one woman, she worked 
for 20 years in the same job and became displaced and did not 
know how to really go about applying for jobs, or to market her 
skills, or to transfer those skills. So what about that within 
the framework of this discussion today?
    Mr. Stone. Well, that's an important thing. And that's why 
job counseling for unemployed workers can help them have a 
realistic view of what their job opportunities are, have a 
realistic view that, you know, jobs matter, strengthen that, 
but that costs money. And so there's that tension between the 
budgetary cost of us having more job counseling and the fact 
that it actually could be helpful in the kind of situations we 
are all talking about.
    Mr. Horsford. Yeah, I think, Mr. Reece, you hit on it. Like 
sometimes we had to counsel people that the job that they 
wanted to do wasn't going to be readily available; 
construction, for example, which was our number two industry, 
there just wasn't those jobs.
    Mr. Reece. Right.
    Mr. Horsford. And so to help people understand that, yeah, 
you might have to go back and retool your skills, and that 
might mean you are going to get paid a different wage when you 
get placed, but at least getting you training, and then 
placement into a new career field is something that has to be 
part of the equation. So you know, I understand that, but 
that's--sometimes it takes a professional person who can 
provide that unemployed individual that perspective.
    Mr. Reece. Right. And if I could comment just quickly to 
that. You are exactly right from the standpoint that the person 
has to be counseled. But when a client expects you to provide 
them with the best possible applicant, oftentimes the 
reluctance that our recruiters see in that person as they are 
trying to encourage them to take the lower paying job, and to 
take the employer's training, when you see that lack of 
interest, and then you have someone else sitting over here that 
is looking more attractive to place, you tend to give the 
client the more attractive looking applicant, the one that has 
the higher skill level. So sometimes without that eagerness to 
want the job, our recruiters are sometimes reluctant to 
recommend them for the job.
    Mr. Horsford. Thank you, Mr. Chairman. I will finish there. 
I would say I would love to--hope that we can talk about the 
chronically unemployed and the fact that there are actually 
laws on the books in some States that are disincentives to 
employers hiring the chronically unemployed, and we need to 
have that discussion as part of this as well.
    Mr. Jordan. Yeah, we will reconvene at 3:40 and we can 
bring that issue up and a host of others. Thank you all for 
being here. So we are standing in recess.
    [Recess.]
    Mr. Jordan. The committee will come to order. We appreciate 
our panel's patience, and we will start with the gentlelady 
from Illinois, Ms. Duckworth.
    Ms. Duckworth. Thank you, Mr. Chairman. I have been 
somewhat aghast at the tone of this hearing, and being a 
freshman Member, perhaps I will learn over time. But you know, 
my father who worked from the age of 14 and lied about his age 
to enlist in the Marine Corps and build a life, lost his job at 
55 and was on unemployment insurance for a very, very long 
time. In fact, he maxed out his benefits. And he didn't not 
find work because he was lazy. He did not find work because he 
did not have a trade or a skill. He was a business executive. 
He couldn't find work because he was 55 years old, and no one 
would hire him because he was overqualified.
    I watched that man collect grocery carts to return them for 
$0.25 a pop. This is an honorable man. I was on food stamps, 
and oftentimes those food stamps provided the only meals that I 
ate throughout my teenage years. I hope you don't think that I 
look like someone who is lazy and on government handouts.
    I have a question, Ms. Carter. You, in your testimony, you 
said that: ``We have reached a point in society where it is no 
longer honorable or desirable to learn and perfect a trade 
skill.'' You also say in your testimony that: ``An unintended 
consequence of benefits is substance abuse.''
    And I'm going to ask you two questions. The first one is 
with regards to receiving government benefits being linked to 
substance abuse. Do you have children in college, or did you go 
to college and receive Pell grants, or subsidized student loans 
or anything like that yourself?
    Ms. Carter. No.
    Ms. Duckworth. You did not?
    Ms. Carter. No.
    Ms. Duckworth. Do you think then for other people's 
children who are on Pell grants that we should have them give a 
urine sample prior to receiving those government funds for 
education?
    Ms. Carter. I didn't say anything like that. That is not 
anywhere near what my testimony was about. We have a problem in 
our county. We do not have enough employees to fill jobs. We 
consistently hear unemployment is so high. There's no jobs. 
There's no jobs for the middle class. We have jobs. We don't 
have workers.
    Ms. Duckworth. Your testimony actually says, and I'm 
reading it verbatim. ``An unintended consequence of benefits is 
substance abuse.'' I think that----
    Ms. Carter. That's true.
    Ms. Duckworth. I think there are many people who receive 
benefits who are not drug addicts and are suffering--are 
abusing drugs.
    Ms. Carter. My statement doesn't say 100 percent of people 
are on--have drug problems. In our county we have a significant 
drug problem. When employers release people because they test 
positive for drugs, they have accidents in the workplace, they 
are accepted into the unemployment program with no questions. 
That doesn't correct their problem, and it doesn't support 
unemployment.
    Ms. Duckworth. And I--you know, I have worked with veterans 
for a very long time, and veterans are a community with a very 
high unemployment rate. I think for the 20 to 25-year-old age 
group, it is twice as high as the same age group in the general 
population. And I would think that they have perfected a trade 
and a skill, and that they are very honorable. So I don't 
understand how we say, how we connect people who are on 
unemployment who are on unemployment because they are there 
through no fault of their own, are people who are not willing 
to find a trade or accept employment, when I know many, many, 
many thousands of veterans try very hard to find employment, 
and no one will hire them. Yet, they have a trade and a skill.
    Have you tried to hire veterans specifically and tried to 
recruit among the veteran community?
    Ms. Carter. I believe that we have. We haven't personally. 
We place ads if we are looking for people. We work with our 
local job and family services unit to have--make a match with 
someone who is looking. Again, we don't have those people 
applying for jobs. We can place an ad and have zero people 
apply for an ad--for a job.
    Ms. Duckworth. And then you think that is probably because 
they are out using drugs and not wanting to develop a skill and 
not because you have not done a good job of reaching out to a 
community like veterans who have extremely well trained, who 
are extremely well trained in trades and certainly have been 
able to perform in some pretty severe conditions?
    Ms. Carter. You are misrepresenting what I'm saying. It is 
not about 100 percent of people. It is about a large percentage 
in our county that have these issues, and again are being 
supported by government programs. And if--there are definitely 
people that require the assistance. Nobody has said that's not 
the case. But there is also, again, a grand case--cases of 
abuse, and again, we are trying to grow the economy. We are 
trying to provide jobs.
    Ms. Duckworth. I'm sorry, I have to interrupt because I'm 
running out of time. So do you think then that we should only 
drug test those people that have a problem, or are you saying 
that we should drug test 100 percent of people who are on 
unemployment? Because if it is not 100 percent of the people 
that have the problem, why would you trust 100 percent of them?
    Ms. Carter. I'm saying that the government should not be 
providing benefits to people who are spending the money on 
drugs and that are not providing--are not working.
    Ms. Duckworth. I'm out of time, Chairman.
    Mr. Jordan. You can take some more if you like.
    Ms. Duckworth. Thank you, Mr. Chairman. My next question is 
for you, Dr. Stone.
    One of the things that I have been able to work on that I'm 
very proud of in the State of Illinois is actually incentives 
for employers. I think that employers who hire someone who has 
been unemployed for, for example, more than 6 months, or 
employers who hire someone such as a veteran, should be 
rewarded, should be rewarded for taking that chance because 
when you have someone who is an infantryman, it is hard to 
figure out how an infantryman is going to fit into your 
business, or how someone who fixed tanks will fit into your 
business.
    Could you talk a little bit about a different type of 
program, perhaps not the unemployment insurance, but how you 
would think--how you feel the effects of incentives for 
employers--in Illinois, we provided, when I was a Director of 
Veterans Affairs, $600 per every employee who was a veteran 
that a company hired. It is up to $5,000 now. Could you talk a 
little bit about the employer benefit side to reward employers 
for hiring the unemployed?
    Mr. Stone. Yeah, and that's a good question--that's a very 
good point that you raise, because we talk about some of the 
problems of the long-term unemployed or the people who don't 
look that attractive when they present themselves to the 
employer. And if the employer can be given some incentive to 
take a chance on that person, which is the way I interpret how 
your program works, then there is going to be a good percentage 
of those people that they take a chance on that are going to 
turn out to be better workers than they look like they are, but 
they need the chance.
    Ms. Duckworth. Thank you. Dr. Mulligan, could you speak a 
little bit from an economist's perspective on incentives for 
employers and how you feel that might work in terms of helping 
with the unemployment problem?
    I mean, if the insurance is not, you know, the unemployment 
insurance is not the answer.
    Mr. Mulligan. Incentives for employers, you know, fit into 
the calculus. I talk about the reward to working and it 
includes fringe benefits. Things that come on the employer's 
side. So if there were a subsidy for hiring, that would 
increase hiring. And if there were a subsidy for having people 
on the payroll, that would reduce layoffs. That would--it would 
have those kind of effects. And as economists we kind of know 
how to quantify that. Until you tell me how big the program is, 
I can't tell you how big the effects will be, but I know the 
direction.
    Ms. Duckworth. Thank you. Thank you, Mr. Chairman.
    Mr. Jordan. I want to thank the gentlelady for her 
questions and for her service and your family's service to our 
country. We certainly appreciate that.
    It seems to me we have got this quandary. I would agree 
with what both sides of the aisle said. Most people do want to 
work. They want a job. But yet, the incentives are such that if 
the real world experience that Miss Carter related in her 
testimony, I believe was 8 out of 10 people she interviews for 
potential employment at her company decide that it is just not 
worth it, even though it is $12 an hour starting pay plus 
benefits.
    So that's what we are trying to get at. And I love the 
graph that I think Dr. Mulligan put up where it shows that, you 
know, most people want to work, but they are also rational, 
smart people. And if in fact going to work means they are going 
to lose financially, then that is the quandary we are in and we 
have got to try to address that.
    Let me just do a couple of questions for Mr. Stone, excuse 
me, Dr. Stone. You talked about a balanced approach to dealing 
with our problem. So do you--you support raising taxes on who, 
and if so, how much? What kind of tax increases would you 
employ?
    Mr. Stone. I support looking at the tax expenditures, the 
tax loopholes. That gets talked about in the context of----
    Mr. Jordan. Which ones specifically are you referring to? 
We are all against loopholes. That sounds like something bad, 
but tell me which specific ones you think make sense.
    Mr. Stone. That's a tough decision because----
    Mr. Jordan. But you have got to have----
    Mr. Stone. --as witnessed by the fact that we still have 
all of those loopholes.
    Mr. Jordan. Yeah, you're--but I mean, you don't have the 
political implications that we, you know, we might have as 
Members of Congress. As an economist, which ones specifically 
would you get rid of? Which expenditures, loopholes, whatever, 
credits, deductions, which one would you go for?
    Mr. Stone. Look, on economic grounds, the big ones are the 
hardest to do politically, employer healthcare, the home 
mortgage deduction, all those things are ones that you want to 
look seriously at. That's where money is, but those are 
politically tough, and economists have problems with them. 
Economists have recommended alternative ways of approaching 
that issue, but----
    Mr. Jordan. Do you support raising marginal tax rates?
    Mr. Stone. We supported letting all of the upper-income 
Bush tax cuts expire, so yes.
    Mr. Jordan. So you supported raising taxes on middle class, 
and in effect, business owners like Miss Carter who is an LLC 
or not a C Corp?
    Mr. Stone. Our--a lot of people's definition of middle 
class would not go to $400,000 a year.
    Mr. Jordan. Do you support additional revenue from that, so 
let's say you would have got all of those tax increases that 
you were--the 2001, 2003 tax increases would have expired, 
those tax cuts would have expired so, in essence, raising taxes 
on all of those brackets, what additional taxes aside from 
loophole, or do you support additional marginal tax increases?
    Mr. Stone. We don't have a program of tax increases, or a 
program of spending cuts.
    Mr. Jordan. What I'm trying to get at is, you talked a lot 
about, you know, contractions and things that would contract 
the economy. It seems to me, and you talked about how 
government spending is--we have been austere. I mean, I would 
argue the last thing we have been is any type of austerity in 
this government. We have never seen so much spending. But you 
talked about contraction, how that impacts demand, how that 
impacts the economy. Raising taxes on job creators, how is that 
going to help grow jobs and improve the employment situation 
that we all want to improve?
    Mr. Stone. The specific--the spending cuts that I talked 
about were spending cuts----
    Mr. Jordan. No, but you talked about spending cuts in the 
same breath you talked about with Mr. Cartwright, you talked 
about a balanced approach, and you just told me in a balanced 
approach, you preferred tax increases, and you preferred 
raising taxes on everybody when this so-called fiscal cliff 
debate we just had instead of just top margin you supported all 
of the marginal brackets going up.
    Mr. Stone. No, no, no. I didn't--I said that the top, the 
marginal rates on incomes above $250- and $125- not----
    Mr. Jordan. Okay, my question is, do you support further 
marginal tax increases? You won't answer that one. And I'm 
wondering how if you think contracting, you know, by not 
spending somehow we are going to hurt the economy and yet when 
you take money out of the economy by raising taxes on small 
business owners, how that is going to help promote jobs and 
increase employment. I can't get the contradiction here.
    Mr. Stone. First of all, we have--almost all of the deficit 
reduction that we have done so far has been on the spending 
side. There has been about $1.5 trillion.
    Mr. Jordan. Doctor, how can you say we have done any 
deficit reduction? That is all in the outyears. We haven't done 
anything. We are spending more in discretionary spending this 
year and certainly more overall spending this year than we 
spent last year, and last year we spent more than we spent the 
year before, and 2 years ago we spent more than we spent 3 
years ago, and 3 years ago we spent more than we spent 4 years 
ago. So how have we cut spending? Do you not agree the 
government is bigger today than it was 4 years ago? We are 
spending like $3.6 trillion. In 2007, we were spending $2.8 
trillion. Last time I checked--even as a Republican I can do 
that math--last time I checked that is a lot more.
    Mr. Stone. The measure we would look at would be spending 
as a share of GDP, relative to the size of the economy. It's--
you need a metric. You can't just talk about dollars, and it's 
true----
    Mr. Jordan. That is huge spending. The economy has been 
contracting for the last 4 or 5 years, just finally started to 
grow at that wonderful rate of 1.5 percent after all this 
spending we have done, that further confirms. So spending as a 
percentage of GDP is way up because GDP has been down. That is 
what is killing our economy overall.
    Mr. Stone. A large amount of the spending that has gone up 
in the past few years has been spending that has to do with 
emergency, with temporary spending, temporary programs. The 
budget caps that are in place----
    Mr. Jordan. The very temporary programs that we are talking 
about today that have been a disincentive to work, exactly.
    Mr. Stone. Well, I don't agree that they have been a major 
disincentive to work. But I agree that they have been an 
important--my view is that they have been an important 
contributor to keeping the recession from being worse than it 
was.
    Mr. Jordan. Well, it is tough to prove a negative. What we 
can prove is we are spending a lot more today than we were 4 
years ago. That's obvious. That's a simple subtraction, 
mathematics addition problem.
    Mr. Stone. And over the past couple of years, spending as a 
share of GDP is going down. And the spending that I was talking 
about was, in my testimony, was spending on goods and services 
by Federal, State, and local governments, which has been very 
contractionary. We had some support for State and local 
governments in the Recovery Act, but we stopped doing that. And 
the budget constraints that State and local governments have 
faced has forced them to be very austere. Huge numbers of jobs 
have been shed, and the output, and now purchase of goods and 
services from State and local governments is way down.
    Mr. Jordan. Let me do one other thing before turning to the 
ranking member for a second round.
    Dr. Mulligan, let me ask you, the big thing that's coming 
starting to impact right now and employers are starting to look 
at, is the Affordable Care Act--some Obamacare, Affordable Care 
Act. CBO estimates that this piece of legislation will lead to 
800,000 fewer Americans working in the economy by the end of 
this decade. Do you agree that this is going to be an 
impediment to job creation, going to cause a loss of jobs, and 
if so, would you agree with CBO? Do you think they are right, 
they are wrong, that they got it, or missed it, or what?
    Mr. Mulligan. Well, CBO, I have seen that 800,000 number. I 
have seen something else they put out, too, very earlier. I was 
impressed by this. They did some work on marginal tax rates 
from the sliding-scale aspect of the exchange subsidies, and 
they talked about marginal tax rates in the neighborhood of 25 
percent. That would be one of the biggest squares in my chart. 
It is not there yet. But when they did their 800,000--it is not 
the way I would have done it--when they did their 800,000 they 
ignored that 25 percent disincentive. They have not calculated. 
I have been working with them and they have not calculated how 
many millions of people will have tax rates over 100 percent 
under Obamacare. Maybe that is something they will do, but they 
haven't factored that in yet. So I'm pretty sure when you 
factor that in you are going to have to say there is going to 
be more than 800,000 jobs lost. I wish I could bring you 
numbers today. It should be a lot more. How many more, how many 
millions, I can't tell you right now.
    Mr. Jordan. Can you hazard a guess?
    Mr. Mulligan. I think it would be on the order of what the 
Recovery Act did. I mean, the exchange subsidies are kind of 
like that COBRA subsidy in my graph, but on steroids. So I kind 
of think of it on the order of the Recovery Act, which means 
multiple points on the unemployment rate, or nonemployment 
rate. I'm not sure whether these people will go into 
unemployment or out of the labor force, but something like 
that.
    Mr. Jordan. Really quick, before turning to Mr. Cartwright.
    Doctor, your thoughts on the CBO assessment that 800,000 
fewer people are going to work as a result of the Affordable 
Care Act.
    Mr. Steuerle. Well, I think it raises an issue of two 
groups of the population we haven't really focused much on in 
this hearing. The first one is the elderly. I think one of the 
reasons that CBO came up with this number, I may be wrong, but 
I think one reason they came up with this number, is now those 
people who want to retire early, they do have access to health 
insurance. And so this may be a major group upon whom this has 
an impact. And I don't know that it is necessarily a combined 
marginal tax rate, it just may mean at that point with some 
matched amount of 401(k), with health insurance, they can make 
it to 62 or something and retire for a few more years. I remind 
you, the average couple now gets benefits that retire at 62 for 
about 27 years, for younger people going towards 30. But 
there's another group that we haven't talked about which is on 
the other end of the spectrum that doesn't really have access 
to almost any of these welfare programs and that is the young. 
And I gave statistics in my testimony also about what's going 
on with the labor force among the young and younger workers, 
and that is not an issue of the social welfare programs, in 
many cases particularly young men, especially some young women, 
especially those who don't have children, don't really have 
access to almost anything in the social welfare system. I think 
our systems do a pretty bad job in terms of dealing with their 
needs for the right type of training and the right type of job 
opportunity if they are not going to college. I think the whole 
program of apprenticeships needs to be examined. And so I hope 
this committee, beyond just this issue of combined tax rates 
and everything else will start to look at also what is 
happening in employment patterns among the young. I don't have 
an answer there, but I think that's an issue worthy of 
consideration, and I say it goes beyond just what social 
welfare programs we have, because in many cases, they don't 
have access to them that help in any way.
    Mr. Jordan. Great, thank you. The gentleman from 
Pennsylvania.
    Mr. Cartwright. Thank you, Mr. Chairman. And Ms. Carter, we 
certainly don't mean to ignore you, and I wanted to ask you a 
question. What is the name of your company?
    Ms. Carter. Carter Machine Company.
    Mr. Cartwright. And okay. What is the town that it is in?
    Ms. Carter. Galion, Ohio.
    Mr. Cartwright. Galion, okay. And is it your testimony that 
you have up to 20 jobs available there right now?
    Ms. Carter. We could, yes.
    Mr. Cartwright. So if I called up your company, they would 
say they are hiring right now?
    Ms. Carter. Yes.
    Mr. Cartwright. Okay. All right. And now, Dr. Stone, I want 
to follow up with you, and I promise not to interrupt you. Why 
is it important to talk about spending as a percentage of GDP?
    Mr. Stone. Well, because it is a measure of how much we are 
spending relative to our capacity to engage in all kinds of 
things; that it makes no sense to talk about 1950, how many 
dollars we were spending on something in 1952, compared with 
how many dollars we are spending on it in 2013. Because there 
has been so much price change in between.
    Mr. Cartwright. Okay.
    Mr. Stone. It is not just a matter of real. And the economy 
has been growing, so we can support a certain level of spending 
in a bigger economy than we can in a smaller economy.
    Mr. Cartwright. Okay, so that's why it makes no sense to 
talk about us spending more dollars today than we did last 
year, okay.
    Now, I also wanted to touch on something called automatic 
stabilizers. A key tool, I think you have been touching on, 
used to ease the consequences of negative economic shocks in 
response to a downturn in the economy, automatic stabilizers 
such as unemployment compensation or even food stamp benefits 
automatically increase as jobs are eliminated and more people 
become eligible for the benefits.
    These benefits provide critical income support, obviously, 
to unemployed individuals and they also ease financial burdens 
while the recipients seek permanent employment.
    Dr. Stone, do you agree that unemployment compensation and 
food stamp benefits are effective forms of support to the 
individuals and families struggling during economic crises?
    Mr. Stone. They are very effective and they are very 
supportive of the economy. That is the automatic stabilizing 
role, is that they keep spending at a higher level than it 
would be if these people were left on their own.
    Mr. Cartwright. So do you agree then that businesses and 
employees of businesses at which food stamps and unemployment 
recipients spend their money are positively impacted by those 
programs as well?
    Mr. Stone. That's right. In a weak economy, that's extra 
demand. If we were back in the 1999 economy, when the 
unemployment rate was closing in on 4 percent, there would be 
questions about spending here or crowding out spending there, 
but that makes no sense in today's environment when there's so 
many idle resources.
    Mr. Cartwright. Well, the fact of the matter is, if you 
don't have a job, you don't have income, you don't really have 
the option to put money in the bank, generally speaking, 
beneficiaries of these programs spend their unemployment or 
food stamp benefits just as quickly as they receive them, 
causing a boost in demand, nationally, for goods and services 
in the economy.
    Dr. Stone, is that correct?
    Mr. Stone. That's right. The Congressional Budget Office 
finds that to be the highest bang for the buck programs in--of 
the ones they look at in a weak economy like we have been 
experiencing.
    Mr. Cartwright. And you mention the Congressional Budget 
Office. Is that a partisan outfit?
    Mr. Stone. No.
    Mr. Cartwright. Okay.
    Mr. Stone. They have had Republican and Democratic 
directors. They work for the Congress, the whole Congress.
    Mr. Cartwright. Now, Dr. Stone, a recent study by Wayne 
Vroman examined the stabilizing role of unemployment 
compensation during the '07, '09 recession. He found that the 
unemployment compensation, it closed 18.3 percent of the GDP 
shortfall that was caused by the recession. He also found that 
extension of benefits played an important role in that 
stabilization effect. We can't ignore the positive effect of 
those benefits, nor can we ignore the harm it would cause to 
the unemployed during an economic downturn if these benefits 
were not there to respond.
    Now, Dr. Stone, isn't it also important to note that the 
increased budgetary cost associated with the expansion of these 
programs is temporary and projected to decline as a share of 
the GDP?
    Mr. Stone. Yeah, and decline in dollar terms, too. The 
number of unemployed will fall as the economy improves, and 
Congress has always let emergency unemployment programs expire 
once the economy is strong enough. They have just never done it 
any time in the past when the unemployment rate was higher than 
7.2 percent and we are not expected to get below that in CBO's 
projections until sometime in 2014.
    Mr. Cartwright. Well, thank you, Dr. Stone. I appreciate 
your comments.
    Mr. Jordan. Real quick. Dr. Stone, if food stamps and 
unemployment insurance increase demand and are stimulative in 
the economy, why then should we--why shouldn't we just increase 
them even more? Why not--I mean, I don't--I just fail to grasp 
this logic that says, oh, these are the best stimulus programs 
we can do in a difficult economy. Well, if that is the case, we 
should be pumping a lot more money into these programs.
    Mr. Stone. They have high bang for the buck. There are 
obviously political constraints on how high you would want to 
push those things.
    Mr. Jordan. Do you think there should be an asset test 
required before an individual can receive food stamps? Do you 
agree with the fact--well, let me ask you this way. Do you 
agree that waiving the asset test for food stamps is a good 
thing?
    Mr. Stone. I don't have a--I'm not an expert on food 
stamps.
    Mr. Jordan. Well, I mean, right now there is an income--
there is an income requirement, that's it. You don't have 
income, you get food stamps. There used to be an asset test. In 
other words, today, in some places you can have, you know, 
three brand-new cars sitting in the garage but you don't have 
an income, you are eligible for food stamps. Do you think that 
is appropriate?
    Mr. Stone. In many of our programs where we have asset 
tests, they have not been----
    Mr. Jordan. This is why the lady in Michigan who won the 
lottery could still get food stamps. She doesn't have an 
income, but she just, you know, she landed a little bit of cash 
there all of a sudden, yet she can still get food stamps. Do 
you think that is right?
    Mr. Stone. There are particular examples.
    Mr. Jordan. There used to be an asset test. There is no 
longer an asset test. In some situations do you think that is 
appropriate? Simple question.
    Mr. Stone. There are problems with asset tests, and there 
are problems when you get rid of asset tests. It is a trade-
off, a balance.
    Mr. Jordan. Do you think there should be a work 
requirement--no, let me ask it the other way. Do you think it 
is appropriate for this administration to waive the work 
requirement for able-bodied adults receiving some type of 
social services, some type of welfare recipient?
    Mr. Stone. In a situation where it's--in an economy like--
--
    Mr. Jordan. The law has been around for 16 years, signed by 
President Clinton, bipartisan support.
    Mr. Stone. Yes, President Clinton, whose----
    Mr. Jordan. Do you think there should be a work 
requirement?
    Mr. Stone. Waiving it at a time when jobs are hard to find 
makes perfect sense to me.
    Mr. Jordan. Let me ask you, Dr. Steuerle. Do you think a 
work requirement would help with this phenomena you describe in 
your testimony where people who are unemployed for a 
significant period of time, it is not good for that individual, 
not good for that family. Miss Carter is talking about how it 
is not good for the community, good for her county. Do you 
think it would be helpful if there was a work requirement that 
may help them retain some of those skills as they are trying to 
find that employment that we all know everyone wants to find? 
Do you think that would be helpful?
    Mr. Steuerle. I think it would be helpful to try to move in 
that direction. I think work requirements are very hard to 
implement. That is one reasons, for instance, through devices 
like earned income credit, it effectively has a work 
requirement because you don't start getting the benefit until 
you at least do some work, even though I recognize--I'm sorry, 
even though I recognize that at some income level----
    Mr. Jordan. I understand they are hard to do. I mean, lots 
of--you know, lots of things that are worth doing are hard to 
do. That is just the way life is. Any goal that is worth 
achieving is never easy. That's life. But my question to you 
is, do you think it helps if we have that, helps those very 
individuals you talked about in your testimony?
    Mr. Steuerle. I would move in that direction, but one way I 
would do that is probably trying to provide more money in work 
supports and less money in consumption-related programs.
    Mr. Jordan. Fine, but there is a work requirement. That is 
now being waived in all places across the country.
    Dr. Mulligan, do you think unemployment compensation and 
food stamps are actually stimulative to our economy?
    Mr. Mulligan. No, they are not stimulative. I think--
there's a couple of mistakes I think made here. It was said 
that the CBO showed, and the CBO found, and Mr. Vroman showed 
that UI and food stamps are stimulative. They didn't. They 
assumed. The CBO assumes----
    Mr. Jordan. Oh, so there's--there's no empirical, there's 
no real research that confirms what Dr. Stone described?
    Mr. Mulligan. Right, but there is research on--first let me 
say, there is research in a couple of areas related to this. 
Number one, research shows pretty clearly that the poor and 
unemployed tend to quickly spend what they have on basic needs. 
Mr. Cartwright mentioned that. That's true. They quickly 
spend----
    Mr. Jordan. Yeah, that's common sense. We all understand 
that.
    Mr. Mulligan. That's why the programs have intrinsic value, 
but that is different than stimulative value. You have to 
recognize that some of them, not all--Mrs. Duckworth, I think, 
didn't characterize it right. It is not true about all, but 
some are going to work less. And working less is a ticket to 
spending less. They kind of go together. Unless you are in the 
100 percent tax situation, they go together. So it actually 
leads to less aggregate spending. I think what gets forgotten 
is these programs have to be funded. Somebody's got to buy the 
government bonds, or pay the taxes, or maybe it's some other 
program that gets shrunk, and those people are going to spend 
less, and you have to count that, too.
    Mr. Jordan. Yeah, opportunity costing----
    Mr. Mulligan. So the aggregate spending declines, and the 
thing that CBO, that--the way they make their assumption is, 
they look at studies of purchases. Dr. Stone mentioned 
government purchases, but you weren't asking me about 
purchases. You were asking me about transfers. Transfers are 
very different. Purchases means you pay a guy to work. You pay 
a guy to build a highway. You pay a guy to help build a 
military airplane. Transfers mean you pay a guy for not 
working, and really they are kind of the opposite. But CBO and 
some other economists have picked up on the purchases study and 
said, hey, purchases expanded the economy; therefore, transfers 
must expand the economy, and that last piece of the logic is 
backwards.
    Mr. Jordan. Yeah, well said.
    I want to thank you all for being here today. We have had a 
great hearing. Your testimony was very much appreciated. Sorry 
we had to have a break in there, but that is the way this place 
works. There's votes called at certain times, and when it is 
time to vote, we have to do that. So this committee is going to 
continue to look at this issue, and again we appreciate your 
time and we stand adjourned.
    Thank you.
    [Whereupon, at 4:10 p.m., the subcommittee was adjourned.]
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