[Senate Hearing 110-108]
[From the U.S. Government Printing Office]
S. Hrg. 110-108
ECONOMIC OPPORTUNITY AND SECURITY FOR WORKING FAMILIES
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
EXAMINING ECONOMIC OPPORTUNITY AND SECURITY FOR WORKING FAMILIES AND
JANUARY 16, 2007
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico RICHARD BURR, North Carolina
PATTY MURRAY, Washington JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island LISA MURKOWSKI, Alaska
HILLARY RODHAM CLINTON, New York ORRIN G. HATCH, Utah
BARACK OBAMA, Illinois PAT ROBERTS, Kansas
BERNARD SANDERS (I), Vermont WAYNE ALLARD, Colorado
SHERROD BROWN, Ohio TOM COBURN, M.D., Oklahoma
J. Michael Myers, Staff Director and Chief Counsel
Katherine Brunett McGuire, Minority Staff Director
C O N T E N T S
TUESDAY, JANUARY 16, 2007
Kennedy, Hon. Edward M., Chairman, Committee on Health,
Education, Labor, and Pensions, opening statement.............. 1
Prepared statement........................................... 2
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming,
opening statement.............................................. 3
Hacker, Jacob S., Peter Strauss Family Associate Professor, Yale
University, New Haven, CT...................................... 6
Prepared statement........................................... 8
Appelbaum, Eileen, Ph.D., Professor and Director, Center for
Women and Work, Rutgers University, Newark, NJ................. 17
Prepared statement........................................... 18
Forbes, Rev. Dr. James Alexander, Jr., Senior Minister, The
Riverside Church, New York, NY................................. 25
Prepared statement........................................... 26
Cablik, Anna, ANATEK, Inc., Marietta, GA......................... 28
Prepared statement........................................... 30
Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee 38
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont.. 40
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska.... 42
Reed, Hon. Jack, a U.S. Senator from the State of Rhode Island... 45
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas....... 48
Statements, articles, publications, letters, etc.:
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio,
prepared statement......................................... 59
Dodd, Hon. Christopher J., a U.S. Senator from the State of
Connecticut, prepared statement............................ 59
Response to questions of Senator Enzi by:
Eileen Appelbaum......................................... 60
Jacob Hacker............................................. 62
Questions of Senator Enzi to James A. Forbes, Jr............. 63
ECONOMIC OPPORTUNITY AND SECURITY FOR WORKING FAMILIES
TUESDAY, JANUARY 16, 2007
Committee on Health, Education, Labor, and Pensions,
The committee met, pursuant to notice, at 10 a.m. in Room
SD-430, Dirksen Senate Office Building, Hon. Edward Kennedy,
chairman of the committee, presiding.
Present: Senators Kennedy, Dodd, Bingaman, Reed, Sanders,
Brown, Enzi, Alexander, Murkowski, and Roberts.
Opening Statement of Senator Kennedy
The Chairman. Good morning to our committee and to our
witnesses this morning. We're very appreciative and grateful to
all of our panelists who have come and joined us here today.
And we welcome all of our members.
I think that one of the dramatic issues and questions that
we're facing as a country is really what's happening to the
middle class and what's happening with working families in
America. And I think we're very mindful that there's no quick,
easy kind of solution. I think it's important for us to try and
sort of understand why we are in the ditch, I believe that we
are, and what are the forces and factors that are going to
continue us in that ditch? What are the things that can help us
dig our way out? And this committee, by its nature and
disposition, the labor and education, health and pensions, has
great overall interest in what is happening to working families
and to the middle class, as well as to many other particular
issues that we will address during the course of this session
Just very quickly, but I think all of us understand that
we'll hear a good deal more about something that we have taken
notice of over a very considerable period of time, Americans
are working longer and harder than any other industrialized
nation of the world. That's been demonstrated and shown. More
Americans are working more jobs and hours just to get by. The
number of Americans that are working over 40 hours a week, and
even the numbers of Americans who are working 50 hours a week
and a few that are working two full-time jobs, is breathtaking,
in order to be able to keep alive. What we have seen is the
expanding productivity, which we have seen over the recent
times, which has taken place, even though it hasn't reflected
itself in higher wages. I think most of us understood that when
we saw the expanding productivity, we also saw an increase in
wages. We also take note that corporations are doing
exceedingly well. We've had the increased productivity. Looking
at those charts would indicate that the corporations have been
reaping the substantial resources. And this is about how we--we
used to all grow, together, as we were always aware of, going
on right through the end of World War II, into the immediate
postwar period, right up through the 1970s. We were all moving
along together. That old saying about the rising tide raising
all the boats really raised them all, but now we find out that
we're increasingly growing apart. So, we want to try and look
at these factors and forces.
I want to thank all of the panelists for getting their
statements in. I've had the chance--this was, you know, a
weekend of a lot of activities, but it was very, very helpful
just to meet, personally. We want, and expect, our witnesses to
get their statements in, but it does make a big difference. It
certainly did with me; I think, for the other members, as well.
So, with that, I'd recognize my friend and colleague
Senator Enzi for whatever comments he'd like to make.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
The fundamental promise of the American Dream is that hard
work leads to success and a better life for your family. It's a
vision of shared prosperity where all of our hard work enlarges
the economic pie and we all reap the benefits.
This vision was realized in the decades after World War II,
when increased productivity and economic expansion raised
living standards for families across the economic spectrum. The
rising tide of abundance really did lift all boats.
Rapid technological advances, the advent of globalization,
the movement of women into the paid workforce, and other
changes have fundamentally altered our economy and society
since then, but our shared vision of what America should be
We should be a land of opportunity for all, where good jobs
with fair wages and benefits that can support a family are
available to all.
Where families have time to spend with their children, and
can save to give them a brighter future. Where workers have a
voice on the job and receive their fair share of the economic
growth their work creates. Above all, America should be a
country where no one who works for a living has to live in
Unfortunately, the American Dream has become a false hope
for many working families. America is no longer about shared
prosperity--instead, we have an economy that works for Wall
Street, not for Main Street. While GDP is rising, productivity
is up, and corporations are earning record profits, the
economic growth of the last few years has largely bypassed
working families. Americans are working harder than ever, but
they are not reaping the benefits.
Good, middle-class jobs, with decent wages and benefits
that formed the core of the American middle class are
disappearing. Workers are down-sized, right-sized, laid off or
leased out. Millions of their jobs are being shipped overseas.
And most of the new jobs that are created come with lower
wages, fewer benefits, and less stability. As a result, the
great majority of people feel more insecure about their jobs,
their incomes, their health insurance, their children's
futures, and their own prospects for a dignified retirement.
This insecurity is felt across the economic spectrum. The
middle class used to be the solid foundation of American
society, but it is crumbling in the Bush economy. Middle class
wages have been virtually stagnant, while prices for essentials
like housing, health care, gas, and utilities have skyrocketed.
The numbers don't add up. Families are exhausting their savings
and falling into debt. Working parents are putting in longer
hours--or accepting multiple jobs--just to get by, and are
sacrificing time with their families and jeopardizing their
The American middle class is struggling to stay afloat, but
our lowest paid workers are sinking. Our inexcusable refusal to
raise the minimum wage has put downward pressure on wages for
all low-income workers. To equal the purchasing power it had in
1968, the minimum wage would have to be more than $9.37 an hour
today, not $5.15.
The middle class works longer and harder, but low-wage
workers often can't even find the jobs or the hours they need
to put food on the table and pay the rent.
Our society is becoming more and more stratified and that
threatens our Democracy. Today, more than 40 percent of total
income is going to the wealthiest 10 percent of Americans--the
biggest gap in more than 65 years. The top \1/10\ of 1 percent
of Americans receive nearly 7 percent of the total income of
our entire country. The divide between the haves and the have-
nots is the largest since the Great Depression. It's growing
every year, and putting our economy and our society at
It doesn't have to be this way. We can get back to where we
ought to be. We can create more good middle class jobs. We can
ease the strain on working families, and help hardworking
people rise out of poverty. We can achieve a fairly shared
prosperity and recapture the American dream. But to do so, we
need to understand how we came to where we are today, and we
must be willing to consider new ideas for the Nation's future.
The time has come for bold action to improve economic
security and economic opportunity for America's working
families. I look forward to the ideas and recommendations of
today's panelists on these important issues, and to a lively
discussion as well.
Opening Statement of Senator Enzi
Senator Enzi. Thank you, Mr. Chairman. And I appreciate
your holding this hearing on labor issues. This is our first
hearing on labor issues. And I want to thank the panel for
their willingness to participate.
We can all benefit from a better understanding of real
changes and opportunities that face America's working families.
And I hope we'll have some more of these, because I noted that
we had two professors and a minister and a small-business
person. I kind of consider small-business people to be part of
the middle class, not the upper class. Some of them are
probably in the poorest of the working corps. But we need to
get the perspective from those working folks, as well.
I travel out to Wyoming most weekends. I don't know how
that'll work out, under our new schedule, because the trip
takes me about 16 hours, round trip, to make it, so, if I have
to leave late Friday and be back early Monday, that'll present
some difficulties. But the folks in Wyoming think that that's
my real working time, when I'm actually talking to them. And
I've got to say that when I'm talking to the guy that's selling
the shoes or doing the construction work on the end of the
shovel, that they're where some of the best ideas come from.
So, a little more interaction with the middle class and the
poor, I think, would benefit us greatly in coming up with ideas
that will result in the kinds of solutions that will make
America a better place.
And I do think it's a good idea for the committee to
conduct this sort of a regular checkup on the Nation's
employment situation. In January 2007, based on available data
through November, the situation looks pretty good, according to
statistics, but there are unavoidable changes ahead to the U.S.
workforce, and we have to be doing all we can to prepare for
We've got to make sure that the benefits of a strong
economy are reaching the employees. Real average weekly
earnings rose by 4.4 percent over the year ending November
2006. That's 2.3 percent, when adjusted for inflation. The
inflation-adjusted increase of 2.3 percent translates into an
average of an extra $1,420 for the typical family of four with
two wage-earners. Statistics, however, don't tell the whole
story. There are certainly challenges facing today's working
families. The cost of healthcare continues to rise. Many are
still looking to get the right work/family balance, and
employees in critical sectors of our economy lack the skills
that are necessary to progress in their careers. I hope we'll
acknowledge some of these struggles in today's hearing.
Like middle-class families, small businesses feel the
middle-class squeeze, as well. They're caught between trying to
compete in the global market with the bigger business
competitors, and they're trying to provide for their employees,
who they recognize and feel are almost family, and their most
important asset. The two missions are entirely co-dependent. If
a small-business person can't compete, he or she cannot provide
jobs and benefits for the employees.
According to the Small Business Administration and
economists, small businesses create the majority of new jobs in
today's economy. If we want to stay on the path of economic and
employment growth, we must take care not to take actions that
make small business less likely to compete and succeed. When
small businesses can succeed, they can provide good wages and
benefits for their employees, and it's certainly in their best
interest to do so. When their success is hampered by excessive
and burdensome regulations and mandates, it hurts everyone who
works for that small business and their families.
If we're talking about a middle-class squeeze, there are no
better representatives in the middle class than the typical
small-business owner and his or her employees. They're on the
front lines every day, working to keep their business growing
and to hire new workers. As a former small-business owner, I
can truly empathize with today's small business in trying to
juggle all the balls at once and provide a better life for
themselves and for their workers.
In our discussions today, we must recognize that financial
prosperity and job security cannot simply be legislated.
Congress can't wave a magic wand and guarantee every American a
well-paying job with gold-plated benefits for life. The
government systems that have tried that approach have failed,
and their citizens have been worse off for the effort. Rather,
our role is to foster economic conditions that allow growth,
which, in turn, creates jobs and raises wages and benefits. On
the other side of the equation, we should do all we can to
ensure that America is producing workers who possess the
necessary skills to move themselves and our economy forward. My
colleagues know that I strongly believe we have to do more in
that department. For the past two Congresses, one of my major
priorities has been reauthorizing and improving the Nation's
job-training system that was created by the Workforce
Improvement Act. This law would help to provide American
workers with skills they need to compete in the global economy.
Education and the acquisition of job skills represent the
surest path to economic opportunity and security in the global
Over the past few years, this bill has received unanimous
support from both the HELP Committee, which has reported it out
twice, and the full Senate, which has passed it, unanimously,
twice. But election-year politics and political positioning
have prevented this important bill from becoming law. So, this
bill, which would start an estimated 900,000 people a year on a
better career path, has been a casualty of Congress' inability
to overcome its worst partisan instincts.
We, our workers, and our businesses can't afford any
further delay. I hope we can quickly pass a job-training bill
that will truly improve the wages and lives of workers in this
The potential skills gap that's facing American workers
only deepens when we're compared to our competitors around the
world. As chairman of this committee, I was able to travel to
some foreign countries which are among the toughest competitors
in the world market. I came home believing strongly that we
have to focus even more seriously on the acquisition and
improvement of job-related skills.
Wages, job security, and benefits are important for
America's quality of life and worthy of significant discussion,
but none of this matters if our overseas competitors are able
to produce better goods and quicker services and dominate the
global market. Every member of this committee wants the best
for American workers. It's true that some of us may have
different ideas on how to make that possible, but I am
confident that, by working together, we can find common ground,
as we've been able to do on so many occasions in the last
I look forward to hearing the testimony presented, and I
thank you, Mr. Chairman.
The Chairman. Thank you, Senator Enzi.
I might just say, on that training program, we have 24
applications, in my State of Massachusetts, for every training
slot--24 applications. We have 73,000 jobs that are out there
in my State that could use these training. This is an important
We are very fortunate to have a strong panel here:
Professor Jacob Hacker, who's a professor of political science
at Yale, resident fellow of the Institution for Social and
Policy Study, fellow at the New America Foundation, a former
junior fellow of the Harvard Society of Fellows; his most
recent book, ``The Great Risk Shift: The Assault on American
Jobs, Families, Healthcare, and Retirement, and How You Can
Fight Back''--I had the good opportunity to read it over the
Eileen Appelbaum, is a familiar figure to this committee--
joined the Rutgers University as professor and director of
Center for Women and Work, March 2002, former research
director, Economic Policy Institute, in Washington, DC.,
professor of economics at Temple University. Dr. Appelbaum's
got 20 years of experience carrying out empirical research on
workplace practices, labor managed cooperation, research
focuses on work, processes, and work-life practices of
Reverend Forbes, James Forbes, was installed as the fifth
senior minister of Riverside, June 1, 1989, and is the first
African-American to serve as a senior minister of the
multicultural congregation. He's an ordained minister in the
American Baptist Churches and the original United Holy Church
of America. In national and international religious circles,
Dr. Forbes is known as the preacher's preacher, because of his
extensive preaching career and his charismatic style. In their
March 4, 1996, issue, Newsweek magazine recognized Dr.--
Reverend Forbes as one of the 12 most effective preachers in
the English-speaking world. We thank him.
Mrs. Cablik was born--is that the right pronunciation?
Mrs. Cablik. Cablik.
The Chairman. Cablik, excuse me--Cablik was born and raised
in the Republic of Panama and became a U.S. citizen. She
married her husband, came to Atlanta in 1974. She completed her
studies in medical technology at Canal Zone College, 1982. Ms.
Cablik started her own contracting company, which specializes
in highway bridges. Ms. Cablik's second company, ANASTEEL &
Supply Company, was created in 1994, the only Hispanic female-
owned reinforcing-steel fabricator in the Southeast. In 1989,
she was Hispanic Businesswoman of the Year and a finalist for
Entrepreneur of the Year in the construction category by Inc.
magazine. In 1997, she earned the Pacesetter Award by the
National Association of Minority Contractors, in Atlanta. Very
much welcome you, Ms. Cablik.
So, we'll start, if we could, Professor Hacker.
STATEMENT OF JACOB S. HACKER, PETER STRAUSS FAMILY ASSOCIATE
PROFESSOR, YALE UNIVERSITY, NEW HAVEN, CT
Mr. Hacker. Good morning, Chairman Kennedy, Senator Enzi,
and members of the committee. Despite my trepidation about
preceding a great preacher, I am honored to speak with you
today about the economic condition of the American middle
Without mincing words, I believe that condition can be
described as serious and unstable. Over the last generation, in
nearly every facet of American middle-class economic life--
pension plans, health insurance, job security, family
finances--economic risk has shifted from the broad shoulders of
government and corporations onto the fragile backs of American
families. I call this transformation ``The Great Risk Shift,''
and I believe it is at the heart of the economic anxieties that
many middle-class Americans feel today.
As you know, the United States has a distinctive framework
of economic security, one that relies heavily on employers to
provide essential social benefits. Today, however, this
framework is eroding, and risk is shifting back onto workers
and their families. Employment-based health insurance has
contracted substantially, leaving nearly one in three non-
elderly Americans without coverage at some point every 2 years.
Meanwhile, even as private pension coverage has stagnated,
there has been a dramatic movement away from guaranteed
defined-benefit pension plans toward individual account-style
defined-contribution plans, which place much of the
responsibility and risk of retirement planning on workers,
We hear much today about inequality, the growing gap
between the rungs of our economic ladder, but what I'm talking
about is insecurity, the growing risk of slipping from the
ladder itself. And insecurity is what more and more Americans
are feeling. In an election-night poll commissioned by the
Rockefeller Foundation, fully three-quarters of voters,
Republicans in almost as large a proportion as Democrats, said
they were worried about their overall economic security.
Now, I want to emphasize that these are not just concerns
of the poor or the poorly educated. Increasingly, insecurity
reaches across the income spectrum, across lines of gender and
geography, across the racial divide. More and more, all
Americans are riding the economic roller coaster that was once
reserved for the working poor.
Personal bankruptcies and home foreclosures, for example,
have become dramatically more common, and most who experience
these dislocations are in the middle class before they do.
Indeed, the group most disadvantaged by these trends is
families with children; in part, because they are drowning in
In 2004, personal debt exceeded 125 percent of family
income for the median married couple with children. Perhaps
most telling of all, research I have done using the Panel Study
of Income Dynamics, a survey that has tracked thousands of
families from year to year since the late 1960s, shows that
instability of family incomes has actually risen faster than
inequality of family incomes. In other words, while the gaps
between the rungs on our economic ladder have, indeed,
increased, what has increased even more quickly is how far
people fall down the ladder when they lose their financial
I believe this risk shift is not inevitable. In an economy
as rich and productive as ours, there's no reason why we could
not shore up the buffers that protect families from economic
risk to help them prosper in our increasingly dynamic,
flexible, and, yes, uncertain economy.
We cannot, we should not, insure Americans against every
risk they face, but I believe it is a grave mistake to see
security, as opposed to opportunity. We give corporations
limited liability, after all, precisely to encourage
entrepreneurs to take risks. If middle-class Americans are to
make the risky investments necessary to thrive in our new,
uncertain economy, they need an improved safety net, not a more
The American Dream, the economic promise of this great
Nation, is about security and opportunity alike, and ensuring
that the vibrancy of that dream will require providing security
and opportunity, alike.
[The prepared statement of Mr. Hacker follows:]
Prepared Statement of Jacob S. Hacker
Thank you, Mr. Chairman. My name is Jacob Hacker, and I am a
professor of political science at Yale University. I thank the
committee for the honor of speaking today about the economic condition
of the American middle class.
Without mincing words, that condition can be described as ``serious
and unstable.'' Increasingly, middle-class Americans find themselves on
a shaky financial tightrope, without an adequate safety net if they
lose their footing.
A major cause of this precariousness is what I call ``The Great
Risk Shift.'' \1\ Over the last generation, we have witnessed a massive
transfer of economic risk from broad structures of insurance, whether
sponsored by the corporate sector or by government, onto the fragile
balance sheets of American families. This transformation is arguably
the defining feature of the contemporary American economy--as important
as the shift from agriculture to industry more than a century ago. It
has reshaped Americans' relationships to their government, their
employers, and each other. And it has transformed the economic
circumstances of American families, from the bottom of the economic
ladder to its highest rungs.
We have heard a great deal about rising inequality--the growing gap
between the rungs of our economic ladder. And yet, to most Americans,
inequality is far less tangible and immediate than a trend we have
heard much less about: rising insecurity, or the growing risk of
slipping from the ladder itself. Even as the American economy has
performed fairly strongly overall, economic insecurity has quietly
crept into American middle-class life. Private employment-based health
plans and pensions have eroded, or been radically transformed to shift
more risk onto workers' shoulders. Government programs of economic
security have been cut, restructured, or simply allowed to grow more
threadbare. Our jobs and our families are less and less financially
Insecurity strikes at the very heart of the American Dream. It is a
fixed American belief that people who work hard, make good choices, and
do right by their families can buy themselves permanent membership in
the middle class. The rising tide of risk swamps these expectations,
leaving individuals who have worked hard to reach their present heights
facing uncertainty about whether they can keep from falling.
Little surprise, then, that insecurity was a central issue in the
2006 mid-term elections--during which two-thirds of voters, Republicans
in almost as large a proportion as Democrats, said they were ``worried
about their overall economic security, including retirement savings,
health insurance, and Social Security.'' \2\ Insecurity also appears to
be a major reason for the huge divorce in recent years between
generally positive aggregate economic statistics and generally negative
public appraisals of the economy.\3\ And it is certain to be one of the
most pressing domestic challenges faced in the coming years.
In my remarks, I would like to review some of the major evidence
that Americans are at increased economic risk, drawing on my recent
book, The Great Risk Shift. After laying out the problem, I want to
discuss the economic and philosophical grounds for addressing it--
grounds that, I believe, demand bold and immediate action.
the economic roller coaster
American family incomes are now on a frightening roller coaster,
rising and falling much more sharply from year to year than they did 30
years ago. Indeed, according to research I have done using the Panel
Study of Income Dynamics--a nationally representative survey that has
been tracking thousands of families' finances from year to year since
the late 1960s--the instability of family incomes has risen faster than
the inequality of family incomes. In other words, while the gaps
between the rungs on the ladder of the American economy have increased,
what has increased even more quickly is how far people slip down the
ladder when they lose their financial footing.
Is this just a problem of the less educated, the workers who have
fallen farthest behind in our economy? The answer is no. Income
instability is indeed greater for less educated Americans than for more
educated Americans. (It is also higher for blacks and Hispanics than
for whites, and for women than for men.) Yet instability has risen by
roughly the same amount across all these groups over the last
generation. During the 1980s, people with less formal education
experienced a large rise in instability, while those with more formal
education saw a modest rise. During the 1990s, however, the situation
was reversed, and by the end of the decade, as Figure 1 shows, the
instability of income had increased in similar proportions from the
1970s baseline among both groups.\4\
Roller coasters go up and down. Yet when most of us contemplate the
financial risks in our lives, we do not think about the upward trips.
We worry about the drops, and worry about them intensely. In the 1970s,
the psychologists Amos Tversky and Daniel Kahneman gave a name to this
bias: ``loss aversion.'' \5\ Most people, it turns out, aren't just
highly risk-averse--they prefer a bird in the hand to even a very good
chance of two in the bush. They are also far more cautious when it
comes to bad outcomes than when it comes to good outcomes of exactly
the same magnitude. The search for economic security is, in large part,
a reflection of a basic human desire for protection against losing what
one already has.
This desire is surprisingly strong. Americans are famously
opportunity-loving, but when asked in 2005 whether they were ``more
concerned with the opportunity to make money in the future, or the
stability of knowing that your present sources of income are
protected,'' 62 percent favored stability and just 29 percent favored
Judged on these terms, what the Panel Study of Income Dynamics
shows is troubling. About half of all families in the study experience
a drop in real income over a 2-year period, and the number has remained
fairly steady. Yet families that experience an income drop fall much
farther today than they used to: In the 1970s, the typical income loss
was around 25 percent of prior income; by the late 1990s, it was around
40 percent. And, again, this is the median drop: Half of families whose
incomes dropped experienced larger declines.
Figure 2 uses somewhat fancier statistics to show the rising
probability of experiencing a 50 percent or greater family income drop.
The chance was around 7 percent in the 1970s. It has increased
dramatically since, and while, like income volatility, it fell in the
strong economy of the 1990s, it has recently spiked. There is nothing
extraordinary about ``falling from grace.'' You can be perfectly
average--with an average income, an average-sized family, an average
likelihood of losing your job or becoming disabled--and you're still
2\1/2\ times as likely to see your income plummet as an average person
was 30 years ago.
The most dramatic consequence of financial reversals is, of course,
poverty--subsistence at a level below the Federal poverty line.
According to the sociologist Mark Rank and his colleagues, the chance
of spending at least a year in poverty has increased substantially
since the late 1960s, even for workers in their peak earning years.
People who were in their forties in the 1970s had around a 13 percent
chance of experiencing at least a year in poverty during their forties.
By the 1990s, people in their forties had more than a 36 percent chance
of ending up in poverty.\7\
These numbers illuminate the hidden side of America's economic
success story: the growing insecurity faced by ordinary workers and
their families. Yet as dramatic and troubling as these numbers are,
they vastly understate the true depth of the problem. Income
instability powerfully captures the risks faced by Americans today. But
insecurity is also driven by the rising threat to family finances posed
by budget-busting expenses like catastrophic medical costs, as well as
by the massively increased risk that retirement has come to represent,
as ever more of the responsibility of planning for the post-work years
shifts onto Americans and their families. When we take in this larger
picture, we see an economy not merely changed by degrees, but
transformed--from an all-in-the-same boat world of shared risk toward a
go-it-alone world of personal responsibility.
america's unique--and endangered--framework of economic security
We often assume that the United States does little to provide
economic security compared with other rich capitalist democracies. This
is only partly true. The United States does spend less on government
benefits as a share of its economy, but it also relies more--far more--
on private workplace benefits, such as health care and retirement
pensions. Indeed, when these private benefits are factored into the
mix, the U.S. framework of economic security is not smaller than the
average system in other rich democracies. It is actually slightly
larger.\8\ With the help of hundreds of billions in tax breaks,
American employers serve as the first line of defense for millions of
workers buffeted by the winds of economic change.
The problem is that this unique employment-based system is coming
undone, and in the process risk is shifting back onto workers and their
families. Employers want out of the social contract forged in the more
stable economy of past, and they are largely getting what they want.
Meanwhile, America's framework of government support is also strained.
Social Security, for example, is declining in generosity, even as
guaranteed private pensions evaporate. Medicare, while ever more
costly, has not kept pace with skyrocketing health expenses and
changing medical practice. And even as unemployment has shifted from
cyclical job losses to permanent job displacements, Unemployment
Insurance has eroded as a source of support and recovery for Americans
out of work.\9\
The history of American health insurance tells the story in
miniature. After the passage of Medicare and Medicaid, health coverage
peaked at roughly 90 percent of the population, with approximately 80
percent of Americans covered by private insurance. In its heyday,
private insurance was provided by large nonprofit insurers, which
pooled risks across many workplaces (and, originally, even charged all
subscribers essentially the same rate--a practice favorable to higher-
risk groups). The American Hospital Association proudly described the
Blue Cross insurance plans that once dominated U.S. health insurance as
``social insurance under nongovernmental auspices.'' \10\
Since the late 1970s, however, employers and insurers have steadily
retreated from broad risk pooling. The number of Americans who lack
health coverage has increased with little interruption as corporations
have cut back on insurance for workers and their dependents. From
around 80 percent of Americans, private health coverage now reaches
less than 70 percent, with nearly 47 million people without any
coverage at all.\11\ Over a 2-year period, more than 80 million adults
and children--one out of three nonelderly Americans, 85 percent of them
in working families--spend some time without the protection against
ruinous health costs that insurance offers.\12\ And the problem is
rapidly worsening: Between 2001 and 2005, the share of moderate-income
Americans who lack health coverage has risen from just over one quarter
to more than 40 percent.\13\
The uninsured, moreover, are hardly the only ones at risk because
of rising medical costs. Among insured Americans, 51 million spend more
than 10 percent of their income on medical care.\14\ One out of six
working-age adults--27 million Americans--are carrying medical debt,
and 70 percent had insurance when they incurred it. Of those with
private insurance and medical debt, fully half have incomes greater
than $40,000, and of this group a third are college graduates or have
had postgraduate education.\15\ Perhaps not surprisingly, as many as
half of personal bankruptcies are due in part to medical costs and
crises--and most of these medical-
related bankruptcies occur among the insured.\16\
As employment-based health insurance has unraveled, companies have
also raced away from the promise of guaranteed retirement benefits.
Twenty-five years ago, 83 percent of medium and large firms offered
traditional ``defined-benefit'' pensions that provided a fixed benefit
for life. Today, the share is below a third.\17\ Instead, companies
that provide pensions--and roughly half the workforce continues to lack
a pension at their current job--mostly offer ``defined-contribution''
plans like the 401(k), in which returns are neither predictable nor
Defined-contribution plans are not properly seen as pensions--at
least as that term has been traditionally understood. They are
essentially private investment accounts sponsored by employers that can
be used for building up a tax-free estate as well as for retirement
savings. As a result, they greatly increase the degree of risk and
responsibility placed on individual workers in retirement planning.
Traditional defined-benefit plans are generally mandatory and paid for
largely by employers (in lieu of cash wages). They thus represent a
form of forced savings. Defined-benefit plans are also insured by the
Federal Government and heavily regulated to protect participants
against mismanagement. Perhaps most important, their fixed benefits
protect workers against the risk of stock market downturns and the
possibility of living longer than expected.
None of this is true of defined-contribution plans. Participation
is voluntary, and due to the lack of generous employer contributions,
many workers choose not to participate or contribute inadequate
sums.\19\ Plans are not adequately regulated to protect against poor
asset allocations or corporate or personal mismanagement. The Federal
Government does not insure defined-contribution plans. And defined-
contribution accounts provide no inherent protection against asset or
longevity risks. Indeed, some features of defined-contribution plans--
namely, the ability to borrow against their assets, and the
distribution of their accumulated savings as lump-sum payments that
must be rolled over into new accounts when workers change jobs--
exacerbate the risk that workers will prematurely use retirement
savings, leaving inadequate income upon retirement. And, perversely,
this risk falls most heavily on younger and less highly paid workers,
the very workers most in need of secure retirement protection.
As private and public support have eroded, in sum, workers and
their families have been forced to bear a greater burden. This is the
essence of the Great Risk Shift. Rather than enjoying the protections
of insurance that pools risk broadly, Americans are increasingly facing
economic risks on their own--and often at their peril. In the new world
of work and family, the buffers that once cushioned Americans against
economic risk are become fewer and harder.
the new world of work and family
The erosion of America's distinctive framework of economic
protection might be less worrisome if work and family were stable
sources of security themselves. Unfortunately, they are not. Beneath
the rosy economic talk, the job market has grown more uncertain and
risky, especially for those who were once best protected from its
vagaries. While the proportion of workers formally out of work at any
point in time has remained low, the share of workers who lose a job
through no fault of their own every 3 years has actually been rising--
and is now roughly as high as it was during the recession of the early
1980s, the worst economic downturn since the Great Depression.\20\
No less important, these job losses come with growing risks.
Workers and their families now invest more in education to earn a
middle-class living, and yet in today's post-industrial economy, these
costly investments are no guarantee of a high, stable, or upward-
sloping path. For displaced workers, the prospect of gaining new jobs
with relatively similar pay and benefits has fallen, and the ranks of
the long-term unemployed and ``shadow unemployed'' (workers who have
given up looking for jobs altogether) have grown. These are not just
problems faced by workers at the bottom. In the most recent downturn,
the most educated workers actually experienced the worst effects when
losing a full-time job, and older and professional workers were hit
hardest by long-term unemployment.\21\
Meanwhile, the family--once a refuge from economic risk--is
creating new risks of its own. At first, this seems counterintuitive.
Families are much more likely to have two earners than in the past, the
ultimate form of private risk sharing. To most families, however, a
second income is not a luxury, but a necessity in a context in which
wages are relatively flat and the main costs of raising a family
(health care, education, housing) are high and rising.\22\ According to
calculations by Jared Bernstein and Karen Kornbluh, more than three-
quarters of the modest 24 percent rise in real income experienced by
families in the middle of the income spectrum between 1979 and 2000 was
due to increasing work hours, rather than rising wages.\23\ (Some of
this overall gain has been reduced by recent family income declines.)
In time-use surveys, both men and women who work long hours indicate
they would like to work fewer hours and spend more time with their
families--which strongly suggests they are not able to choose the exact
mix of work and family they would prefer.\24\
With families needing two earners to maintain a middle-class
standard of living, their economic calculus has changed in ways that
accentuate many of the risks they face. Precisely because it takes more
work and more income to maintain a middle-class standard of living, the
questions that face families when financially threatening events occur
are suddenly more stark. What happens when women leave the workforce to
have children, when a child is chronically ill, when one spouse loses
his job, when an older parent needs assistance? In short, events within
two-earner families that require the care and time of family members
produce special demands and strains that traditional one-earner
families generally did not face.
The new world of work and family has ushered in a new crop of
highly leveraged investors--middle-class families. Consider just a few
of the alarming facts:
Personal bankruptcy has gone from a rare occurrence to a
routine one, with the number of households filing for bankruptcy rising
from less than 300,000 in 1980 to more than 2 million in 2005.\25\ Over
that period, the financial characteristics of the bankrupt have grown
worse and worse, contrary to the claim that bankruptcy is increasingly
being used by people with only mild financial difficulties. Strikingly,
married couples with children are much more likely to file for
bankruptcy than are couples without children or single individuals.\26\
Otherwise, the bankrupt are pretty much like other Americans before
they file: slightly better educated, roughly as likely to have had a
good job, and modestly less likely to own a home.\27\ They are not the
persistently poor, the downtrodden looking for relief; they are
refugees of the middle class, frequently wondering how they fell so far
Americans are also losing their homes at record rates.
Since the early 1970s, there has been a fivefold increase in the share
of households that fall into foreclosure--a process that begins when
homeowners default on their mortgages and can end with homes being
auctioned to the highest bidder in local courthouses.\28\ For scores of
ordinary homeowners--1 in 60 mortgage-owning households in recent
years--the American Dream has mutated into what former U.S. Comptroller
of the Currency Julie L. Williams calls ``the American nightmare.''
American families are drowning in debt. Since the early
1970s, the personal savings rate has plummeted from around a tenth of
disposable income to essentially zero. In 2005, the personal savings
rate was -0.5 percent--the first time since 1993, in the midst of the
Great Depression, that savings has been negative for an entire
year.\30\ Meanwhile, the total debt held by Americans has ballooned,
especially for families with children. As a share of income in 2004,
total debt--including mortgages, credit cards, car loans, and other
liabilities--was more than 125 percent of income for the median married
couple with children, or more than three times the level of debt held
by married families without children, and more than nine times the
level of debt held by childless adults.\31\
As these examples suggest, economic insecurity is not just a
problem of the poor and uneducated, as is frequently assumed. It
affects even educated, middle-class Americans--men and women who
thought that by staying in school, by buying a home, by investing in
their 401(k)s, they had bought the ticket to upward mobility and
economic stability. Insecurity today reaches across the income
spectrum, across the racial divide, across lines of geography and
gender. Increasingly, all Americans are riding the economic roller
coaster once reserved for the working poor, and this means that
increasingly all Americans are at risk of losing the secure financial
foundation they need to reach for and achieve the American Dream.
security and opportunity are intertwined
The increased income volatility and economic insecurity faced by
many families imposes costs not just on those families, but also on the
economy as a whole. Substantial economic insecurity may impede risk
taking, reduce productivity by failing to help families that have
suffered an adverse shock get back on their feet, and feed demands for
growth-reducing policies. While some measure of financial risk can
cause families to respond with innovation and prudence, excessive
insecurity can cause them to respond with caution and anxiety. As a
result, families lacking a basic foundation of financial security may
fail to make the investments needed to advance in a dynamic economy.
It has long been recognized that policies that encourage risk
taking can benefit society as a whole, because, in their absence,
individuals may be unwilling to undertake valuable investments that
involve high levels of risk. This is all the more true because, as
already noted, people are highly loss averse, meaning that they fear
losing what they have more than they welcome the possibility of
substantially larger but uncertain gains. Moreover, the gains of risky
investment may entail positive externalities, that is, benefits that
are not exclusive to the individual making the investment, but that
accrue to others outside the transaction. When investments involve
large positive externalities, individuals may not have sufficient
incentive to invest in achieving these societal gains.
Many economic investments made by families are both risky and
highly beneficial to society as a whole. Purchasing a home, for
example, is good for families and communities, but entails substantial
financial risk.\32\ Similarly, investment in workplace skills and
education--particularly the education of children--is an investment
that pays off handsomely, on average, for individuals and for society.
Yet the returns to skills and education are highly variable, and
becoming more so. In short, the wellsprings of economic opportunity--
from assets to workplace skills to education to investments in
children--are risky investments with positive externalities. Providing
a basic level of economic security can encourage families to make these
investments, aiding not just their own advancement but the economy as a
Providing a basic level of security appears even more economically
beneficial when considered against some of the leading alternatives
that insecure citizens may otherwise back. Heavy-handed regulation of
the economy, strict limits on cross-border trade and financial flows,
and other intrusive measures may gain widespread support from workers
when they are buffeted by economic turbulence, yet these measures are
likely to reduce growth. The challenge, then, is to explore ways of
protecting families against the most severe risks they face, without
clamping down on the potentially beneficial processes of change and
adjustment that produce some of these risks.
Unique among social institutions, government can provide such
protection. It has the means--and, often, the incentive--to require
participation in broader risk pools and to foster positive
externalities that no private actor sufficiently gains from to
encourage individually. This is a major reason why government has long
played a central role in managing risk in the private sector.\33\
Corporate law has long recognized the need to limit the downside of
risk-taking as a way of encouraging firms to take a socially
appropriate amount of risk. The law of bankruptcy and the principle of
limited liability--the notion that those who run a firm are not
personally liable if the firm fails--allow entrepreneurs to engage in
risky investments knowing that they will not be forced into penury or
debt servitude if their risky bets fail. Deposit insurance increases
the likelihood of savings and decreases the possibility of devastating
bank runs, by allowing depositors to feel secure that they can obtain
their money when they need it.
This argument is not merely analogical. A growing body of evidence
backs it up. Comparative statistics indicate, for example, that
generous personal bankruptcy laws are associated with higher levels of
venture capital.\34\ Research on labor markets shows that workers who
are highly fearful of losing their job invest less in their jobs and
job skills than those who are more secure.\35\ And cross-national
studies suggest that investment in education and job skills is higher
when workers have key risk protections. Workers, it seems, invest in
highly specific assets--such as skills that do not transfer easily from
one firm or occupation to another--only when the risk of losing the
potential returns of those assets are mitigated by basic insurance
protections that are not job-specific.\36\ When insurance is not
present, workers under-invest in the most crucial asset in most
families' portfolio--namely, the value of family members' human
Most of us think of social insurance as a way of helping those who
have had bad fortune or fallen on hard times. What the foregoing
suggests is that social insurance can also encourage families that do
not experience misfortune to make investments that benefit themselves
and society. Put simply, security is not opposed to economic
opportunity. It is a cornerstone of opportunity. And restoring a
measure of economic security in the United States today is the key to
transforming the Nation's great wealth and productivity into an engine
for broad-based prosperity and opportunity in a more uncertain economic
a twenty-first century social contract
In revitalizing the social contract that binds employers,
government, and workers and their families, there can be no turning
back the clock on many of the changes that have swept through the
American economy and American society. Yet accepting these changes does
not mean accepting the new economic insecurity that middle-class
families face. Americans will need to do much to secure themselves in
the new world of work and family. But they should be able to do it in a
context in which government and employers act as effective advocates on
working families' behalf. And they should be protected by an improved
safety net that fills the most glaring gaps in present protections,
providing all Americans with the basic security they need to reach for
the future--as workers, as parents, and as citizens.
Make no mistake: This strengthened safety net will have to be
different from the one that was constructed during the Great Depression
and in the years after World War II. Our eroding framework of social
protection is overwhelmingly focused on the aged, even though young
adults and families with children face the greatest economic strains
today. It emphasizes short-term exits from the workforce, even though
long-term job losses and the displacement and obsolescence of skills
have become more severe. It embodies, in places, the antiquated notion
that family strains can be dealt with by a second earner--usually, a
woman--who can easily leave the workforce when there is a need for a
parent at home. Above all, it is based on the idea that job-based
private insurance can easily fill the gaps left by public programs,
when it is ever more clear that it cannot.
Americans require a new framework of social insurance that
revitalizes the best elements of the present system, while replacing
those parts that work least effectively with stronger alternatives
geared toward today's economy and society. First and foremost, that
means basic health coverage that moves with workers from job to job. In
a policy brief released earlier this month, I have outlined a proposal
that would extend insurance to all nonelderly Americans through a new
Medicare-like program and guaranteed workplace health insurance, while
creating an effective framework for controlling medical costs and
improving health outcomes to guarantee affordable, quality care to
A new social contract should also include enhanced protections
against employment loss (and the wage and benefit cuts that come with
it), and an improved framework for retirement savings. And I believe it
should include a new flexible program of social insurance that I call
``Universal Insurance''--a stop-loss income-
protection program that insures workers against very large drops in
their income due to unemployment, disability, ill health, and the death
of a breadwinner, as well as against catastrophic medical costs. For a
surprisingly modest cost, Universal Insurance could help keep more than
3 million Americans from falling into poverty a year and cut in half
the chance that Americans experience a drop in their income of 50
percent or greater.\38\
Such a ``security and opportunity society'' will not be
uncontroversial or easy to achieve. But it will restore a simple
promise to the heart of the American experience: If you work hard and
do right by your families, you shouldn't live in constant fear of
economic loss. You shouldn't feel that a single bad step means slipping
from the ladder of advancement for good. The American Dream is about
security and opportunity alike, and rebuilding it for the millions of
middle-class families whose anxieties and struggles are reflected in
the statistics and trends I have discussed will require providing
security and opportunity alike.
1. Jacob S. Hacker, The Great Risk Shift: The Assault on American
Jobs, Families, Health Care, and Retirement--And How You Can Fight Back
(New York: Oxford University Press, 2006).
2. McLaughlin and Associates poll of 1,000 mid-term election
voters, conducted for the Rockefeller Foundation. I am grateful to the
Foundation for making this unpublished data available to me. Sixty-nine
percent of Republican voters stated that they were worried, compared
with 78 percent of Democratic voters and 76 percent of independent
3. Hacker, The Great Risk Shift, Chapter 1.
4. Further explication of all the analyses discussed in this
testimony are contained in my book.
5. Daniel Kahneman and Amos Tversky, ``Prospect Theory: An Analysis
of Decisions Under Risk'', Econometrica Vol. 47, no. 2 (1979).
6. George Washington University Battleground 2006 Survey, March 24,
7. Daniel Sandoval, Thomas A. Hirschl, and Mark R. Rank, ``The
Increase of Poverty Risk and Income Insecurity in the U.S. Since the
1970's,'' paper presented at the American Sociological Association
Annual Meeting, San Francisco, CA, August 14-17, 2004.
8. Jacob S. Hacker, The Divided Welfare State: The Battle over
Public and Private Social Benefits in the United States (New York:
Cambridge University Press, 2002); Willem Adema and Maxime Ladaique,
``Net Social Expenditure, 2005 Edition,'' Paris, Organization for
Economic Cooperative for Development, 2005, available online at
9. See Lori G. Kletzer and Howard Rosen, ``Reforming Unemployment
Insurance for the Twenty-First Century Workforce,'' Hamilton Project
Discussion Paper 2006-06, Washington, DC., Brookings Institution,
September 2006, available online at www1.hamiltonproject.org/views/
10. Hacker, Divided Welfare State, 186, 214, 204.
11. Current private coverage estimates are available through the
Kaiser Family Foundation's ``Trends and Indicators in a Changing Health
Care Marketplace,'' available online at www.kff.org/insurance/7031/
printsec2.cfm. The estimate of nearly 47 million uninsured (the actual
number is 46.6 million) comes from Carmen DeNavas-Walt, Bernadette D.
Proctor, and Cheryl Hill Lee, ``Income, Poverty, and Health Insurance
Coverage in the United States: 2005,'' Current Population Reports
(Washington, DC.: U.S. Census Bureau, August 2006), 20, available
online at www.census.gov/prod/2006pubs/p60-231.pdf.
12. Families USA, ``One in Three: Nonelderly Americans Without
Health Insurance, 2002-2003,'' Washington, DC., Families USA, 2005,
available online at www.familiesusa.org/assets/pdfs/
13. Sara R. Collins, et al., ``Gaps in Health Insurance: An All-
American Problem,'' New York, Commonwealth Fund, 2006, available online
14. Families USA, ``Have Health Insurance'' Think You're Well
Protected? Think Again,'' Washington, DC., February 2005, available
online at www.familiesusa.org/assets/pdfs/Health_Care_Think_Again.pdf.
15. Robert W. Seifert and Mark Rukavina, ``Bankruptcy Is The Tip Of
A Medical-Debt Iceberg,'' Health Affairs 25:2 (2006): w89-w92.
16. David U. Himmelstein, et al., ``MarketWatch: Illness And Injury
As Contributors To Bankruptcy,'' Health Affairs, Web Exclusive,
February 2, 2005.
17. John H. Langbein, ``Understanding the Death of the Private
Pension Plan in the United States,'' unpublished manuscript, Yale Law
School, April 2006.
18. Geoffrey Sanzenbacher, ``Estimating Pension Coverage Using
Different Data Sets,'' Center for Retirement Research Issues in Brief
Number 51, Boston College, August 2006, available online at www.bc.edu/
19. Alicia H. Munnell and Annika Sunden, ``401(k) Plans Are Still
Coming Up Short,'' Center for Retirement Research Issues in Brief
Number 43b, Boston College, March 2006, available online at www.bc.edu/
20. Henry S. Farber, ``What Do We Know About Job Loss in the United
States?'' Economic Perspectives 2Q (2005): 13, 14, available online at
21. Ibid.; Katharine Bradbury, ``Additional Slack in the Economy:
The Poor Recovery in Labor Force Participation During this Business
Cycle, Federal Reserve Bank of Boston Public Policy Brief No. 05-2,
Boston, 2005, available online at www.bos.frb.org/economic/ppb/2005/
ppb052.pdf; Andrew Stettner and Sylvia A. Allegretto, ``The Rising
Stakes of Job Loss: Stubborn Long-Term Joblessness amid Falling
Unemployment Rates,'' Economic Policy Institute and National Employment
Law Project Briefing Paper No. 162, 2005, available online at
22. Elizabeth Warren and Amelia Warren Tyagi, The Two-Income Trap:
Why Middle-Class Mothers and Fathers Are Going Broke (New York: Basic
23. Jared Bernstein and Karen Kornbluh, ``Running Faster to Stay in
Place: The Growth of Family Work Hours and Incomes,'' New America
Foundation, Washington, DC., June 29, 2005, available online at
24. Jerry A. Jacobs and Kathleen Gerson, The Time Divide: Work,
Family, and Gender Inequality (Cambridge, MA: Harvard University Press,
25. Data courtesy of Elizabeth Warren, Harvard Law School. 2005
was, of course, an unusual year because of the rush of filings before
the 2005 bankruptcy bill took effect. The number in 2004, however,
still exceeded 1.56 million.
26. Warren and Tyagi, Two-Income Trap.
27. Elizabeth Warren, ``Financial Collapse and Class Status: Who
Goes Bankrupt?'' Osgoode Hall Law Journal, 41.1 (2003).
28. Calculated from Peter J. Elmer and Steven A. Seelig, ``The
Rising Long-Term Trend of Single-Family Mortgage Foreclosure Rates,''
Federal Deposit Insurance Corporation Working Paper 98-2, n.d.,
available online at www.fdic.gov/bank/analytical/working/98-2.pdf.
29. Christian Weller, ``Middle Class in Turmoil: High Risks Reflect
Middle Class Anxieties,'' Center for American Progress, Washington,
DC., December 2005, 7, available online at www.americanprogress.org/kf/
middle_class_turmoil.pdf; Joe Baker, ``Foreclosures Chilling Many U.S.
Housing Markets,'' Rock River Times, March 22-28, 2006, available
online at www.rockrivertimes.com/index.pl?cmd=
30. ``U.S. Savings Rate Hits Lowest Level Since 1933,'' 4MSNBC.com,
January 30, 2006, available online at www.msnbc.msn.com/id/11098797.
31. Calculated from Federal Reserve Board, Survey of Consumer
Finance 2004, available online at www.federalreserve.gov/PUBS/oss/oss2/
html; all results are appropriately weighted.
32. Robert J. Shiller, ``Betting the House,'' Project Syndicate
Commentary, 2004, available online at www.project-syndicate.org/
33. David Moss, When All Else Fails: Government as the Ultimate
Risk Manager (Cambridge, MA: Harvard University Press, 2002).
34. John Armour and Douglas Cumming, ``The Legal Road to
Replicating Silicon Valley,'' paper read at Babson Entrepreneurship
Conference, Glasgow, Scotland, 2004.
35. For a review, see Lars Osberg, ``Economic Insecurity,''
Discussion Paper, Sydney, Australia, Social Policy Research Centre,
36. Margarita Esteves-Abe, Torben Iversen, and David Soskice,
``Social Protection and the Formation of Skills: A Reinterpretation of
the Welfare State,'' The New Politics of the Welfare State, ed. Paul
Pierson (New York, Oxford University Press, 2001; Sauro Mocetti,
``Social Protection and Human Capital: Test of a Hypothesis,''
Department of Economics, University of Siena, 2004.
37. Jacob S. Hacker, ``Health Care for America: A Proposal for
Guaranteed, Affordable Health Care for all Americans Building on
Medicare and Employment-Based Insurance,'' EPI Briefing Paper #180,
Economic Policy Institute, Washington, DC., January 11, 2007, available
online at www.sharedprosperity.org/bp180.html.
38. Jacob S. Hacker, ``Universal Insurance: Enhancing Economic
Security to Promote Opportunity'', Discussion Paper 2006-07, The
Hamilton Project, Brookings Institution, Washington, DC, September
2006, available online at www.brook.edu/views/papers/
The Chairman. Thank you. Thank you very much.
We'll go now to Professor Appelbaum.
STATEMENT OF EILEEN APPELBAUM, Ph.D., PROFESSOR AND DIRECTOR,
CENTER FOR WOMEN AND WORK, RUTGERS UNIVERSITY, NEWARK, NJ
Ms. Appelbaum. Okay. Well, thank you very much for the
opportunity to speak to this panel today.
I think we all know that America is much richer today than
it was a generation ago, that we produce about 70 percent more
output than we did just 30 years ago, and the problem is, of
course, that America's middle-class families have not shared
fairly in these productivity gains. Today, the top 5 percent of
families, the richest 5 percent, have more income--
substantially more income than the bottom 40 percent of
The problem, if we take a historical view, is that from
1973 to 1995, the United States had slow productivity growth
and also stagnant or falling wages. And we're very well aware
of the widening gap between wages and productivity in that
period. In 1995, we saw a remarkable turnaround in productivity
growth in this country as our companies learned to use IT
effectively. And this has--we've had 10 years, now, of
remarkable productivity growth.
From 1995 to 2000, what we saw was that family incomes rose
along with productivity growth, and we began to see, ever so
slightly, a narrowing of inequality. But that was really short-
lived. Since 2000, what has happened is that productivity has
continued to grow at about 3 percent a year, but real wages for
the middle class have been stagnant from 2001 until 2005. And
the result of that, of course, is that we have the widening gap
again, and the gap between wages and productivity for middle-
income workers is now wider than at any time in the last 60
There are two main reasons, I think--or at least two
important reasons--for the disconnect between productivity
growth and wage growth. One is the decline in the real value of
the minimum wage. It's so low now that it really does not
provide a floor under middle-class workers. And the second is
de-unionization, making it difficult for workers to negotiate
for their fair share of a growing pie.
You know, labor markets were once viewed as an arena in
which employers and employees negotiated over the distribution
of the gains in our economy. But today, the labor market is
viewed as a tournament, a tournament with just a few winners
and lots of losers. CEO pay today is 262 times the average wage
of the average worker. So, that's what this tournament is all
The interests of multinational corporations no longer
coincide with the national interest in a growing middle class
and a strongly competitive domestic economy. Barriers to union
organizing have left many, many workers without effective
representation. If you think about a lot of the jobs where we
have growing employment--nursing assistants, assistant
teachers, we could go through a list if we had time--these are
jobs that are not footloose, they are not going to be
outsourced, they are in high demand, but they pay low wages.
And I think that the main reason for that is that workers do
not have representation to help them negotiate and to protect
them against the risk-shifting that Jacob Hacker has so
We've allowed our U.S. manufacturing capacity to be eroded,
and this has hurt both American competitiveness and the wages
of American workers. As Senator Enzi pointed out, in the last
few months we have finally, finally, after 5 years, seen an
increase in the real wage of middle-class employees. But
there's reason to think that these good times are likely to be
short-lived. The productivity growth that I just alluded to--
we've had the strong productivity growth for 10 years--this has
begun to slow. From the fourth quarter of 2005 and through
2006, we have seen a sudden decline in productivity growth, GDP
growth is slowing, and this makes it a really difficult
We face a lot of challenges, looking forward--the bursting
housing bubble, the trade deficit--I see I'm running out of
time, so let me just say that these challenges also provide us
with an opportunity to introduce 21st-century economic policies
that will level the playing field for our good employers,
especially our good small employers, and that will enable all
of us to share equally in a growing economic pie and American
[The prepared statement of Ms. Appelbaum follows:]
Prepared Statement of Eileen Appelbaum, Ph. D.
the great american disconnect
The U.S. economy has experienced tremendous growth in the last 30
years. American workers today produce 70 percent more goods and
services than they did at the end of the 1970s. There has been a
dramatic increase in women's paid employment--especially in the
employment of mothers of young children--as women have responded to
both increased opportunities and increased financial pressures on
families with greater attachment to the paid workforce. More women are
working and working more hours than ever before. Workers have generated
a huge increase in the size of the economic pie. As a country, America
is much richer than it was a generation ago.
There is a problem with this picture, however. The overwhelming
majority of American families haven't shared fairly in this bounty.
Workers' pay and benefits have lagged far behind the increase in
productivity. Families have struggled to make up the difference as
wives' hours of work increased--by about 500 hours since 1979 for
middle income married couples with children.\1\ Family work hours have
increased without benefit of affordable quality child care, paid sick
days and family leave, or greater control over work schedules. The time
squeeze on working families has grown sharper, especially now that baby
boomers face the need to help aging parents as well as care for
children. Despite working harder, America's families face greater
stress and economic insecurity. The challenges are especially severe
for single parent families, which today account for a quarter of all
families with children.
As America has grown richer, inequality has increased. In 1979, the
average income of the richest 5 percent of families was 11 times that
of families in the bottom 20 percent. Today, the richest 5 percent of
families enjoy an average income nearly 22 times that of families in
the lowest quintile. Together, the top 5 percent of families receives
more income than all of the families in the bottom 40 percent
combined--21 percent of total family income compared with 14
Americans know that this is unjust. They want their government and
this Congress to do what's right to make sure that their hard work is
rewarded fairly, and that they and their families face a more secure
left out as the good times roll
The growth of U.S. productivity (the output of goods and services
per hour of work) over the last 10 years has been remarkable. After
being mired in the doldrums for decades, increasing at an annual rate
of less than 1.5 percent a year from 1973 to 1995, productivity growth
has rebounded. Between 1995 and 2005, productivity grew at 2 to 3
percent a year, comparable once again to its growth rate during the
``golden age'' of American prosperity that spanned the years from 1948
to 1973.\4\ \5\ In that earlier notable 25 year span, both productivity
and real median family income doubled. Then, as productivity growth
slowed, the connection between productivity and family income that
created the great American middle class fell apart. Productivity
continued to rise between 1973 and 1995, though at a slower pace, while
real wages of many middle-class workers stagnated or even fell.
Families increased family hours of work just to stay even. Real median
family income rose just 10.5 percent over the two decades.\6\
But then in 1995, as companies learned to use computer-based
technologies effectively and the economy finally began to reap the
fruits of the IT revolution, productivity growth recovered, rising once
again at a 2 to 3 percent annual rate.\7\ In the boom years between
1995 and 2000, the cumulative increase in productivity was 13.2
percent. For the first time in more than two decades, real median
family income increased apace, rising by 11.3 percent over that half
decade and narrowing inequality ever so slightly as unemployment fell
to 4 percent and labor markets tightened.\8\
Optimism that the United States was returning to shared prosperity
began to take hold, but these hopes were soon dashed. Productivity
continued to rise strongly, growing at 3 percent a year between 2000
and 2005, but real median family income, which fell in the recession of
2001, failed to keep up. By 2005, real median family income still had
not recovered to its pre-recession level.\9\ \10\ Despite strong GDP
growth, low unemployment, and rising productivity, real wages have been
flat for the typical worker since 2001, and wage growth is once again
falling sharply behind productivity growth. Working families supported
consumption growth in the first half of the 2000s by spending faster
than income rose as the bubble in the housing market expanded and
housing prices surged. Personal savings fell from 2.9 percent of
disposable income in the first half of 1999 to -0.9 percent in the
first half of 2006.\11\ In contrast, corporate profits have been strong
as the economy has expanded in the 5 years since the recession ended,
rising rapidly since 2001 and squeezing total labor compensation.\12\
And the gap between the very richest families and the rest of American
families is widening once again.
Since 2001, a yawning gap has once again opened up between
productivity and real wages or compensation (see figure below). The gap
between hourly productivity and hourly compensation is at an all-time
high since these figures began to be tracked in 1947. At the same time,
labor's share of GDP is at an all-time low.\13\
The main reasons for this disconnect between wages and
productivity, despite strong productivity growth, are not difficult to
identify or to understand. The decline in the real value of the minimum
wage, which has not increased in nearly 10 years, has undermined the
floor supporting workers' wages while de-unionization left middle
income Americans with no bulwark against greed in the new ``winner-
take-all'' economy. Labor markets, once described as the arena in which
employers and employees negotiated the distribution of a growing
economic pie, is today viewed as a tournament, with few winners and
many losers. This winner-take-all economy is symbolized for Americans
by the unseemly increase in CEO pay--now 262 times the earnings of the
average worker.\14\ The countervailing forces that can defend the
interests of the many against the labor market power of the few are
weak. The consensus politics of the Keynesian model has broken down as
the interests of today's large multinationals no longer coincide with
the national interest in rising incomes, a growing middle class, and a
competitive domestic economy.
Unions are hard pressed to defend the wages and working conditions
of American workers. Less than 13 percent of workers (8 percent of
private sector workers) belong to unions today, down from 20 percent in
1983, the first year for which we have comparable union data.\15\ The
difficulties workers face in organizing unions, and the barriers unions
face in achieving a first contract even after winning a union election,
have left many workers without effective representation or voice in the
workplace. Since the 1980s it has become increasingly common for
employers to fire workers who are involved in organizing drives. The
penalties for engaging in this type of illegal behavior are
sufficiently small that employers who want to keep a union out can
chalk them up as a cost of doing business. The practice of hiring
replacement workers to take the place of workers on strike, rare before
President Reagan replaced the striking air traffic controllers in 1981,
has also become increasingly common. As a result, it has become
extremely difficult for unions to organize new workplaces or to protect
the wages, benefits and working conditions of their members.
This does not bode well for many workers who are working hard and
striving to achieve the American dream of economic independence, a
secure future, and a good life for their children. Many of the
occupations projected to experience large increases in the number of
employees over the next 10 years--retail sales persons, food prep and
serving workers, cashiers, janitors and cleaners, waiters and
waitresses, nursing aides and orderlies, office clerks, teacher
assistants, home health aides, personal and home care aides, and
landscape workers \16\--are not footloose and cannot be outsourced. Yet
despite high demand for workers in these occupations, many of these
jobs pay low or very low wages. The reason for this lies, in large
part, in the lack of a countervailing force to companies--blind, and
often counterproductive, pursuit of profit. Low membership density
makes it difficult for unions to provide effective resistance as
employers shift the burdens and the risks of an uncertain marketplace
onto their most vulnerable employees while claiming any payoffs in the
marketplace for themselves.
The disdain for manufacturing over the last decade and the
accelerated erosion of America's manufacturing capacity in the past 5
years have also had deleterious effects on union membership and
employee earnings--as well as on America's national competitiveness.
U.S. multinationals dominate the global economy, but our Nation's
ability to compete in world markets has been seriously eroded. Demand
for manufactured goods remains strong in the United States, but the
share of demand met by domestic manufacturing has fallen sharply, from
about 90 percent a decade ago to about 75 percent today.\17\ Our
negative trade balance in goods and services has grown so large that
even the IMF is concerned that it now threatens the stability of the
No one should have any illusions that manufacturing employment can
increase dramatically--strong productivity growth in this sector is a
large part of the argument for maintaining manufacturing capacity in
the United States. Nevertheless, the steady loss of American
competitiveness in manufacturing over the last decade and our
ballooning trade deficit in manufactured goods since 2000 have resulted
in the loss of many more manufacturing jobs than would be dictated by
productivity growth. A third of the drop in manufacturing employment is
due to the increase in the share of domestic demand for manufactured
goods filled by imports.\18\
Thus for nonsupervisory workers (production workers and nonmanagers
in services), strong GDP and productivity growth in the United States
following the recession and the tragic events of 2001 have not
translated into higher earnings or greater family economic security.
Instead, inequality has increased, and the benefits of growth have gone
overwhelmingly to the richest families. Productivity grew by 2.3
percent during 2005, but the real median earnings of both men and women
who worked full-time, year-round declined, by 1.8 percent for men and
1.3 percent for women.\19\ The increase in real median income of all
family households was just 0.2 percent ($99 increase in real annual
income) and of married-couple households was also 0.2 percent ($121
increase in real annual income).\20\ The economic prosperity enjoyed by
American corporations and wealthy families during the first half of the
current decade passed most Americans by.
For the middle class, it is only in the past few months that the
good times finally seemed to begin to roll. Hourly real wages of
nonsupervisory workers began, at last, to increase in 2006, rising 4.2
percent in nominal terms or more than 2 percent in real terms. Family
income figures are not yet available for 2006, but it is likely that
real median family income may finally, 5 years after the end of the
recession, recover to its pre-recession level.
Yet this increase in middle-class wages and family income is likely
to be short lived. The 2.3 percent productivity growth in 2005
represents a sharp fall off from the 3.1 percent growth experienced in
2004--almost entirely the result of the sharp slowdown in productivity
growth that began in the fourth quarter of 2005 and continued through
2006. Final productivity growth figures for 2006 are not yet available,
but they are likely to be quite weak--about 1.5 percent.\21\ This
creates a more difficult situation in which to sustain real wage and
income growth for the middle-class workers and families.
clouds gathering on the horizon
Decelerating growth in GDP and an even sharper slowdown in the rate
of productivity growth has raised the specter of a slowdown in the
economy in 2007. Indeed, the U.S. economy faces two major economic
challenges that threaten the economic security of American workers. The
recent slowdown in the housing market and the turnaround in the rapid
run-up of home equity values have already taken a percent or more off
GDP growth in 2006, and will be even more of a drag in 2007. The
correction to our ballooning trade deficit, when it comes, will result
in rising prices at Wal-Mart and elsewhere and declining real wages for
American workers. It may even lead to rising unemployment and a return
to high readings on the misery index, which measures the impact of
inflation and unemployment on the lives of ordinary people.
The current economic expansion has been fueled to a large extent by
the housing bubble. Housing prices, which historically have tracked the
overall rate of inflation, rose by more than 50 percent above the rate
of inflation between 1997 and 2006. The housing bubble contributed
directly to economic growth through its direct effect on home
construction and the housing sector.\22\ \23\ The run-up in housing
prices also increased housing wealth, and contributed indirectly to a
growing GDP through the impact of housing wealth on consumption. The
Congressional Budget Office estimates that the rise in home prices
above the rate of inflation added $6.5 trillion to consumer wealth
between mid-1997 and mid-2006, adding between $130 billion and $460
billion a year to consumer spending over that period.\24\ The notion
that home owners have used the equity in their homes as their personal
ATM machines is borne out by the data on borrowing by homeowners
against the equity in their homes. Withdrawal of mortgage equity rose
from 3 to 4 percent of disposable personal income before 1997 to a peak
of 11 percent at the start of 2005.\25\ Homeowners were borrowing more
than $600 billion annually against their home equity by 2005.\26\
Two groups of workers will feel the shock of lower home prices more
severely than most. Workers approaching retirement with inadequate
savings, who planned to use the equity in their homes to finance their
retirements, now face financial insecurity. Homeowners will also be hit
by the resetting of more than $2 trillion in adjustable rate mortgages
(ARMs) in 2006 and 2007.\27\ Some will be able to refinance their homes
at favorable rates. But those who borrowed in the subprime mortgage
market and purchased homes at inflated prices now stand to lose
everything if they are unable to make the higher mortgage payments and
unable to sell their homes at prices that cover their outstanding
The decline in housing values has already begun to be felt.
Consumption growth slowed in the second and third quarters of 2006
reducing the overall growth rate of GDP. This negative effect on GDP is
likely to become more important for the economy in 2007, slowing
economic growth and perhaps even leading to recession.
The second challenge to continued American prosperity comes from
the rapid and accelerating growth in the trade deficit in the past 5
years, which is becoming unsustainable and threatens to lead to a
disorderly decline in the exchange value of the dollar.\28\ The United
States is consuming substantially more than it produces, borrowing
abroad to finance this spending, and amassing a very large level of
debt in the process. A disorderly return to balance has the potential
to inflict significant damage on the U.S. economy and on America's
working families. Grave dangers for American workers are lurking in a
trade deficit that, at well over $700 billion, is now nearly three
times the size of the Federal budget deficit and growing. With the
trade deficit now above 6 percent of GDP, the risks of a drastic and
unruly decline in the exchange value of the dollar have increased.
Reducing the trade deficit to a more manageable 2 to 3 percent of
GDP won't be easy.
The hard landing scenario is one in which there is a sudden plunge
in the dollar \29\ against foreign currencies. In the absence of any
steps to increase manufacturing output and exports, the drop in the
dollar would have to be quite steep--at least 20 percent and perhaps as
much as 40 percent--to improve the trade balance to the point of
sustainability. A rapid drop of that magnitude will create serious
inflation and reduce workers' living standards. Interest rates and
prices will rise and workers' real wages will fall, lowering
consumption and investment, and reducing imports.\30\ The likely result
of ignoring the ballooning trade deficit is a decade of lost jobs,
bankrupted businesses, and reduced living standards.
The situation will be made even worse if the Federal Reserve
responds by raising interest rates in a misguided effort to reduce
inflation. The Fed's anti-inflation policies lead to rising
unemployment and falling wages, and hit low- and middle-income workers
The soft landing scenario is one in which the United States finds a
way to increase exports without a drastic plunge in the dollar. While
the dollar will have to fall and U.S. workers are likely to experience
some decline in living standards, the effects can be mitigated if we
negotiate an orderly decline in the exchange value of the dollar
against these currencies, and especially with China. Equally necessary
are domestic policies to rebuild U.S. manufacturing capacity via
domestic investment in the production of innovative or high value-added
products sooner rather than later. An increase in the production and
export of manufactured products would accomplish the rebalancing of
trade with a smaller depreciation of the dollar, and without the loss
of jobs and reduction in living standards that are the likely result of
thinking about what america can be
As we have argued, America's working families face a number of
Seventy percent of families are headed by dual earner
couples or by a single parent; only 30 percent fit the Ozzie and
Harriet mold today.\31\ Workers urgently need to be able to take care
of their families--their aging parents and spouses as well as their
children--while meeting their responsibilities as employees. Families
need to take responsibility, but they can't manage this alone. We need
policies to create a workable balance for employers and employees.
The gap between productivity growth and wage growth is
wider today than ever. Even with the increase in the number of mothers
who are working, and working more hours, real median family income has
risen slowly. There has been a steady shift of income from wages to
profit and from low- to high-income earners. Workers need a floor under
wages in the labor market, and they need the right to form unions to
represent their interests in negotiations over employment standards and
the distribution of the rewards from productivity and GDP growth.
Health care costs are rising rapidly, putting downward
pressure on workers' wages and burdening employers. Employer health
insurance costs are about the same for high and low-wage earners, but
they are a much larger fraction of compensation for low- and middle-
income earners than for high earners. Increasingly, employers find the
soaring costs of health insurance unaffordable for these employees.
Increasing numbers of workers find themselves shouldering the rising
health care costs or denied employee-sponsored health insurance
entirely. Sixteen percent of people in the United States (46.6 million
people) are without health insurance.\32\
The deflating housing bubble is likely to reduce
consumption and increase economic insecurity among middle- and lower-
income households. This is especially worrisome for workers in the pre-
retirement years who may have been counting on the equity in their
homes to provide retirement income security. It is equally disturbing
that many lower income families were lured by banks and mortgage
lenders into home ownership and subprime mortgages with the promise of
a risk free path to wealth accumulation and a piece of the American
dream. But it is not only homeowners who bought at the top of an
inflated market or face a sudden increase in their monthly mortgage
payment as their ARM expires who are at risk. The entire country faces
slower economic growth, the threat of rising unemployment, and possibly
The country faces an accelerating run-up in the trade (and
current account) deficits, on pace in 2006 to exceed the record $717
billion trade deficit of 2005 for a fifth record year and to surpass 6
percent of GDP.\33\ This is simply unsustainable. A reduction in the
U.S. trade deficit will require a decline in the exchange value of the
dollar against China and a host of low-wage countries. While this is a
necessary precondition for U.S. exports to increase rapidly, it has the
unwanted side effect that it raises the price of imported goods,
bringing inflation with it. This rise in prices reduces the real wages
of workers, especially those in the middle and low end of the wage
distribution. The larger danger is that the Fed will respond by raising
interest rates in a misguided effort to control inflation, putting the
jobs as well as the wages of less-educated workers at risk. Such policy
carries the risk of turning a necessary adjustment in America's trade
position into a serious threat of recession and stagnation.
But these challenges can also provide opportunities to update the
legal environment and put in place labor market policies for the 21st
century. Despite the popularity with the public of many of the
policies--policies that establish minimum employment standards, reduce
the stresses on working families, and support their efforts to meet
their care and work responsibilities--a work and family policy agenda
has not gained the necessary traction with politicians and
policymakers. In the context of a ballooning trade deficit and a
deflating housing bubble, however, it has become clear that these are
policies that can also provide a bulwark against the potential risks
that threaten the stability of the economy itself and can sustain
growth and prosperity.
Working families and the businesses that employ them need policies
that support employees in their roles as worker and care giver; that
make the domestic economy more competitive, and that sustains growth
and prosperity. There is more economic risk, fewer economic buffers,
and less economic security in our new, fast changing, and more global
economy. We need policies for this new economy that enable all of us to
thrive and prosper.
The 110th Congress is off to a great start in its first 100 hours.
The House has already passed the Fair Minimum Wage bill to increase the
minimum wage to a more realistic $7.25 an hour by 2009. The Senate must
do the same and more. The minimum wage should be indexed to the average
wage of workers, so that it doesn't take an act of Congress for low-
wage workers to get a raise.
Workers need a greater voice at work and the right to form unions
if they so desire. For all practical purposes, employers today face no
restraint on their ability to fire workers for organizing a union. The
Employee Free Choice Act would enable workers to form unions by
requiring employers to recognize a union once a majority of workers
sign cards authorizing union representation. It would also provide for
mediation and arbitration of first contract disputes and would impose
stronger penalties on unlawful behavior by employers.
Businesses and workers both need a better and more cost effective
way of providing health insurance to everyone in America. Health care
costs as a share of GDP are higher in the United States than in other
countries, yet we cannot boast of superior health outcomes. Too much of
our health spending is tied up in administrative costs, too many people
in America lack health insurance, and too many companies are struggling
to compete while bearing high employee health costs. As our population
ages, we need to improve access to affordable quality services that
allow the elderly to live in dignity in their own homes or to be cared
for in assisted living or nursing homes.
Working families need time to care for loved ones without risking
their jobs. Most families are squeezed for time, and workers need
greater control over work hours and work schedules. All employees need
a minimum number of paid sick days so they can stay home when they or
their child has the flu, and not infect co-workers or school mates.
They need a minimum number of hours of paid time off for small
necessities--a visit with a child's teacher, to take an elderly parent
to a doctor's appointment. They need temporary disability insurance and
family leave insurance so they can draw partial wage replacement when
they need to take time off for their own serious illness, to care for a
seriously ill family member, or to bond with a new child. No one should
ever have to face the impossible choice between a paycheck and caring
for a seriously ill family member.
Preparing our children to grow up as healthy, happy individuals and
to succeed as workers in the new 21st century economy means we must pay
more attention to their needs. Children (and their parents, whether
working or not) need access to affordable, quality child care;
universal pre-K; and for older children, exciting and stimulating
after-school care, sports, arts and summer programs. We need to invest
more in K-12 education, and provide young people with multiple
opportunities for postsecondary education or training.
Enacting a working families' agenda will better equip workers to
shoulder the risks of a dynamic and rapidly changing economy. It will
also buffer all workers against the worst effects of the bursting of
the housing bubble or a disorderly decline in the dollar as global
payment imbalances adjust. The American economy holds great promise for
a prosperous 21st century. We need 21st century policies to assure that
all workers will share in that prosperity.
1. Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The
State of Working America 2006-2007, Chapter 1, Washington DC.: Economic
Policy Institute Advance Copy, September 2006, Chapter 1.
3. U.S. Census Bureau, Income, Poverty, and Health Insurance
Coverage in the United States: 2005, accessed at http://www.census.gov/
prod/2006pubs/p60-231.pdf on January 10, 2007.
4. William Nordhaus, The Sources of the Productivity Rebound and
the Manufacturing Employment Puzzle, NBER Working Paper 11354,
Cambridge, MA: NBER, November 2005.
5. Bureau of Labor Statistics, Productivity news release, December
5, 2006, accessed at http://www.bls.gov/news.release/pdf/prod2.pdf on
January 11, 2007.
6. Mishel et al., op. cit.
7. Eileen Appelbaum, Thomas Bailey, Peter Berg, Arne Kalleberg,
Manufacturing Advantage: Why High Performance Systems Pay Off, Ithaca,
NY: Cornell University ILR Press, 2000.
8. Mishel et al., op. cit.
9. Bureau of Labor Statistics, Productivity news release, December
5, 2006, accessed at http://www.bls.gov/news.release/pdf/prod2.pdf on
January 11, 2007.
10. U.S. Census Bureau, Income, Poverty, and Health Insurance
Coverage in the United States: 2005, accessed at http://www.census.gov/
prod/2006pubs/p60-231.pdf on January 10, 2007.
11. Dean Baker, Recession Looms for the U.S. Economy in 2007,
Washington, DC.: Center for Economic and Policy Research, November
12. A. Sum, P. Harrington, P. Tobar, I. Khatiwada, The
Unprecedented Rising Tide of Corporate Profits and the Simultaneous
Ebbing of Labor Compensation in 2002 and 2003, Boston: Northeastern
University Center for Labor Market Studies, 2004.
13. Arindrajit Dube and Dave Graham-Squire, Where Have All the
Wages Gone? Jobs and Wages in 2006, Berkeley, CA: UC Berkeley Institute
of Industrial Relations, August 2006.
14. Economic Policy Institute, ``Facts and Figures: Wages.''
Washington, DC.: EPI, 2006.
15. Bureau of Labor Statistics, ``Union Members Summary,'' January
20, 2006, accessed at http://www.bls.gov/news.release/union2.nr0.htm on
January 10, 2007.
16. D.E. Hecker, ``Occupational Employment Projections to 2012,''
Monthly Labor Review, February 2004, pp. 80-105.
17. L. Josh Bivens, Shifting Blame for Manufacturing Job Loss,
Washington, DC.: Economic Policy Institute, 2004.
18. Bivens, op. cit.
19. U.S. Census Bureau, Income, Poverty, and Health Insurance
Coverage in the United States: 2005, accessed at http://www.census.gov/
prod/2006pubs/p60-231.pdf on January 10, 2007, Table A2.
20. U.S. Census Bureau, Income, Poverty, and Health Insurance
Coverage in the United States: 2005, accessed at http://www.census.gov/
prod/2006pubs/p60-231.pdf on January 10, 2007, Table 1.
21. Bureau of Labor Statistics, Productivity news release, December
5, 2006, accessed at http://www.bls.gov/news.release/pdf/prod2.pdf on
January 11, 2007.
22. Baker, op. cit.
23. Congressional Budget Office, Housing Wealth and Consumer
Spending, Washington, DC.: CBO, January 2007.
24. Congressional Budget Office, op. cit., p. 7.
25. Ibid., Figure 3, p. 10.
26. Baker, op. cit., p.2.
28. Catherine L. Mann, ``Breaking Up Is Hard To Do: Global Co-
Dependence, Collective Action, and the Challenges of Global
Adjustment.'' Focus. CESifo Forum:
1/2005, accessed at www.petersoninstitute.org/publications/papers/
29. C. Fred Bergsten, ``The Risks Ahead for the World Economy,''
31. Mishel et al., op. cit.
32. U.S. Census Bureau, Income, Poverty, and Health Insurance
Coverage in the United States: 2005, accessed at http://www.census.gov/
prod/2006pubs/p60-231.pdf on January 10, 2007, Table A2.
33. U.S. Census Bureau, International Trade in Goods and Services,
Highlights, January 10, 2007, accessed at http://www.census.gov/
indicator/www/ustrade.html on January 12, 2007.
The Chairman. Thank you. Thanks very much.
Everyone's very attentive to the time. That was a pattern
set by our former chairman here, Senator Enzi.
Reverend Forbes, we thank you and look forward to your
STATEMENT OF REV. DR. JAMES ALEXANDER FORBES, JR., SENIOR
MINISTER, THE RIVERSIDE CHURCH, NEW YORK, NY
Mr. Forbes. Thank you very much, Chairman Kennedy and
Senator Enzi, and members of the committee, for the privilege
to be here to bring a word from the religious perspective on
the issues you are concerned about day by day.
It may come as a surprise to some of you that there is at
least one thing that unites those of us who are, within my
tradition--I am a Christian--whether they are on the right or
the left, they all recognize that, in regards to the founder of
our faith, the opening statement about what a ``mission'' was
had to do with poverty, so that Jesus' first sermon in a
synagogue was, ``The spirit of the Lord is upon me, because he
hath anointed me to preach good news to the poor,'' which
suggests that at least with all of the division, our people
recognize that, if we are faithful to our calling, it will
involve some good news to the poor. In regards to work, to
labor, to wages, and standard of living, the poor are actually
in the emergency room in our Nation.
And I would like to suggest that it is not only the right
and the left of the Christian community within my Protestant
tradition. In 1987, the bishops--the Catholic bishops produced
what is a pastoral letter on economic justice in which, once
again, they suggested that there's no way any of us are going
to get into heaven unless the Lord is grading on the curve in
regards to that matter. And I also work with the Partnership of
Faith, in New York City--Protestants, Catholics, Jews. All of
my colleagues recognize that the issue of poverty will
determine whether or not we can hold up our heads when we claim
that there is some advantage in having a faith perspective
rather than simply a secular outlook.
In fact, a year or so ago, it was the time when the Dalai
Lama invited representatives from all over the world to my
church, The Riverside Church, and they read scriptures from
their sacred text. Twelve major religions read, and it all
boiled down to the Golden Rule, ``Do not unto others that which
you would not wish them to do unto you,'' or, ``Do unto others
as you would have them do unto you.'' So, there's no question
that the call of faith is to pay attention to the poor.
Now, when I go to work in my church, I'm supposed to
preach. But throughout the week, I go into that door at
Riverside and there are about 75 or 80 people every morning
that the food pantry is open, waiting with bags, to pick up
just enough to live. There's the clothing bin. We've got people
coming to get something to help in the midst of the wintry
weather. We go downstairs, and then there's the shower
project--men, no place even to take a bath--so, soap and towels
are prepared. But, when I go upstairs to my office, I may also
find middle-class people who are there to tap into our
innkeepers fund, because more middle-class in the last 10 years
have come to say, ``You know, I've had a streak of bad luck,
and what I'm finding is that next week I'm supposed to be
evicted.'' And we've promised that we will stand with these
people. We understand the soup kitchen and the clothing bin and
the food pantry, but increasingly in New York we talk about the
vanishing middle class.
We do have a very serious crisis. During the presidential
campaign of the last go-round, Paul Sherry, of the National
Council of Churches, Jim Wallace, myself, and others, traveled
all across the country trying, both with Democrats and
Republicans, to get the issue of poverty on the agenda. It was
very difficult. Every now and then, we'd get a squeak.
What we are aware of now is that we are facing, hopefully,
a cessation, some kind of withdrawal from the war, but the
shrapnel from the war is going to manifest itself, and,
somewhere or another, budgetary adjustments are going to have
to be made on account of the expenditures. It has been,
traditionally, the case that budgets are balanced on the backs
of the poor. We understand that that is immoral.
Therefore, the challenge before us is, How can we define
what American is? Does it include that the poor of the land
will receive our care? For they are citizens, too.
[The prepared statement of Mr. Forbes follows:]
Prepared Statement of Rev. Dr. James A. Forbes, Jr.
Good Morning Chairman Kennedy, Senator Enzi, and members of the
committee. My name is James Forbes and I am the Senior Minister at The
Riverside Church in New York City. I thank you for the opportunity to
come here today and talk to you about an issue that is at the heart of
my mission and ministry--poverty and inequality in America.
Riverside Church is in the heart of New York City. It gives us a
unique viewpoint on the problems of modern society. In the city, the
inequalities of our Nation stand in sharp contrast. The ivy towers of
Columbia University are just a few blocks from soup kitchens. The shiny
windows of Trump tower look down on the homeless men and women on the
sidewalk grates below.
But it's not just New York City. The gap between the haves and the
have-nots is widening all across the country. More and more of our
Nation's wealth is going to those at the top of the economic ladder,
while those at the bottom are sliding further and further down. As a
result, we've got 37 million people living in poverty today. The
poverty problem is particularly acute for women and children. Almost 50
percent of young children who live in households headed by women live
These are working people--many full-time workers--who are unable to
lift themselves and their families above the poverty level. I am not
talking about extravagant living. I'm talking about being able to put
food on the table, a roof over your head, and clothes on your back.
The Good Book would remind us that poverty and inequality aren't
just economic issues--they're moral issues. And we shouldn't be scared
to talk about them as such. We are a nation of diverse faiths, but one
tenet that underlies every religion I know is that the exploitation of
the poor to profit the rich is wrong; it's a sin.
In my faith tradition, based on both of the Biblical testaments,
how we respond to the needs of the poor defines the quality of our
relationship to God. It is for this reason that poverty is a moral and
spiritual issue. The prophet Isaiah in Chapter 58 reminds his people
that true religion demands that we feed the hungry, clothe the naked,
and provide shelter for the homeless poor. The 25th chapter of
Matthew's gospel informs us that the gates of heaven will be closed to
those who are indifferent to the poor, and the voice of the Lord will
say, ``Go away!''
``For I was hungry and you gave me no food; I was thirsty and
you gave me nothing to drink; I was a stranger and you did not
welcome me; naked and you did not give me clothing, sick and in
prison and you did not visit me.'' And when you ask, ``When was
it I saw you hungry or thirsty or a stranger or naked or sick
or in prison and did not take care of you, then the Lord will
answer, ``Truly I tell you, just as you did not do it to one of
the least of these, you did not do it to me.''
We are a nation that likes to talk about family values, but too
often the morality of our economic policy is left out of this
discussion. It is wrong that our economy is growing but hard-working
people cannot afford to put food on the table or heat their homes. It
is immoral to give tax cuts to the wealthy while working families are
living in poverty and 14 million children go to bed hungry each night.
If God were our consultant about economic reality, would God say
``Well, what can I say? It's a free enterprise system. Let it work, and
everything will be all right?'' No. The truth is the invisible hand of
the market needs to be balanced by another hand: that of justice,
mercy, compassion, and concern for the common good.
We need to be talking about poverty and the profound effects it has
on people's lives. I have always said that poverty is a weapon of mass
destruction, and I see every day the devastating effects it has on the
lives of people in New York and throughout this great Nation.
In our church, we make provisions for the poor with our food
pantry, clothing service, shower project for the homeless, and an inn-
keeper's fund for those facing imminent eviction. In addition to those
who sadly have grown accustomed to marginal existence, there are
increasing numbers of middle class people among us who suffer personal
problems or face health crises, so that they also live on the threshold
of financial disaster and the collapse of their way of life. One bad
break can lead to a broken life.
Churches and people of good will need to stand ready to respond to
people in their hour of crisis. But what is needed in a just society is
a social system which works constantly to reduce the vulnerabilities of
the socially and financially challenged. In fact, too often government
is making their lives harder. We're denying people public assistance,
telling them that they need to work, but there aren't enough jobs, or
enough open slots in job training programs. And those who are lucky
enough to find a job still can't support a family on poverty wages. The
recent action of the House is good news, but even when we pass the
legislation increasing the minimum wage, we will be a decade behind.
Millions of people in this country go to work every day--choosing work
over welfare--but don't get paid enough to keep their families out of
poverty. Mr. Chairman, I don't have to tell you that's an outrage.
But raising the minimum wage is only the first step--it's a baby
step. There's so much more we need to do to make it the norm that
workers will have a living wage.
Now, everybody may not be desperately trying to get into heaven,
but what about making the world a little bit more like heaven by
committing ourselves to the elimination of extreme poverty and making
equality of opportunity a reality in living color?
I remember in the 1980s hearing Ronald Reagan talk about the
``silent majority'' of Americans. I too have seen a silent majority of
Americans, and I am here to give them voice. They are poor. They are
struggling. Even in this Nation of plenty, they are scared about what
will happen tomorrow and how they can provide for their families. I can
assure you that God cares about them. This government should too.
One is surely a victim of spiritual impoverishment if one doesn't
get the message of this ``Parable of Utter Impoverishment'':
And I saw a great exodus from New York City.
All the bridges, tunnels, and piers were jammed with the
And as they walked or limped along, they pushed their carts
of precious little things.
And when the poor had all departed,
God looked around and saw that they who remained in the city
now breathed a sigh of relief.
They could enjoy their precious little things in peace,
without the burden of care for the destitute and the poor.
Then God, in deep sorry and tender compassion, began to
gather God's precious little things so God could journey with
those who had been cast from the city.
And it came to pass, that when God had gathered up the
sunlight and rain, the seed-bearing earth, and the life-giving
God wept over the city and departed, pushing God's own cart
of precious little things.
And New York City was no more.--James A. Forbes, Jr., 2006
Again, I appreciate the opportunity to address you all today, and I
look forward to your questions.
The Chairman. Very good.
Anna Cablik, thank you for being here.
STATEMENT OF ANNA CABLIK, ANATEK, INC., MARIETTA, GA
Mrs. Cablik. Good morning, Chairman Kennedy, Senator Enzi,
and all the Members of the Health, Education, Labor, and
Pensions Committee. It is, indeed, an honor for me to be here
Before I begin, I want you to know a little bit more about
me. I am a proud American, but I was born and raised in the
Republic of Panama. It was in Panama that I got an education in
medical technology at the Canal Zone College. After I
graduated, my husband and I moved to Atlanta, Georgia. Once
settled in Atlanta, I took a job at Piedmont Hospital. Two
years later, I left the work for a construction material supply
company. I started in that company just as a clerk, but, in 7
years, I rose to vice president. In 1982, I began my own
contracting company, ANATEK, Inc., which specializes in highway
bridges. This May, ANATEK, Inc. will celebrate its 25th
My second company, ANASTEEL & Supply Company, was created
in 1994, and it is the only Hispanic female-owned reinforcing-
steel fabricator in the Southeast, and possibly the United
In 1989, I was honored to be named Hispanic Businesswoman
of the Year by the Hispanic Chamber of Commerce. In 1997, I
received the Pacesetter Award from the National Association of
But, most of all, I am proud of the fact that I have been
married 32 years and my husband and I have raised three
wonderful and successful sons.
In thinking about what I would like to share with you
today, it occurred to me that, in many ways, my businesses are
like my second family. Just as I take pride in my children, I
take pride in my businesses. And just as I have
responsibilities to my family, I also have responsibilities to
my over-100 employees.
Over the years, I have often faced difficulties providing
all I wanted to provide for my family. In the same way, I have
faced difficulties in providing everything I wanted to, and
need to, provide for my employees. In both instances, I have
been able to do so, and I believe I know what it takes.
In the case about my family and my business, my ability to
provide does not come out of thin air. Nobody gives you that
ability. Nobody, and no government, can mandate that you have
it. What enables me to provide for my employees is simple, it
is the financial success and competitiveness of my business.
Anything that makes my business more competitive and allows my
business to grow enables me to provide good wages and benefits
for my employees. Everything that detracts from that not only
hurts my business, it hurts everyone who works there.
Fortunately, our economy has been strong and my businesses
have grown. That has enabled me to provide competitive and
increasing wages, steady work, and benefits, like insurance,
profit-sharing and leave policies that treat my employees as
individuals, not numbers. Successful business people all know
that their workers are their most valuable asset. Our
businesses are not any better than the people that work for us.
No successful business owner wants to provide wages and
benefits that are substandard. That is a myth. The truth is
that businesses want to pay the most competitive wages and
benefits they possibly can. That is the only way to attract and
retain the quality employees that guarantee our success as a
business. Business owners who think differently do not succeed.
I know firsthand that small-business owners, more than any
others, feel the rising cost of government regulation and
procedures. The employer mandates you enact, whether they are
well-intentioned or not, cost money. And those costs hurt my
ability to provide for my employees. Likewise, I know that
employees are squeezed by expenses, such as the cost of
healthcare, but employers feel the exact same squeeze. Rather
than new laws that impose new mandates and costs, reduce
employers' ability to pay wages and benefits, I think that laws
which would make health insurance more affordable will be a far
better approach. Rather than laws that make our business less
competitive in the global market, I think we need to look for
ways that help us meet these challenges and keep our workforce
as well-trained and skilled as possible.
Senators, as you can see, I am not an economist and I am
not an expert, but I do believe I know something about both
opportunity and security. The America I know is, indeed, the
land of opportunity. There are no limits to the success that
any individual in this country can enjoy. I came with nothing,
and I made it. I believe I am living proof of this American
dream, and there are no secrets to my success. I have worked
hard and played by the rules. I still tell people I work half
days, 7 a.m. to 7 p.m.
In closing, economic security is not something that
politicians can grant, it is something that people must get for
themselves. When it comes to job security, every one of us is
in the marketplace. We need to do everything we can by the way
of training, education, and interactions to--with others that
make us a valued commodity in the employment marketplace. I
believe that is the real source of security in the real world.
Thank you. And I will be happy to answer any questions you
[The prepared statement of Mrs. Cablik follows:]
Prepared Statement of Anna R. Cablik
Good morning Chairman Kennedy, Senator Enzi, and all the Members of
the HELP Committee. It is an honor for me to be with you today.
Before I begin, I want you to know a little about me. I am a proud
American, but I was born and raised in the Republic of Panama. It was
in Panama that I got an education in Medical Technology at the Canal
Zone College. After I graduated, my husband and I came to live in
Once settled in Atlanta, I took a job with Piedmont Hospital, only
to leave 2 years later to work for a construction materials company. I
started in that company as a clerk, but in just 7 short years, I rose
to Vice President. In 1982, I began my own contracting company, ANATEK,
Inc., which specializes in highway bridges. This May, ANATEK will
celebrate our 25th anniversary. My second company, ANASTEEL & Supply
Company, LLC was created in 1994 and is the only Hispanic female-owned
reinforcing-steel fabricator in the Southeast.
In 1989, the U.S. Hispanic Chamber of Commerce named me Hispanic
Businesswoman of the year. In 1997, I earned the Pacesetter Award from
the National Association of Minority Contractors.
Of course, I am most proud to say that I have been married 32 years
and, together, my husband and I have raised three sons. In thinking
about what I wanted to share with you today, it occurred to me that in
very real ways, I run my businesses similarly to how I run my family.
In fact, I often have to spend more time with my business family. Just
as I have my three sons, I have over 100 employees.
Certainly, over the years, I have faced difficulties providing all
that I wanted to provide for my family. In the same way, it is equally
difficult to provide everything I want to provide for my employees.
Small business owners are the first to feel the impact of the rising
cost of governmental regulation. Additionally, we are in the difficult
position of having to absorb, as best we can, the rising costs of
health care. But we also have to ensure that our increased costs do not
make our product noncompetitive. This is often a difficult balance, not
one where there is a one-size-fits-all solution, and one made even more
difficult by the added burdens of costly regulation and red tape.
As someone who must make payroll week after week, I am aware of the
escalating cost of insurance and other benefits and must also deal with
the costs imposed on me by government regulation. The more I spend on
red tape and regulations, the less I have for other items. That's just
I also know that as a business person who must compete for work
every day, there is no such thing as absolute economic security. The
only real security in my business is the quality of the work I provide
for my customers. I must be competitive, and I must be current. That
requires that I continue my education in my business and ensure that my
employees do as well.
Senators, as you can see, I am not an economist or an expert, but I
do believe I know something about opportunity and security. I am here
to tell you that the American Dream is not dead. There are no ``two
Americas.'' America is not on a ``steady drift toward a class-based
The America I know is indeed the Land of Opportunity. There are no
limits to the success that any individual in this country can enjoy. I
believe I am living proof of that. There is no secret to my success. I
have worked hard and played by the rules.
Thank you and I am ready to answer any questions you may have.
The Chairman. Thank you very much. Enormously impressive
accomplishment and achievement, and I--you're certainly to be
commended. It's an extraordinary success story, and we thank
you for sharing it with us.
This morning we've outlined some of the trend lines. We
didn't get to where we are overnight, we're not going to get
out of it overnight. I think everyone gave us a pretty good
idea about what's really happening out there. I think there's a
general--always a general kind of a sense that the impoverished
in the country, where the--necessarily, the most unskilled came
from the circumstances of poverty. At different times, we had
different kinds of programs to try and deal with these issues.
I think you've all outlined a different type of insecurity.
Professor Hacker I was most distressed in your--either your
statement or in your book, when you talked about--I was deeply
disturbed to read your finding that ``nearly half of all
American children will live at least one year of their lives
below the poverty line.'' That's a rather startling figure, I
think, for most people. To think that half of all the children,
American children, will live, with all of its implications, of
health, educational, and other kinds of challenges that these
children will be facing.
I'd be interested to hear from each of you, if you had just
two or three things that we ought to focus on, what would be
the areas of greatest focus? I know all of these are
interactive. I mean, we've got to have a house, you've got to
have an education, you've got to have health, you've got to
have a job, you've got to have childcare. You know, I mean,
most of us would think in those terms. But are there some
things that you think particularly stand out that we ought to
begin to try? We're not going to be able to do all of these
kinds of issues, but maybe we can start to prioritize some of
these areas and begin to do it in a systematic way to try and
make some kind of difference. I'd be interested in the panel's
We'll do 6-minute rounds.
Ms. Appelbaum. Okay, I'll start.
Well, I think that one of the things that we have to
recognize is that a big part of the growing economic pie is due
to the increased employment of women, the increased hours of
work, and especially the increased hours of work of mothers.
Seventy percent of our families are either dual-earner families
or they're single-parent families, and this, I think, is a
large part of the stress that families are feeling. And so, we
need to think about what are the kinds of policies and
practices that would most benefit these working families. I
think what everybody wants is to be able to take care of their
family responsibilities and also to be good and productive
employees. I think that that's really what every person who's
in the workforce would like to be able to do. And we need to
think about what it would take to make that possible.
And I agree with the last panelists, that some of these
things are beyond the ability of individual employers to
provide. That's why we need to think about social insurance the
way we think about unemployment insurance. It's a real burden,
for employers and for employees, that health insurance in this
country comes through your job and not through the fact that
you're a citizen or a resident of this country, as is true in
most of the rest of the industrialized world. And if we think
about the work/family pressures, I think it is also really
difficult to expect employers to be able to provide their
employees with family leave insurance, with--even if it could
be bought; I don't believe such insurance exists in the market,
but it would be extremely expensive and extremely difficult for
individual employers to provide family leave insurance, medical
leave insurance, where people might be out, to have a baby, for
6 or 8 weeks. I think this would be a burden on American
companies, and especially on those that are employers of large
numbers of women. Think about hospitals, for example, or retail
I think that we need to handle these kinds of things
through social insurance. We already do this in my own State of
New Jersey. We've had paid medical leave since the 1940s.
There's no uprising of employers against it. In fact, it's a
blessing to employers. You have an employee who is going out on
maternity, you do not have to have disability insurance in the
State of New Jersey, because every workers is entitled to
temporary disability insurance, has paid medical leave for
their own medical emergencies and necessities. We're moving
towards family leave insurance in New Jersey. It will cost 25
cents a week for a low-wage worker. It will max out at about
$1.80 a week for workers making $90,000 a year or more. It's
insurance you can't buy. And it means a lot to a family to have
partial wage replacement if a member of the family is unable to
work or needs to take care of a sick family member, a seriously
ill family member, or has just given birth or has adopted a
child, and so on.
So, I think that there's a lot that we can do along these
lines. I think that we need to encourage greater flexibility in
work schedules and work hours. Negotiate a flexibility between
employers and employees. I'm not talking about a mandate here,
but I'm talking about encouraging this type of consultation.
Making part-time work a viable alternative. Right now, if
you feel that in order to take care of your family, you need a
part-time job, you need--basically, if you're anywhere in the
middle class or above, you need to quit the job you have in
order to get the part-time hours. The majority of part-time
jobs in this country are low-wage part-time jobs. We do not
have much in the way of part-time employment for professionals,
for managers. Even where we have billable hours--lawyers,
accountants--why couldn't these be part-time? People are paid
on the basis of billable hours, and these are among the people
who work the longest hours.
So, we need to be rethinking this. We need a public
dialogue about some of these things. We need to think about
what the standards ought to be.
And I think that what I would say--just my last comment
along these lines--is that nobody wants to be a highway
fatality, nobody wants to be a number, and, nevertheless, we
have to have laws of the road, rules of the road that are
enforced and enforceable in order to protect all of us from
those people who, if they didn't have the 60-mile-an-hour or
65-mile-an-hour speed limit, would be going 80 and 90 and 100
miles an hour and endangering everybody else who is trying to
do the right thing. And that's how I look at a lot of the kinds
of employment standards that I think are really important. Set
The Chairman. I'm going to give--my time is about through,
and I'd like to hear from Professor Hacker, maybe Forbes, for
just a minute here. So, if you would--we can come back in a
Mr. Hacker. Well, very briefly, first of all, you mentioned
the statistic about the number of children who spend at least a
year in poverty, and I want to emphasize that what this dynamic
focus on the economy that I provide in the book suggests is
that the middle class and the poor and even people near the top
of the economic ladder experience much the same thing over the
course of their lives, that middle-class Americans are much
more likely than we once thought to fall into poverty during
their working lives. There is work by, for example, Mark Rank,
a sociologist at Washington University, that finds that about
half of nonelderly working-age Americans will spend at least a
year in poverty during their lives. And what this means is that
we need to provide not just support that's premised on the idea
that we need to lift the bottom up, but also support that
protects people from falling down the ladder.
I agree with Eileen, that healthcare is a crucial component
of that. And, as Ms. Cablik said, it's one where business and
individual workers have a common interest in seeing costs
brought down and affordable coverage provided. I think there
should be an option available to employers to provide coverage
at a very low cost, perhaps through an expanded Medicare-like
program. I think that this would be something that would allow
low-wage workers and their employers to benefit.
I also think we need to deal with the debt burden on the
middle class. I think one area to deal with that is with
retirement security. Obviously, if people aren't in good
condition financially during their working life, they may not
be well-enough prepared for retirement. But I also think it
would be useful to think about the subsidies, through the tax
code, that we provide for savings, and finding ways to
restructure them so that they will provide more incentives for
middle-class Americans to save.
And finally, I endorse what Eileen said about work/family
balance. We have a new kind of workforce and a new kind of
worker, and we should be thinking about what kinds of supports
does that new sort of worker need in this transformed economy
we live in today.
The Chairman. That's good.
I'll come back, Reverend, my second round.
I'll recognize Senator Enzi.
Senator Enzi. Thank you. I don't think the microphones on
our side are working, but----
The Chairman. Well----
Senator Enzi [continuing]. At any rate, I want to thank
The Chairman. Are we supposed to have them work on your
I didn't know that, as chairman.
Senator Enzi. The last 2 years, we let them work on your
But I do want to thank all of you for your testimony.
Mrs. Cablik, I know that you provide healthcare benefits
for your employees. Can you share with the committee your
experience in securing that coverage and how government actions
have either helped or hindered that process
Mrs. Cablik. Well, in general, obviously, it is the
marketplace that's going to determine whether you're going to
provide benefits or not, because if I don't provide benefits
and my competitors will, then obviously I'm going to lose out
and lose my employees. So, it is a market-driven situation as
to whether you provide medical care or not; however, every time
the government mandates and expects us to provide specific care
for specific individuals, what it does, it creates an increase
in the cost of our insurance, and that creates a problem for
us, as far as being able to meet that.
In the marketplace, every cost that we incur, obviously, we
have to pass on to the product. And if we cannot compete
against the biggest producer in our industry, then we're just
going to be out of business.
We started out providing what we call a PPO, point of
service, which meant that everybody could really go to whatever
doctors they like to; however, over the years that became too
expensive, so what we had to do is scale down and start going
down to an HMO that restricts you to whatever medical
facilities or doctors you actually can use.
I believe that the marketplace will take care of a lot of
these problems if we let them take care of it. If the small
businesses could really work together in associations or
cooperatives, where we would have the same buying power that,
for example, the Federal Government has, where we could offer
the same kind of benefits that they offer, but, instead of
being just one company trying to buy insurance for 35 people or
50 people, we would have, all of a sudden, a pool of 5,000 or
maybe 50,000 or millions. So, I believe that we need to look at
it from a perspective of, What is it that can take place out in
the marketplace?--rather than, What can we do to impose some
new laws and new mandates?
Senator Enzi. Thank you.
Well, I have a whole series of questions for each of you.
Our time is somewhat limited. I understand that you've
volunteered to answer in writing some of the more specific
But, Dr. Appelbaum, in your testimony you mentioned that
the average CEO earns 262 times what the average worker does.
Now, you used the EPI release, which is based on the Mercer
Survey, which is the 350 largest U.S. companies. And I was kind
of curious as to why you didn't use some of the other
indicators, which would still show a greater amount for the
CEOs than for the average employee.
Ms. Appelbaum. Sir----
Senator Enzi. My question is, Are you suggesting a cap on
Ms. Appelbaum. No, I wanted to illustrate the point that we
have gone from a society in which the basic idea is that the
economic pie grows, that it is the result of actions by
employers and employees, and that the gains should be fairly
shared among employers and employees. In the period from the
end of the second World War until 1973, the economic pie of the
United States grew by about 3 percent a year. Profit grew by
about 3 percent a year, and wages grew by about 3 percent a
year. So, the pie grew, and everybody's slice of the pie grew,
more or less together. And the point that I wanted to
illustrate is that we've gone from the idea of a society in
which workers also contribute to the growing pie, to the idea
that we live in a tournament, and if you can rise to the top,
you're the winner and you're entitled to take all, and if you
are just a worker and you have no representation today, you--
I'm sure everybody here knows that just 8 percent of private-
sector workers are represented by unions. And so, without that
representation, it's been really difficult to get that idea of
a shared pie. And, instead, what we have is the idea of a
tournament with a winner-take-all, with a few winners and lots
of losers. So, that--I just wanted to illustrate that point.
Senator Enzi. I appreciate that. I won't debate it,
although I think there's a big difference between big companies
and small companies. So, I'll go back to Mrs. Cablik--in the
testimony that Professor Hacker gave, he commented on economic
security among workers--do small-business owners experience any
feelings of economic insecurity or worry? And what creates
those concerns? And what helps to address them?
Mrs. Cablik. Obviously, the insecurity of the worker is no
different than insecurity of the employer. I mean, in this
society nowadays, we only have 4.5 percent unemployment, which
means most people that really want to work are working. So, if,
for any reason, the job that I'm offering one of my employees
does not meet that employee's expectation, he's going to find
himself a better job, no different than if I'm not satisfied
with his work, I probably will let him go and look for somebody
else that will do the work. So, the insecurity is on both
sides. This is a society where the people are going to have to
be able to develop the skills that will get them ahead.
When you all were talking earlier about, ``What can we do
to improve the lot of the people that are in the lower economic
echelons?'' I suggest that doing training, where the people can
actually get better jobs and have better skills, would probably
be the best way. Education, in its most elemental way, is the
solution to most of our social ills. And education is not just
to try to force the schools to get the children to be reading
at third-grade level or first-grade level, it is to get the
parents involved in taking interest in getting the children to
learn. So, we need to really get the whole society to take
responsibility of their own actions. The insecurity is on both
sides. It's not just a one-sided situation.
Senator Enzi. Thank you very much.
And I know that my time is expired, but I would mention
that it seems to me like the smaller the business, the greater
the possibility for insecurity.
The Chairman. Senator Bingaman.
Senator Bingaman. Well, thank you very much. Thank you all
for being here.
The Chairman. I'm sorry. We'll recognize--Jeff, as I
understand, Senator Sanders is going to preside at 11:30, so,
after Jeff, if that's okay with you, Jack, we'll let Bernie,
when his turn comes up, and then----
Senator Bingaman. Thank you very much for being here and
Let me ask Professor Hacker about--in the testimony, the
written testimony you've given us here, you talk about a
universal insurance, a flexible program of social insurance
that you call universal insurance, which is a stop-loss income-
protection program that would ensure workers against very large
drops in their income due to unemployment, disability, ill
health, death of a breadwinner, as well as against catastrophic
medical costs. Could you just give us more detail as to how
that would work, who would pay for that, and how it would
interface with the unemployment insurance programs that are
currently in place in most States?
Mr. Hacker. Yes, thank you very much for that question.
The proposal that I have outlined, entitled Universal
Insurance, I prepared for the Hamilton Project, which is a
policy research initiative housed at the Brookings Institution,
in which Robert Rubin is involved, and is going to be headed by
Jason Furman, formerly of New York University. The proposal is
essentially a way of dealing with the most severe economic
losses that families face. I mean, it would not be a substitute
for existing programs. In fact, I see it as a way of
highlighting the serious gaps that exist in these programs, by
protecting families against the most severe drops in their
income or catastrophic medical costs.
Essentially, the proposal would work through the tax code,
and it would provide workers with money to cover a share of
losses in excess of 20 percent of income, due to the causes you
mentioned, or medical costs in excess of 20 percent of income.
It would be advance-paid so that workers could get it soon
after these risks occurred. And it would be available to all
workers, although it would be much more generous to workers in
the middle and bottom portions of the income spectrum.
Senator Bingaman. And this would be paid for how?
Mr. Hacker. Well, I've proposed that you--I actually
suggest we could pay for it in numerous ways. It could actually
be something that would be contracted out to the private
sector, if there were a private--a way of creating a private
insurance alternative that would provide such coverage.
Currently, it's not coverage you can buy in the private sector.
It also could be paid for through small payroll or income tax
surcharge. It would essentially be insurance against income
losses, so it would make sense for people to pay it against
their--as a small share of their income.
What I estimate is that, even with a payroll tax surcharge
of less than 1 percent, that you could provide coverage that
would prevent roughly 3 million Americans from falling into
poverty each year, and reduce by half the proportion of average
people who fall into--have income drops of 50 percent or
greater every year. So, it would have a fairly dramatic effect,
even though it was relatively modest overall cost.
And I really see this as a proposal that is pushing forward
a debate about how, in a newly uncertain and flexible and
dynamic economy, we deal with some of these pressing risks.
Stop-loss insurance is something that employers and
corporations often have, but there's no way to purchase such
insurance if you're a worker in the market today. Robert
Shiller, my colleague at Yale, and others, have talked about
how important it is to provide at least a basic level of
protection to people so that they can feel confident to take
some of these risks that are necessary to make the new economy
Senator Bingaman. Well, you also indicate that you have a
proposal to extend insurance to all nonelderly Americans
through a new Medicare-like program, and guaranteed workplace
health insurance. Could you give us just a very short
description of that?
Mr. Hacker. Yes, it's an, actually, extremely simple plan,
in concept. I just prepared it for the Economic Policy
Institute, which has put together a new Agenda for Shared
Prosperity, and one of the things that it's focusing on is
healthcare. This proposal would be very straightforward. If
your employer did not provide--if you do not have secure
workplace coverage, you could buy into a new Medicare-like
program called the Health Care For America Plan, for a
relatively modest cost. At the same time, employers would be
given the option of purchasing coverage for their workers
through this new Health Care for American plan. And if
employers were required to either purchase coverage through
this new plan or to provide coverage on their own, it would
cover all Americans, and it would do so without putting, I
think, an undue burden on corporations. For the payroll-based
contribution rate under the plan--that is, the amount that
employers would pay to insure their workers--would only be 6
percent of payroll, which is much lower than most employers pay
today to cover their workers. So, the proposal would
essentially provide employers with a low-cost option for
obtaining good coverage, and workers with a low-cost option for
obtaining good coverage, and thereby, reach all working
Senator Bingaman. Now, the program Governor Schwarzenegger
announced contemplates a similar requirement on employers, as I
understand it. They either have to pay a certain percentage of
Mr. Hacker. Yes.
Senator Bingaman [continuing]. Into a statewide program or
provide a certain level of insurance. Is that your
Mr. Hacker. Yes, there are similarities between the
proposals. The main difference is that, in Governor
Schwarzenegger's proposal, the 4 percent payment that employers
are required to make--and it would only apply to employers with
10 or more workers--is not really purchasing coverage for those
workers. Rather, it's paying into a fund that would be used to
try to cover uninsured Californians throughout the State. So, a
fear that I have is that the current system is--which is
employment-based, allows most Americans to get coverage through
their employer. That is the conduit for coverage. I believe
that that aspect of the system, that when you work you should
be able to easily obtain coverage through your place of work,
should be preserved, and moving towards the system that
Governor Schwarzenegger proposes would sever that link for many
employees, and it would pose the risk, I fear, that some
employers would drop coverage, thinking that their workers
would be covered through the new public-sector plan in
California. So, I think it's very important that there be a
direct link between--for employers--between making a
contribution to the cost of coverage and having their workers
actually covered, and that's what my proposal would do.
Senator Bingaman. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Yeah.
Statement of Senator Alexander
Senator Alexander. Thank you, Mr. Chairman. I thank you for
holding the hearing. I think this is an issue that's poorly
understood in our country right now, those who--some on our
side--go around saying, ``The economy's good.'' A lot of people
don't feel good about the good economy, although, by
traditional statistics, it is good.
So, I have a question--and let me start with you, Dr.
Hacker--about comparing the minimum wage and the earned income
tax credit as an efficient way to help working people who are
poor have a little higher floor. And let me say a couple of
things first about my understanding of things.
First, I believe we are richer, as a country, despite all
the gloom and doom about outsourcing in India and China. Over
the last 10 years, according to the international Monetary
Fund, you know, we've gone from 25 percent of the world's GDP
to 28 percent or something like that, so probably we could
Second, there might be inequality. I'd like to spend some
time asking about whether that includes benefits, that chart,
and the effect of the phenomenal change of women in the
workforce and part-time workers, and make sure that we really
do understand the inequality question. But there may be, and
that is something we surely ought to pay attention to.
Third, I believe the insecurity part, that you put your
finger on, which is--I think a lot of the problem--there's
nothing new about that. I mean, 25 years ago, we were in a
situation--I remember, there was a group at MIT that actually
counted job loss, and about eight out of nine Americans who do
what Ms. Cablik has done, don't make it, their businesses
collapse. And about 7 or 8 or 9 or 10 percent of the jobs in
American disappear every year. That was true 25 years ago, and
it's accelerated today, I think, by globalization. So, this
insecurity is a big thing, nothing new. And my understanding of
that has been, so far, that the way you deal with that is,
first, with education, and creating the largest number of good
new jobs so that people can go from the job they had to the job
that they get, and hope it's a better one. That's just the way
things are. And it's more that way. And we're learning, too--as
the witnesses from Atlanta, has talked about--mandates on
businesses, especially small businesses, aren't such a good
idea. Several witnesses have said moving healthcare away from
the employer may be a problem, but if our steel fabricators are
going to compete in the world marketplace and not see jobs go
to Mexico, China, other places, anytime we add to their costs,
we're driving a job out of town.
So, that leads me to this question. Why, then, is the
minimum wage such a good idea? I mean, here's a mandate
primarily on small businesses, sort of a relic from the 1930s.
It's like using something from the Pony Express, you know, in
the computer age. And according to all the studies, including
the Congressional Budget Office's, it costs a lot, maybe $11 to
$18 billion a year, only 15 percent goes to people who live in
poor families, less than half would go to people who have wages
at two times the poverty level. The small businesses pay a
disproportionate part of the bill. And the earned income tax
credit, a negative income tax, would seem to be a lot more
efficient, to me. I know there are charges of fraud within it.
Maybe that can be fixed.
But--and I'll stop with this--according to the CBO, the
Congressional Budget Office, if we increase the minimum wage,
as has been proposed, it would cost at least $11 billion, but
only 1.6 billion would go to working families living below the
poverty line. If we did it through the earned income tax
credit, it would only cost about $2.4 billion to increase the
income tax credit by 1.4 billion. So, why wouldn't a focus on
family incomes be a more efficient way to help with that part
of the problem than a focus on minimum wages?
Mr. Hacker. Well, thank you, Senator Alexander. And thank
you for this very interesting discussion of these issues. I
agree with you completely that insecurity is nothing new. At
the same time, as you said, some of the trends, such as de-
industrialization, globalization, the movement of women to the
workforce, have increased, I think, both the sense of
insecurity of workers and their actual experience of it.
You did mention job loss, and I just wanted to note that
according to the Displaced Worker Survey, which is the best
source we have on job loss, the numbers are actually--the
percentage of workers who experience job loss is actually, in
recent years, basically at the level it was in the early 1980s,
which was one of the worst economic downturns since the Great
Depression. Unfortunately, we don't have statistics on that,
going farther back.
One thing that those statistics show is that, actually,
educated workers are experiencing the largest proportional
income drops when they experience job losses, which I think
really drives home that, in this new skill-based economy, we
have a different kind of displacement from work than we used
to, where workers may need to retrain, gain new skills to get
And I say that as a preface to actually wanting to defer
the question that you asked to Professor Appelbaum, because I
am not an expert on the minimum wage. However, I would just say
that I don't think we should see the earned income tax credit
and the minimum wages as mutually exclusive options. And I
think many economists do believe the earned income tax credit
is a very efficient and effective way of reaching low-income
workers, and yet, many, at the same time, would support an
increase of the minimum wage, as does Professor Appelbaum.
Ms. Appelbaum. Yes, just a comment on that.
So, the two serve very different purposes. The earned
income tax credit is a subsidy to the very poorest families to
just prevent the worst kinds of crisis for families with
children. And I think it's a very important thing, but it
doesn't really satisfy the needs of the labor market. What the
minimum wage does, when it's set at a reasonable level--and
going back historically, the minimum wage has been at one-half
the average wage--at one-half the average wage, the minimum
wage provides a floor under middle-class families. It prevents
the kind of falling-down-the-ladder that Dr. Hacker has been
talking about. So, if you are a middle-class family, and you
lose your job, and you have to take whatever job is available,
working at $5.15 an hour is not going to enable you to support
Senator Alexander. What would half the average wage be
Ms. Appelbaum. About $8 an hour. And I do think it should
be set there, and I do think that it should be indexed to the
average wage. In most countries, the poverty line is--people
are considered to be in poverty if they are earning less than
half the average wage. And if they are earning a third of the
average wage, they are considered to be in extreme poverty.
And, of course, the minimum today is less than one-third the
average wage. So, by that definition, for most countries in the
world, people in minimum-wage jobs would be seen as living in
extreme poverty. I don't think that's a standard that we want
to set in this country.
The Chairman. Senator Sanders.
Statement of Senator Sanders
Senator Sanders. Thank you very much, Senator. And thank
you for allowing me to jump the line. I've got to go down, to
preside. And thank you very much for holding this hearing,
which I think touches on one of the very most important issues
facing our country, but an issue, frankly, that doesn't get the
kind of discussion, in the media and elsewhere, that it
Now, I hold a lot of town meetings in the State of Vermont.
And what I always do when we meet is, I ask people a very
simple question. I say, ``Well, tell me''--you know, I'm
reading in the papers, the economy is doing well, GDP is
growing--``tell me, from your lives, how is the middle class
doing? How are you doing?'' And at every meeting, a couple of
people will raise their hand and say, ``We're really doing
well. Things are going great.'' But what I have to tell you is
that the vast majority of the people say that things, for the
middle class, are very, very tough. And, as Senator Kennedy, in
the charts, indicated, the reality is, the middle class is
shrinking. The reality is that, in the last 6 years, 5 million
more Americans have slipped into poverty, and, more
frighteningly, the reality is that the gap between the rich and
the poor and the middle class is growing wider and wider. We
have the dubious distinction of having, by far, the most
unequal distribution of wealth and income of any major country
on Earth. I don't think that's anything that we should be proud
of. I think we should put that issue right up there.
And I want to ask two questions. I want to ask Reverend
Forbes a question. We hear, in Congress, a lot about morality
and a lot about values. Most often, those issues come around
the issue of abortion, the issue of gay rights, and so forth
and so on. In your judgment, in a circumstance in which we
are--we have, as a Nation, by far, the highest rate of
childhood poverty of any industrialized nation on Earth--18-20
percent of our kids live in poverty--at the same exact time as
we're seeing a proliferation in the growth of millionaires and
billionaires--richest people becoming much richer, 18 percent
of our kids living in poverty--in your judgment, is this a
moral issue that Congress should be focused on?
Mr. Forbes. There is no question in my mind that the issue
of what we do for children says something about our basic sense
of humanity. That is, if we do not value those who are not
voters yet, who are not able to demand that they be heard, it
shows that our primary response to life is to respond to those
who can meet our need. Humanity is about the capacity to meet
the needs of fellow human creatures, and other species, as
well, when there perhaps may not immediately be any benefit to
us. In the course of time, enlightened self-interest will
reveal that the care for children--their health, their
education--will benefit us, but the test is--it's a moral
disgrace and outrage that we should neglect the children in our
effort to amass more things for ourselves.
Senator Sanders. Thank you very much. But I think the fact
that we have the highest rate of childhood poverty, when the
wealthiest people are becoming wealthier, is something that we
should put on the agenda.
I want to ask Professor Appelbaum a question. There are
economists who believe that one of the reasons for the decline
in the middle class has something to do with our disastrous
trade policies, forcing American workers to compete against
China, where people make 30 cents an hour; it has to do with
tax policy, in giving billions of dollars in tax breaks and
corporate welfare to large multinational corporations who throw
American workers out on the street; has to do with the fact
that we're the only industrialized nation on Earth that does
not guarantee healthcare to all of its people; has to do with
the dismal rural economic development policy. I know that
Senator Enzi was talking about economic development. We come
from small rural States. And let me tell you, we've got to
focus on rural economic development, as well.
But my question to Professor Appelbaum is, Do these things
happen by accident? I mean, does the decline of the middle
class and the growing gap between the rich and the poor, the
fact that unions are declining, the fact that we have a
disastrous trade policy--did this all happen by accident, or
are there some people who are doing very well and are proud of
their accomplishments of driving down the middle class while
they grow wealthier, while corporations become more profitable?
Ms. Appelbaum. Yes, thank you for that question.
I think you've put your finger on one of the major
disconnects in this country, and that is, you know, if you go
back a couple of decades, we could say, ``What is good for
General Motors is good for the country,'' that we all prosper
together. But what has happened is that there is now a
disconnect between the interests of multinational corporations
and the interests of both American workers, but also of our
domestic producers. It's not just workers who are put at risk
by these policies, but also our smaller companies, our
companies that are focusing on producing in this country, who
are subject to that same kind of competition.
And I think that we are in an enormously dangerous
situation. It's true, as you say, that this has had a major
effect on the middle class, and on wages and on jobs. But the
country, as a whole, is at risk. And I don't think that this is
an issue that we have faced up to.
At this point in time, our trade deficit is almost triple
the Federal Government budget deficit. And we're all up in arms
about the budget deficit; you hardly ever hear anything about
the trade deficit. It now exceeds 6 percent of GDP. This is
unsustainable. We can still do something about it. We can still
think about enhancing--growing our manufacturing capacity,
investing in manufacturing in this country, so that we have
something to export. We could put limits on China, but, you
know, the effect of putting limits on China is that we'll have
to import TVs from someplace else, because we don't make
televisions in the United States. So, we need to think about
how we're going to improve our manufacturing capacity, how
we're going to improve our exports, and how we are going to
manage, as we did in the 1980s, in the Plaza Agreements under
the Reagan administration, how we are going to manage an
orderly decline in the value of the dollar, because a
disorderly decline in the value of the dollar is going to lead
to a major economic crisis for the country. It will not just be
a crisis of manufacturing workers, it will be a crisis that we
all face. We have time to do something about it. I think we
need to put this on the agenda, as well.
Senator Sanders. Thank you.
The Chairman. Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Mr. Chairman. It's been a
very interesting discussion this morning, and I appreciate you
having the hearing.
And thank you, to those of you who have participated.
Professor Appelbaum, you brought up the trade deficit. I
think we would all agree that the statistics are troubling. It
was just last year that the National Association of
Manufacturers surveyed 800 manufacturing firms and found that
more than 80 percent of those firms were not able to hire
enough skilled workers to keep up with the demand. And we
recognize that policies like that are really inhibiting us.
Ms. Cablik, you mentioned, also, that, in order for your
business to be successful, you were competitive, you offered
incentives, if you will, or paid good wages, you offered the
benefits so that you got the workers. We also recognize that
it's imperative that you have good, competent, skilled, trained
Reverend Forbes, as you deal with those people that come in
and out of your church, you recognize that, in order for them
to move ahead, they need that training, they need those
educational opportunities that will allow them to move forward.
So, I guess a very general question to all of you, or any
of you that would care to respond is: What more do we need to
be doing, from the government perspective, to facilitate these
training programs, to make sure that our workers are
competitive, and that they have the skills to provide for their
families in good-paying jobs? So, I throw that out to the
Ms. Appelbaum. Sure. Well, I----
Senator Murkowski. Professor.
Ms. Appelbaum [continuing]. I think there are two points
that I would make. The first is that postsecondary education
and training is extremely important, but we have just very
narrowly taken that to mean getting as many high school
graduates into a college program as possible. Many of them
enter, not all of them graduate. I think, as far as
manufacturing is concerned, in particular, we need to think
about other kinds of postsecondary training as also being
valuable, important, and so on.
The second thing I think--and Senator Enzi and Senator
Kennedy have been really great proponents around the issue of
training, and I very much appreciate that, being in a State
where we try to do the best we can with training dollars. But
the Center for Women and Work is very much involved in using
new technologies, information technologies, Web-based programs,
to make it possible to cost-effectively increase the amount of
training we're able to deliver for the dollars that are
available. And I think that that's going to be the wave of the
If there were more time, I'd be happy to talk about the
things that we're doing at the Center for Women and Work. We
have taken some of these programs national. We now have 20
States and four major cities, including Washington, DC., that
are engaging in the use of information technology, Web-based
programs, to expand the ability to bring training to workers
currently employed in low-wage jobs who can't take time off to
go get the training, but could access it in other ways. And
these programs have been proven to be effective--effective, in
terms of the outcomes for workers, and effective, in terms of
being cost-effective for the States.
Mr. Hacker. Yes. Well, I agree with what Professor
Appelbaum said. I would also want to call attention to, sort
of, the flip side of education, which I believe is insurance,
and that is--what I want to say is that if we expect people to
make investments in education and in skills, then we also have
to recognize that sometimes those investments will put workers
I think, here, particularly of workers who are fearful of
layoffs. In the last 20 years or so the proportion of the
workers who say they're frequently concerned about layoffs has
tripled from about 12 percent to 36 percent. And now, some of
this fear may be unwarranted, but I think it might be an
impediment to workers making those investments up front in
skills, because some skills, skills that are highly specific to
a job, can put you at risk if you're laid off, because you
might have to retrain or gain new skills.
So, I do think we should think of this as a three-part
equation. First, we want to try to limit the amount of debt
that people take on gaining education and skills to get into
the workforce. And, second, make sure there are effective forms
of insurance that are there to help people deal with the short-
term and longer-term dislocations that might result if they
invest in skills and those skills don't end up earning the
kinds of return that they had expected.
I just want to give you one statistic that I think drives
this home, because we hear so much about inequality across the
educational pyramid. In 2000, if you look just at full-time
workers who received a bachelor's degree, a worker at the 90th
percentile earned about $1,700 per week; whereas, a worker at
the 10th percentile earned about $423 a week, which is less
than the median high school graduate. So, there is risk
inherent in education, and we should recognize that risk,
provide, for example, wage insurance that would help workers
take a lower-paying job and still stay afloat financially, or
job retraining programs for----
Senator Murkowski. Do we do enough for the job retraining?
I appreciate the emphasis that you're putting----
Mr. Hacker. Right.
Senator Murkowski [continuing]. On the curriculum and a
focus on vocational education. We do need to be doing more. But
we are also recognizing that we are in an environment now where
people don't stay with the same company for----
Mr. Hacker. Right.
Senator Murkowski [continuing]. Fifty years. Are we doing
enough when it comes to the retraining opportunities? And I'd
throw it out to you, Ms. Cablik, or Reverend Forbes.
Mrs. Cablik. Not only the retraining. I really think the
vocational training of trades--I mean, that is where I think
there should be a lot more emphasis, and maybe allow some
private organization, such as CEFCA, that's an organization
that actually will train people in the construction trades,
such as carpenters and masons, which, right now, there is a
huge shortage. I mean, we have ads in papers right now all over
the Atlanta area, and we cannot find anybody. These are wages--
they are not minimum wages, they are way above the minimum
wage, but you cannot find any people, because the mentality of
most of the high school kids are that, ``I'm going to go to
college.'' They might drop out, but if we would miss--we would
redirect these kids and try to make them understand that having
a trade, such as an electrician, or being a iron worker or a
carpenter, that it is very fulfilling--a lot of these people
are making close to six-figure incomes after they have been in
the business for quite a while. But when they don't go into
them, and--we have a huge shortage. The average construction
worker, right now, is 46 years old. Where are our replacements?
And those are not college degrees that we're looking for, these
people, in many instances, are even being able to get on-the-
job training. If there would be some way that we could
emphasize support of organizations that are already doing--not
necessarily, doesn't always have to be the government--a lot of
times, they're private industry or nonprofits--that can do a
job just as well, if not better.
Mr. Forbes. I would like to suggest that it's time, now
that we are challenged in the age of globalization, to go back
and look at the nature of work. Julius Wilson talks to us a lot
about--work is about more than just making money, it's about
meaning. And, therefore, in our training--and remember the good
old days of manpower forecasting, I think we might call it
person-power forecasting--to be able to talk--what are the
actual meaningful jobs that we need, to preserve our way of
life and be competitive in this new global market? That means
that we change the notion that there are a whole lot of people
who are obsolete and expendable. Forget them. It may mean that
the new situation is, we need everybody we've got, but we need
them recognizing that they are making a contribution to the
quality of life we deserve and intend to have in this country.
If we look at the meaning of work and decide that most of
our citizens, unless they are otherwise challenged, should be
able to recognize that, ``If I prepare myself, this is not just
a make-busy work, it's not just picking up paper,'' though we
may need to have somebody to do that, ``this is making my
country a great country.'' If the training is linked to an
education and there are mechanisms by which people are actually
granted living wage after they get these jobs, maybe we'll be
So, the crisis of the present moment is an opportunity for
imagining anew what work could be, so that we, even holding our
rights and our human rights, our principles, can compete with
others, because a new imagination releases new energy of people
who otherwise have been kept out of the workforce.
Senator Murkowski. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Statement of Senator Reed
Senator Reed. Thank you very much, Mr. Chairman.
And thank you, panelists, for your excellent testimony.
And, Professor Hacker, in your discussion with Senator
Alexander, you did note that this instability of income is not
new, but are there characteristics at the present moment that
are more worrisome than in the past? And I guess my sense is
that, when you talk--years ago, when I was a little younger,
the instability was located around the entry-level work, low-
skills work, but I think the instability that I sense--and
maybe it reflects Senator Sanders' comments--affects people
that used to be immune from these things, that they're middle
class, solid middle class, and now suddenly they are seeing
this. And if you can comment at that, then the follow-on
question would be, Does that drive us to new policy directions?
You've suggested some, and you might elaborate.
Mr. Hacker. It's an excellent question, and I do think that
much of the insecurity we see today is reflective of the fact
that people who once did not feel the cold hand of insecurity
now are sensing it in their lives.
Let me just give you some illustrations from the statistics
that I have, and as well as some related work.
With regard to my own work, what I have found is that
instability--over time, income instability, how much income
fluctuates up from--and down--from year to year, is actually
now, among workers who have gone to college, among Americans
who have gone to college, about as high as it used to be in the
1970s among people who didn't finish high school. So,
absolutely, we've seen this shift.
We've also seen a shift of problems that were once
associated with less-educated or entry-level workers--not
having health insurance at your job, not having a secure
retirement pension, being laid off, and experiencing large
income losses when you're laid off, or risk of job loss
altogether--all those problems have become--have moved up the
income ladder, if you will.
And so, while--as I said, people who are higher up the
income ladder are now experiencing some of the insecurities
that used to be isolated among the working poor, and I think
that's part of the reason we're seeing such a high level of
middle-class anxiety today, because there is this sense in
which, if you work hard and you play by the rules and you make
it into the middle class--in the past, there was a sense that
that was a--if not a guaranteed place in the middle class, you
had a very strong assurance that you would remain there. And
now many people are fearful of falling. And that's the one last
statistic I would mention. It's from--again, from the work of
Mark Rank, who's found there has been a big increase in the
probability that even people who are in their peak earning
years, in their 40s, fall into poverty during the course of
their time in the forties.
I think it changes our view, because, I think, in the most
fundamental way, it links our interests across economic lines.
If we see this more as a picture of greater dynamism in our
economy that causes insecurities for middle-class Americans, if
we see the problem of lack of health insurance or lack of
secure retirement as a problem that affects almost all workers,
then we start to address these issues, not as something that
we're doing for other people, for people at the bottom, it's
something we're doing for ourselves.
Alexis de Tocqueville once said that Americans believed in
self-interest rightly understood, which was, ``help yourself
and help others at the same time.'' And I think that the--
hopefully, we can have a debate about these issues that isn't
framed solely in what we need to do for others, even though I
am--I feel that clarion call that the Reverend speaks about,
about the moral concerns we should have for people at the
Senator Reed. Let me follow on and open it up to comments
by other panelists, is that one of the perceptions I also have,
in talking to my constituents in Rhode Island and around the
country is that it's just not the sense of this immediate
anxiety for a middle-aged worker, it's, for the first time in
my recollection, that people are fearful of the future of their
children, that they see this instability, and they look
forward, and they say, ``Well, if I've gone to college and I've
worked 20 years, and suddenly I'm faced with a--the dilemma
of--poverty, in some cases, what about my children?'' And I
think it's manifested in some of the other characteristics of
the marketplace. We used to take for granted, up in Rhode
Island, that most jobs had health insurance. Now that can't be
taken for granted. How do your children afford healthcare, when
you barely can?
We assumed, in the 1950s, 1960s, and 1970s, that you could
move next door to Mom and Dad and buy a house. Can't do that
anymore. And I think, you know, Reverend Forbes, in New York
City, you saw the vanishing middle class, and that's one reason
they're vanishing; they can't afford to live there.
And what does this tell us about this extra dimension of
anxiety, that, for the first time, the, really, American dream,
which I think is--can be expressed in many ways--one way is, my
children will have to do better than I, because that's the
nature of America. That dream is being challenged, at the
moment. And--Dr. Hacker and then the Reverend and anyone.
Mr. Hacker. I would love to hear the other panelists'
responses to that question. I will only note that in the exit
poll from the most recent election, something like 70 percent
of voters said that they thought life for the next generation
of Americans would be worse than today. And I think that is a
Senator Reed. Dr. Appelbaum.
Ms. Appelbaum. Yeah, I would say two things about it. One
is, we have to recognize that we have harnessed the IT
revolution, we have productivity growing again, there's no
reason that we have to have this kind of economic insecurity.
So, it's not that it's a slow-growth economy. As everybody has
said, if you look at the top-line figures, the economy seems to
be growing just fine, the problem lies somewhere else. And the
second comment I would make is what I hear from my students,
which is that their parents worked hard, worked for a company,
thought they were going to have a job, thought that they would
be--always be able to be middle class, and have lost their
footing. And these students feel a tremendous--they're still
undergraduates, and they feel a tremendous amount of
insecurity. They worry that they're going through the paces,
they're getting the college education--What kind of job will be
out there? What kind of life will be out there?
And speaking to the interests of our business community,
they're not prepared to be loyal employees. They feel that
their parents have been loyal and have not reaped the benefit
of it, and they're interested in--they exhibit a self-interest
that, really, I haven't seen. I've taught for many, many years,
and I have not seen this kind of narrow self-interest, ``I
would junk the job for an increase in pay. I don't care what,
because I don't believe that this company will be loyal to me.
My parents' companies weren't loyal to them.'' I think this is
going to be a problem in the workplace, as well.
Senator Reed. My time is gone, but, Reverend Forbes, if you
have a comment, I'd--you were, sort of----
Mr. Forbes. Yes. You know, it seems, Senator, that we
forget that, in 1993, we had some terrorist activity in New
York, then we had some Oklahoma City stuff, and then we came
back with some 9/11 stuff, and then we had political changes
that seemed to make it even unclear about the future and well-
being of people in office versus those out of--it felt like it
all came together. So, post-
traumatic stress disorder is not just about folks that are,
sort of, waiting to get a place in the mental hospital, it's
that more and more of the citizens of this Nation are not so
sure that the securities that we have enjoyed in the past are
available to us now, and the real problem seems to be that
there does not yet seem to be a sense of strong national
purpose and vision that gives us the chance to say, ``Our cause
is so just and so right that we will weather the storm.'' The
world is changing. Globalization has altered the situation.
Bigger powers--we're in debt to other folks. So, the question
is, What is the vision of America? And I would advise--I like
Bill Moyer's word, in The Nation, about ``A New Story.'' What
is the vision of America that poor people, middle-class folks,
and even rich folks, are willing, once again, to sacrifice in
order to help us achieve the new security, based much more on a
reality--of a global reality that is not just our interest, but
the interest of other nations around the world? We need that
new story so that we can invest again with confidence that
we're going to make it through.
Senator Reed. Thank you very much.
Thank you. And my time's expired. Thank you.
The Chairman. Preacher, you're getting to us, Reverend
Mr. Hacker. I knew I could get them going, Mr. Chairman.
The Chairman. I know. You're getting us all excited up here
now. He's getting a little taste of all this.
Statement of Senator Roberts
Senator Roberts. Yes, thank you, Mr. Chairman.
I feel compelled to say that--I don't know how many
hearings and how many briefings we've had in the last 10 years
that I've been privileged to be on the Intelligence Committee,
but we have had 5\1/2\ years without an attack on the U.S.
soil, after Beirut, USS Cole, Embassy bombings, 1993, et
cetera, et cetera, all before we went into Iraq, so we're doing
something right. It's been very difficult, and almost like
pushing a rope, but we have had some success.
Dr. Appelbaum, does the--did the Center for Women and Work
have anything to do with that scandalous ball game in Texas
between Kansas State University and Rutgers, where you
shamelessly ran up the score?
Ms. Appelbaum. We were--we sent a contingent down to cheer
Senator Roberts. Yes, you did. I heard them.
I was there. But I think, you know, running up the score
like you did--see, our team had an excuse, we arrived late, we
didn't have any uniforms, so we had to wear----
Senator Roberts [continuing]. Our bib overalls, and they're
pretty--you know, it just didn't allow us to keep up with your
team. I wish you'd just be a little more modest in the next go-
round, if that would be all right.
In Kansas, let me tell the panel, we have 60,000 small
businesses, 600,000 jobs. These firms represent 97 percent of
the employer business in the State and employed more than 50
percent of non-farmworkers. We created 12,338 new jobs. But
what I hear from the small-business community in Kansas is the
inability to provide quality childcare options--that's
something a little bit different, in terms of the topic we've
been talking about--and affordable healthcare to the employees,
which this entire committee talks about a lot. I realize these
are two different issues. They may be different from the issue
that we're talking about, but, after all, this is the Senate,
and that's what we do.
At any rate, let me just repeat to you an experience I had
when I was going door to door in south Dodge City, where I'm
from, and a lady came to the door with two small children, who
were not happy, and were letting their mother--there wasn't--
and she wasn't happy. And so, I handed her my brochure--first
attempt at public office--and I said, ``My name is Pat Roberts.
I'm running for Congress. I would like to represent you in the
Congress. I think I could do a good job. What could I do for
you?'' And she looked right at me, and she says, ``It's your
world. I'm just living in it.''
Bingo. And so--I got to thinking about it--and so, I said,
``I want to know, what would be the most help to you?'' She
said, ``I had a job offer, but, with these two youngsters here,
I cannot accept the job.'' So, the first bill that I introduced
in 1997, when I first got here, along with Jim Jeffords, was
the Small Business Child Care Act. It's a grant program to our
small communities, so if the implement dealer and the
restaurant, where she worked, or the bank could come together
for a childcare program, they could, and they offer a grant of
$500,000; then, to continue, you have to match it. It would
simply be authorized by this committee, as opposed to being
appropriated. And I know we're in a tight budget schedule. But
that is the one bill that I introduced. I was going to make an
amendment on the floor. I was still fresh from the House. I
thought I had to have the agreement from all parties concerned.
Obviously, that doesn't happen in the Senate. And I learned my
Jim Jeffords wanted a more comprehensive bill. I was for
that, but I didn't think we had the votes to do it, so my
first-step bill never got anywhere, after 10 years. And I've
kept introducing it. And Lamar Alexander, who has just left the
committee room, is my cosponsor, along with a lot of others.
But, at any rate, I'd like to ask Mrs. Cablik what she
thinks of that. What it would do is give the small community,
like Dodge City and much smaller, an opportunity to provide
quality childcare for that person that I am talking about, to
match up the small-business community, where they do not have
the expertise, maybe do not have the money, but they could, if
they went, together. Would that be helpful to your experience,
in regards to the small-business community?
Mrs. Cablik. Definitely. What--I always feel, when you take
a group and put it together, where they work together to solve
the solution--to find a solution for a common problem, that
will definitely be helpful. It is difficult for a small
business to come up with a daycare provider, like some of the
big companies. And if there would be a way of coming up with a
daycare for a whole entire community so that the mothers could
come to work and be reasonably assured that the child would
have adequate care, that would be helpful.
I'm not sure whether the government really would need to
actually fund it. I think most times, if there would be a way
of the private industry to do it, in my experience, private
industry has usually done a better job than the government.
Senator Roberts. Well, we are trying very hard with private
industry to do that job. This bill, the small businesses are
eligible for grants up to $500,000 for startup costs, for
training, for scholarships and other activities, priority given
to grantees who work with other small businesses or local
Typically, we have--we have outstanding childcare
facilities in Kansas City, in Lawrence, in Manhattan, in
Topeka, in Wichita, so on and so forth. And that's fine. I'm
not saying this is a moral issue, but it is a regional issue
when you have a small community--more especially, a non-county-
seat community, that--they simply do not have the expertise.
Now--and then, of course, if you continue, you have to have a
matching grant from the local community to keep it going, but
you at least get started. Now you have nothing. And so, from
the standpoint of regional fairness, I still think it's a good
bill, and I would hope that the leadership of the committee
would also say that.
The other thing that I would simply say is that everybody
out there--we have, what, 60 percent staff--we have 60 percent
of the small-business community who do not have any insurance?
None. No insurance. And Senator Enzi's bill got 55 votes on the
House floor, then we got into what we call sort of a
disagreement here. We had a clear majority, but we couldn't get
past a 60-vote hurdle in the Senate. It is time to pass that
bill to give the small-business community, the employer and the
employee, the opportunity to say, ``At least I have some
healthcare insurance''--perhaps not the most comprehensive.
I'm making a speech, I'm not asking a question. My time's
already expired. But at least--I would like all of the
panelists to consider this childcare option, because I think it
would afford us a real opportunity, especially that single
mother with children, who has no other opportunity to go
forward in the community.
I thank the Chair.
The Chairman. Thank you very much.
Senator Dodd. Well, thank you very much, Mr. Chairman.
And, first of all, my apologies to the witnesses for
getting over a little late.
Mr. Hacker, welcome. It's nice to have a Connecticut
representative here with us today, and I thank you.
And, Ms. Appelbaum, you've been here many times. It's a
pleasure to see you back here again, and we thank you.
And, Reverend and Anna, thank you, as well, for being a
part of today.
First off, let me just say to my good friend from Kansas,
I'm delighted to hear about his efforts on the childcare front.
As he may recall, Senator Hatch and I, beginning back around
some 22 or 23 years ago, offered the first Child Care
Development Block Grant. Senator Kennedy was invaluable in
those efforts in--a leading supporter of the efforts to begin
Tragically, over the last 5 or 6 years we've been able to
get almost zero help in extending those benefits to the working
poor, people who really need it, as you point out. And I'm
delighted to hear there's a growing interest in this, because
it's absolutely been a critical element in the country, and
we've been falling way behind, in terms of our ability to
provide those resources for people who have no alternatives. I
hope we'll focus on quality, because one of the major problems
has been--while there's been some resources--the quality of
childcare. I've actually pointed out, we have better quality
care for pets, by regulation, than we do for our children, in
many settings, in terms of the ratios of adult supervisors,
even the basics, health and safety standards, in places. And
it's just been sad to watch what's happened over the years here
with little or no interest in the subject matter, despite the
Senator Roberts. If the Senator would yield, I think I
remember going over here to the childcare center that we have
for Federal employees, with Senator Kennedy and yourself. I
can't remember the fourth one. And I think I was the lone
elephant, as I recall. But, at any rate--and that's been, what,
5, 6 years ago? As you've indicated, we haven't seen any
progress. At least the bill that I have is a first step and, I
think, would make a very good plank in your presidential
Senator Dodd. Well, I appreciate the endorsement. I don't
have many people in Kansas----
That may be my first Republican on the ballot here.
Senator Roberts. Well, mark me down as undecided.
Senator Dodd. All right. Well, it's a start, anyway.
I just was going over and looking at some of the data,
and--on some of the stuff you've had. Just in terms of what's
happened to real income, how it's fallen. I don't have large
charts here for anyone. I apologize. I should have--but, in
every single income category--the bottom 20 percent, the lowest
20-percent income, median income, second-highest 20-percent
income, top 20 percent--every one of them have watched incomes
that have declined between 2000 and 2005. The only category
that watched its income increase is in the top 5 percent of
income earners. I mean, the data is just pretty clear. This is
from the Census Bureau, as well.
In terms of levels of education--and maybe you have some of
these here. Maybe I have them already. I guess you do. Here,
the levels of education--the only area where we've seen any
kind of an increase at all is in the low--those with less than
a ninth-grade education. I'd be interested in how that's
particularly happening in that category. But, nonetheless, in
every other education level, we found a staggering decline in
incomes for people.
Personal savings rates have dropped down to a negative
level, minus 1.2 percent. Health insurance, if you know the
numbers, continue to rise. Households with very few--30 percent
of the population of this country, in excess of 30--have a net
worth of less than $10,000. Almost 18 percent have a zero net
worth. And it's--27 percent have a net worth of less than
$5,000, in the country, as we go forward. And consumer debt now
is approaching 20 percent. The average share of household
income spent on debt payments is now approaching 20 percent.
That's up from 16 percent in the early 1980s, a low level in
the mid-1990s, now skyrocketing again over the last 5 or 6
years. So, the data is pretty compelling, here, that these last
5 or 6 years have been hard on most families in this country,
it isn't just low-income, but well into the middle-income
categories have really suffered tremendously. And I wonder if
you might, if I can--Dr. Hacker, if you could talk about the--
just the policies over the last couple of years. What have been
the impact, in your view, of these policies on these numbers?
Were these numbers--would they have occurred anyway, or have
they resulted, in part, because of the policies that have been
enacted by the Congress and the administration over the last 5
or 6 years?
Mr. Hacker. Well, thank you, Senator Dodd. And it's a
pleasure to be able to testify before you, as a----
Senator Dodd. Thank you.
Mr. Hacker [continuing]. Fellow Connecticut resident.
It's a difficult question, you ask, actually. I was part of
the American Political Science Association's Task Force on
Inequality in American Democracy, which, a few years ago,
issued a report expressing concern about the spillover effect
of growing economic inequality on political equality in the
United States. And we actually looked at all of the available
evidence on the effect of public policy in the United States on
inequality and insecurity and other measures of family economic
well-being. And what I want to emphasize is that, while we
know, and we can tell, both by looking across nations and by
looking across States, that there is a strong relationship
between what government does, in terms of public policies and
the distribution of income and well-being, it's harder
sometimes to assess the effect of individual policies, in
So, let me just give you two broad pieces of evidence. The
first is just that we know that the United States is the
country that has done the least to deal with rising economic
inequality, compared with other advanced industrial
democracies. If you look at all of the other rich countries for
which we have evidence, there's actually been an increase in
the degree to which these countries redistribute income to
offset rising market income inequality. The United States has
moved, actually, in the opposite direction.
The second observation I would make is simply about one of
the key economic policies of recent years, which, of course,
has been the repeated rounds of tax cuts that have been passed.
All of the evidence we have, including the most recent data
that's come out of the Census Bureau, suggest that these tax
policy changes have exacerbated an already serious problem with
economic inequality in the United States, both because they've
distributed a great deal of benefits at the top of the income
ladder and because they've reduced the tax rate on those forms
of income, like capital income, that are most prevalent at the
top end of the income scale. So, that, I think, we can say
clearly has contributed to this overall increase.
Senator Dodd. Ms. Appelbaum, would you want to comment on
that, as well? I'd like you to add one other element, because--
something that Dr. Hacker raised, and that is the issue of how
our policies--the global competitiveness issues. I mean, we all
give these talks and speeches to our constituents about how our
children are not going to be competing, the child in Boston
with the child in Hartford, or the child in Cleveland with the
child in Bridgeport, but, rather, with children in Sydney and
Beijing and Johannesburg Taipei. How are we doing? As this sets
up now, in light of where we are today, how are our present
policies affecting--and these numbers--affecting, in your view,
the position of the United States in global competitiveness?
Ms. Appelbaum. Well, I think that there are two parts to
the answer. One of them has to do with our ability to provide
all of our young people with excellent education, not only K-
through-12, but, to the point that was raised earlier about
childcare, we have to start earlier with universal pre-K, good
K-through-12, affordable university education for those who are
going to pursue those kinds of careers, and, as was indicated
earlier, we need to think about other kinds of postsecondary
education to meet the general employment needs in the country.
It's not just all about college education, although I agree
that that's extremely important.
But I think there's a big area of neglect in this country.
We think of manufacturing and people who care about
manufacturing policy as trying to protect jobs. Well, the thing
we know about manufacturing is that this is where the greatest
productivity growth takes place. The reason we want a strong
manufacturing sector in the United States is that that is the
engine of productivity growth in the United States. And so, the
other side of that coin is, you can't really think about this
as the job-creating machine. What it does is, it creates a
competitive domestic economy. It means that people will be
employed, not just in the manufacturing jobs, but in all of the
high-level business-service jobs, also the--I mean, hotels are
part of the business-service sector that you just don't think
about, with all of the business travel and so on. A strong
domestic economy has to be built around a strong manufacturing
base, and our policies have not looked to that.
We've taken the position that the rest of the world can be
the brawn, we're going to be the brains. It doesn't work like
that. You cannot separate the brains from the brawn. We gave up
the manufacture of television, because we said, ``Well, this is
a mature industry, and nothing is going to happen.'' And now we
have all of the new plasma screens and so on, which are not
only in TVs, they're in cockpits of airplanes, there's a whole
new technology that is being developed, none of it in the
So, what's really important, in my view, is to begin a
national dialogue about how we reestablish our manufacturing
competitiveness. I don't have the answers. To be honest, I
think there are a lot--I have some answers. I'd bet everybody
in this room has their own favorite answers. But I would really
like to see a blue-ribbon bipartisan commission that would
travel around the country, take testimony from business, from
labor, from citizens, put together the best ideas, and think
about how we are going to restore competitiveness in
manufacturing to drive sustainable productivity growth,
sustainable trade, and sustainable employment.
Senator Dodd. Well, it's a national security issue, as
well. I would just tell you--in fact, the committee that I
chair, the Banking Committee, has jurisdiction over the Defense
Production Act, which is up for reauthorization this year.
We've lost 3 million jobs in about 7 years in the manufacturing
sector in this country, about a third of them in areas that are
producing those small parts--mid-sized small business--that are
components of some of our most important military industrial
products, whether jet engines or submarines or tanks or armored
vehicles, and we're giving a lot of that away, and that raises
serious issues in the 21st century as to whether or not we can
rely, and have available to us, an industrial base that will
contribute to the defense needs of our country. So, beyond the
economic issues, they reach into the security issues----
Ms. Appelbaum. That's right.
Senator Dodd [continuing]. As well.
Thank you, Mr. Chairman.
The Chairman. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Dr. Forbes, thank you for framing this as a moral question,
as you have so well.
I want to followup on Senator Dodd's question and comments
to Dr. Appelbaum.
When I first ran for Congress in 1992 and was elected, we
had a $38 billion trade deficit. Today, it will exceed $800
billion for 2006. It will--our trade deficit with--bilateral
trade deficit with China in those days was barely double--were
barely into the double digits. Today, it may exceed 250
billion, as you know, for 2006. If you would--you mentioned, in
your testimony, the disdain for manufacturing, which I see and
hear all the time, especially from people on the coasts,
frankly, the East Coast and the West Coast. What I've seen in
the State of Ohio, and just coming off a campaign, was--and
have seen this for years--is, as we lose large manufacturing--
as a Ford plant moves to Mexico or a steel mill shuts down or
experiences major layoffs, it's a lot of small tool-and-die
manufacturers, a lot of small machine shops that are usually
nonunion, usually family-owned, usually 60-80 employees that
can lose their biggest customers and lay off half their
employees. For a moment, if you would, be prescriptive about
what we should do on manufacturing. I know the blue-ribbon
committee--commission suggestion is not the answer I'm looking
for here. If you would be prescriptive on two or three things
that we should do, not expecting that a steel mill with 10,000
employees is going to move to Lorrain, Ohio, or not expecting
an auto plant with 8,000 employees is going to locate in my
State, but what do we do, specifically, for a real
manufacturing policy, which we've simply ignored?
Ms. Appelbaum. I think that is one of the most difficult
questions. I mean, that's--I think we've dug ourselves into a
deep hole, and, to me, it's probably as difficult a question as
asking, you know, How will we get out of Iraq without leaving
chaos behind? It's an incredibly difficult question.
I think we need to look to some of our strengths. We have
huge strength, for example, in the manufacture of medical
electronics. We need to look at the industries that are
successful and see, What can we do to expand these industries?
We need to think about green technology. Companies have begun
thinking about it. I think that this is another area where the
United States can excel.
We do have a financial market that makes possible--if we
only had some protections for the individuals involved--but
makes possible great risk-taking, great--making big bets on
things that are uncertain. And I think that we need to
encourage that kind of entrepreneurial behavior, and I think
that's where Dr. Hacker's policies and proposals are so
important. If you want people to take those really big risks
and think about what they can do, what might pay off in the
future, they need some sort of safety net so that, if the risk
fails, they don't fall all the way down to a minimum-wage job
in which they can't support their family and to living in
So, I think that, to look at the places where we're
strong--aerospace is a strength, medical technology is a
strength, green technology is a strength, alternative energy is
a strength--to think about these areas, and to identify
others--I know other people could come up with their own list--
and to think about the kinds of both training, education,
investment, risk--you know, making it possible to take these
risks--that would enable the entrepreneurial ability and the
scientific ability of the American workers and employers to
make themselves felt.
I also think that we need to have a lot more investment in
higher education, in making sure that people have the necessary
skills. If we're going to invest in new technologies, we've got
to educate people for these new technologies. And I think that
that's another important aspect.
Senator Brown. Thank you.
At Oberlin College was built, recently, the largest
freestanding building in the country on any college campus
that's entirely powered by solar. And to get the solar panels,
he had to go to Germany and Japan to buy them, because we
haven't created the market in this country, and it's also--
apparently has to do, a good bit, with investment tax credit
and predictability of investment.
Let me, real quickly, Dr. Hacker, switch to you--and thank
you, for--I've actually read ``The Great Risk Shift,'' and
thank you for illuminating so much of what's happening to the
middle class in this country.
Where--if the insecurity persists or grows, if the
inequality persists or grows, as it has, where are we in 10
years in this country? And--this is a harder question,
perhaps--give us two or three things, in terms of trade policy
or the role of unions or whatever we need to meet this growing
inequality and to blunt this growing anxiety that people have.
Mr. Hacker. Well, thank you very much.
And I think that if we continue down this path, we will be
in a very bad place. I think that's clear. I think we'll be in
a bad place, both for those who believe strongly in the need to
address economic inequality and insecurity and for those who
are not as concerned about those problems today, because
workers who are anxious and insecure are going to search for
solutions, and if there are not constructive solutions on the
table, they will seize destructive solutions. What comparative
statistics we have suggest that the worst alternative is
clamping down strictly on the flexibility of the labor market,
putting in place very strict regulations on hiring and firing,
which is what some European nations have done in response to
these trends. There's also, obviously, tendencies towards fear
of immigration and foreigners that can emerge in periods of
economic stress. So, I think we really should see this as a
broader problem that could put many Americans in the position
of wanting to search for scapegoats or to demand reforms to our
economy and society that many of us would not support.
If we can provide both the protections that workers need
and the skills and education that they need to provide them
with the ability to compete in this global economy, then I
think that we will both have a more optimistic and opportunity-
seeking society and one in which there's more harmony and
higher social welfare overall.
I think the greatest failure--and this goes back to Senator
Dodd's question--is our failure to act on healthcare, because I
think it links a lot of these problems. I mean, I have the same
concerns you have about the way in which our trade deficit has
grown and manufacturing has declined, and yet, I see healthcare
as tied up with many of these trends. And one--and it is an
area in which our failure to act, if you will, the lack of a
policy, has really exacerbated all of these other problems.
You know, over the last few years, we've seen an explosion
of healthcare costs, a major decline in coverage, near--
moderate income workers, according to a recent Commonwealth
Fund survey, have gone from having about 25 percent uninsured
to having almost 40 percent uninsured in 4 or 5 years. That's
just remarkable. And that--and so, we're seeing an erosion, and
maybe even an implosion, of the employment-based health-
insurance structure we've come to know. It's imposing the
greatest cost on those companies, like manufacturing, that have
committed themselves the most to the welfare of their active
and retired workers.
We need to deal with these costs. We need to move some of
these burdens off the companies. We need to share them, as a
society. And we need to attack the underlying causes of rising
costs so that corporations aren't burdened, and individuals
aren't burdened, by these costs, going forward. To me, that is
the most imperative step that we need to take today.
The Chairman. Let me thank our panel.
I'd just like to come back to the Reverend Forbes. We've
talked a good deal this morning about different plans. We've
talked about health insurance, childcare, of investments, and
different human endeavor. Give us just a couple of minutes
about what you think has to be done, in terms of the society,
to get them to be more willing to accept these kinds of
alterations and changes. I know you mentioned that Bill Moyer's
article in The Nation, which I've read, which is very powerful.
But I'd be kind of interested, I mean, how--we've talked about
plans and programs and policies, but if you had to say, to get
this sense about the country, you know, being one country and
one nation, one destiny, one future, maybe you'd talk a little
bit about your own experience, in traveling around the country
and facing these kinds of issues--you've heard everything here
a thousand times this morning. What good advice can you give to
it? That would really be my last question.
Mr. Forbes. Well, thank you, Mr. Chairman and Senator Enzi
and members of the committee. Please, this story.
After 9/11, there was a time when they were seeking to find
bodies. After that, they simply started to remove the rubble. A
little after they had decided there could be no life there at
all, a white pigeon flew up out of the rubble. And, given my
background, that had two meanings. We'd been praying, God Bless
America. It felt to me that that pigeon--and in the Bible, the
dove is the symbol of peace and also of the spirit--and I think
that, since it was a real crisis, if you didn't have a dove, a
pigeon would have to do. So the issue is, we are a capitalist
society, and we speak about the invisible hand of the market.
But religious leaders believe, in general, that there needs to
be another invisible hand, not only--but, of course,
productivity--but the ``what for.'' If we are thoroughly
materialistic without being open to issues of spirit, we will
gain, perhaps, but we will lose the end of the process. By
``spirit,'' I mean issues of, What is the purpose of our lives?
What is the source from which we derive our values? Where do we
turn to when we are desperate and vulnerable? What is our
responsibility to each other? And what kind of world do we want
to pass on to our children and the children in the other parts
of the world? Unless America, as we pray for the recovery of
our security, the ending of our wars, the redevelopment of
meaningful work, manufacturing, we will have to also ask that,
if our spirit is one part of our being human, How do we nourish
that spirit? And it seems to me that the religious traditions,
on the right and the left--the various traditions, not just my
own--all of us will have to give the answer. What does the
religious tradition have to offer people that, beyond their
earning money, helps them to understand ``what for,'' not only
for themselves, but also for their enemies and their families
and their friends.
So, my belief is that the future well-being of our Nation
cannot be envisioned apart from spiritual revitalization. And I
don't simply mean hands raised up and shouting and being all
religious in the traditional sense, I mean spirituality of
budgets, spirituality of our care for the vulnerable, the
spirituality of visioning, not only for our Nation, but for
other nations of the world, broad spirituality. I, therefore,
am saying, we, who are in the religious community, are your
partners. You can't do it all, but it's our responsibility.
Keep on asking. Whatever policies are made, measure them by the
plumb line of humanity, love, care, and a future that can be
shared by all of us. That's my sense of where we need to join
hands and be in partnership for a brighter and a new America.
The Chairman. Amen.
Senator Dodd. Amen. I was going to say.
The Chairman. Senator Enzi, is there anything further you'd
Senator Enzi. I've got just a couple of questions----
The Chairman. Sure.
Senator Enzi [continuing]. Dr. Forbes, does your church
have a private school?
Mr. Forbes. My church has a weekday school--that's for the
pre-K school--but not an elementary school.
Senator Enzi. Because that seems like one of the--you
mentioned that great list of things that your church is doing,
as you started your original testimony, and I congratulate you
on that, and I'm always encouraging churches to be more
proactive in those areas. Senator Roberts mentioned childcare,
and it seems like churches would be an obvious place to do some
childcare. The primary use of the building is often on Sundays,
and the primary need for the care is often during the weekdays,
so I suspected that you might do something like that, as well,
and I congratulate you for it.
One of the questions that I'll be submitting for you is
things that churches could do to play a bigger role in solving
people's problems, and perhaps we can help expand that out to
the faith community to have them play that kind of a role,
because it isn't all government. You can't do it without
government, occasionally--but you can't do it without community
and you can't do it without faith.
Mr. Forbes. Yes.
Senator Enzi. And if we can bring them all together, I
think we can probably make some great changes.
There have been a lot of comments, too, about the need to
increase manufacturing in the country. And I'm a strong
advocate of that. Particularly small-business manufacturing, as
you might guess. I see a trend in the country where there is
more emphasis and more kids that are looking at small business,
being willing to take the risk, because they can see some of
the benefits from taking the risk, but there's also the
potential for employing some other people there. And I've
started doing an inventor's conference in Wyoming each year to
encourage young people to invent something that they can make
in Wyoming and ship all around the world. And I'm really
pleased with the progress that we're making there, and it has
some international implications. There's a fellow that makes
tachometers. He makes--they're highly technical--makes them for
NASCAR cars. And originally he had the parts made in Taiwan,
and assembled in Taiwan, and it occurred to him that maybe
Wyoming folks could put those tachometers together with less
errors, and have a better product, and provide some jobs. And
he tried that, and it worked. They're making more money, he's
making more money. Now he's considering making the parts in
Wyoming, for the same reason. And I'm hoping he's very
successful in that and we will have stolen the business from
But I want to thank Mrs. Cablik, particularly, for the role
model that she provides both as a businessperson and as a
businesswoman. And I think examples like you provide will
encourage more kids to learn a business, try a business, own a
business. And there is a lot of risk involved in that. So, I'll
be providing you with some questions on keys that you might
have for the ability to start and grow a business, and--as well
as the obstacles--and how we might participate in those.
I just want to thank the panel for a tremendous amount of
information. And, as I said, we'll be providing you with some
additional questions to get some very specific information.
Thank you very much.
The Chairman. We'll be submitting some other questions, so
we'll keep the record open for a week.
We thank you all very, very much. It was an enormously
interesting, valuable, helpful hearing. Thank you.
The committee stands in recess.
[Additional material follows.]
Prepared Statement of Senator Brown
Thank you, Mr. Chairman. And I'd like to thank our
witnesses for joining us this morning.
A living wage; benefits that are both earned and awarded,
not earned and reduced or earned and eliminated; affordable
housing; decent health coverage; a solid public education and
college that's accessible and affordable--those are the basic
supports that enable working families to build personal
economic security and contribute to a strong national economy.
Economic security begins with economic opportunity: good
paying jobs, the kind of training that enables workers to
diversify their skills and take on new challenges; and again,
high quality primary, secondary and higher education.
Our Nation is the wealthiest in the world, and working
families should be thriving. By and large, they are not.
Working families are struggling to find and maintain good
paying jobs, they are earning health and pension benefits that
may or may not last until retirement; they are watching their
health premiums and copayments increase . . . if they even have
access to health coverage; they are borrowing in record amounts
just to cover day-to-day costs . . . they are struggling.
The Center for American Progress looked at some key
statistics over the past 5 years and found that:
average job growth is one-fifth the rate of
previous business cycles;
wages have been flat; and
only 28.8 percent of middle class families have
the financial resources to sustain themselves through a period
The average family took on debt equal to 126.4% of
disposable income just to manage their day-to-day expenses.
Our Nation cannot afford to take these statistics in
stride, hoping that the precarious financial position of
working families is a temporary phenomenon linked to the ebbs
and flows of our economy. It is not.
Our economy as a whole is losing ground as our trade
deficit skyrockets, energy and health care costs spiral upward,
good-paying jobs are shipped overseas and our Federal deficit
climbs higher and higher.
When Democrats say we need a new direction, it's not just
rhetoric; it's a fact.
Today's hearing is an opportunity to look at the problems
and review potential solutions. It is the beginning of a
process that I hope and trust will lead to concrete policy
changes aimed at getting our economy back on track and enabling
working men and women to build a secure retirement for
themselves and a solid future for their children.
Prepared Statement of Senator Dodd
Thank you, Mr. Chairman, for holding this hearing, and
welcome to our witnesses. I'm especially happy to welcome a
fellow resident of Connecticut, Professor Jacob Hacker of Yale
University, before the committee.
Today's hearing cuts to the heart of one of the most basic
desires shared by all Americans and people around the world:
the hope of building better lives for ourselves and our
children. In seeking to achieve this goal, American families
are walking an increasingly precarious economic tightrope. They
are taking on greater amounts of risk--mostly in the form of
added debt and increased exposure to health care and retirement
costs--while their incomes are becoming increasingly less
In the last few years, especially, many families have been
forced to stretch themselves too thin economically. The average
family today makes almost $1,300 less, in real terms, than it
did in 2000, yet that family is paying more for major expenses
like health care, gas, and college tuition. Those at the bottom
of the income scale and with the least amount of skills have
fared the worst, but even households in the top 20 percent of
the income distribution have experienced a drop in real income,
on average, as have individuals with a college or graduate
Many households have little in the way of savings to fall
back on if something goes wrong, like a family illness or loss
of a job. Thirty percent of Americans currently have a net
worth of less than $10,000. Eighteen percent of Americans have
zero or negative net worth. The personal savings rate has been
negative for six consecutive quarters, while consumer debt
burdens have risen to record highs--American households, on
average, now spend nearly 20 percent of their income paying off
debt. With so little margin for error or misfortune, even the
slightest disruption can have serious consequences. As I expect
our witnesses will discuss, this trend has troubling
implications not only for the economic security of individuals
and families, but also for the entrepreneurship, risk-taking
behavior, and human capital investments that drive our
In spite of these trends, I believe our country still
offers great economic promise to people of all backgrounds. I
look forward to hearing our panelists' thoughts as to how we
might deal with this ``great risk shift,'' as Professor Hacker
calls it, and strengthen economic opportunity and security for
hardworking people across our great country.
Response to Questions of Senator Enzi by Eileen Appelbaum, Ph.D, Jacob
Hacker, and Rev. Dr. James A. Forbes, Jr.
response by eileen appelbaum, ph.d.
Question. In your written testimony you note that ``workers need
greater control over work hours and work schedules.'' Could you support
Fair Labor Standards Act changes that would allow private sector hourly
employees who wish to spend more time with their families the option of
voluntarily having their work hours calculated on a bi-weekly, rather
than weekly basis? This way, a working mother could work 50 hours in 1
week and 30 hours in the next week, while her husband worked an
opposite schedule and their children enjoyed an extra 10 hours a week
with a parent.
In my scenario the employer would not be required to pay overtime
pay for the extra 10 work hours--and, thus, employing the working
parents would not be a disadvantage for the employer or for the other,
non-parent employees who are earning out of the same pool of profits.
What is the difference between Federal employment and private
sector employment that would justify allowing this arrangement in the
former, but not in the latter?
Answer. As I understand the question, Senator Enzi is posing a
hypothetical situation in which a husband and wife both work full time
and both have sufficient control over their schedules that they each
are able to obtain schedules that permit the husband to work 30 hours
in the week his wife works 50 hours and to arrange those hours so that
he can be home with the children during the 10 hours that she is
working above the standard 40 hour work week. Similarly, the wife works
30 hours the week the husband is working 50 hours and is able to
arrange those hours so she can be home with the children during the 10
hours that he is working above the standard 40 hour work week. The
weekly work schedules are at the discretion of the employees. Moreover,
the employees are able to coordinate their weekly schedules.
It is, of course, highly unlikely that many employees will have
this type of discretion over their weekly work hours. A national survey
conducted by the highly regarded Families and Work Institute found that
only 35-36 percent have ``a lot'' or ``complete'' control over their
work hours--and this is for both low wage workers and those in higher
paid managerial and professional positions (Bond and Galinsky, ``What
Workplace Flexibility is Available to Entry-Level, Hourly Employees,''
2006--compared low wage to mid and high wage employees).
It is also highly unlikely that employers will be able to
accommodate individual requests by hourly workers for work hours that
coordinate with those of a spouse for more than a few employees.
Scheduling could become difficult in large workplaces while covering
the work could be difficult in small and/or specialized establishments
The opposite schedules are very important for the parents since
child care is usually not available or is prohibitively expensive to
cover a 50 hour work week plus travel time to and from work. A single
parent on this schedule would be particularly disadvantaged. She would
have to pay for full-time day care every week, since the day care
provider does not operate on a short schedule on alternate weeks. And
she would have to pay for extra coverage, if she could find it, in the
weeks when she worked long hours. And she would have to do this without
receiving overtime pay for those extra hours to help with the extra
It is very likely that worker and family well-being will suffer if
workers are regularly scheduled/required to put in a 50 hour work week.
If they lose overtime pay, this will reduce household income. More
important, perhaps, these workers will sacrifice leisure time and will
be less able to balance competing demands on their time in those weeks
when they work 50 hours. Another study by the Families and Work
Institute found that the overwhelming majority of workers prefer to
work less than 50 hours a week (Galinsky, Kim and Bond, ``Feeling
Labor productivity may also suffer during the 26 weeks of the year
that these workers are working long hours. Fatigue is one reason that
productivity falls off when workers work long hours. Another is that
workers may view the loss of overtime pay as a pay cut and reduce work
These problems emerge even in a ``best case'' scenario such as the
one suggested by Senator Enzi in which employees voluntarily agree to
having their work hours calculated on a bi-weekly basis and both the
husband and wife can determine which hours they work in the long week
and which they work in the short week. If control over work schedules
is in the hands of employers, then workers on a bi-weekly 80 hour
schedule face further difficulties. Their work hours may be
incompatible with those of their spouse and their work hours may be
unpredictable and/or highly variable from week to week. Employers can
require work weeks of more than 50 hours a week. Workers face the
threat of being fired for insubordination if they refuse the long hours
schedule in a particular week, even if it is because they have child
care or family care responsibilities. Only two States currently have
laws that allow workers to refuse mandatory overtime because of child
or family care responsibilities. Long, unpredictable, or variable work
hours further complicates the task for workers of meeting their
responsibilities to their families and to their employers.
Public sector workers do not have bi-weekly 80 hour schedules.
Public sector employers can legally grant comp time instead of cash
overtime payments if employees agree to this arrangement. In principle,
employees are supposed to have discretion over when they take this comp
time and to be able to ``spend'' the banked comp time when and as they
choose, as they would earned wages. There is not much data on how well
this works for public sector workers and whether, in fact, they get to
use the comp time or whether it accumulates unused in their comp time
banks waiting for work demands to slow enough for employees to take it.
However, there are many differences between the public and the
private sectors that make the banked comp time approach especially
problematic in the private sector. The most obvious is that private
sector firms can go out of business, can move to another location, or
can close an establishment and move the work offshore--in all of these
cases, employees lose the accumulated time in their comp time banks and
are never compensated for the extra hours they worked. Private sector
workers are also far less likely than public sector workers to belong
to a union or to have the protections afforded by a union contract. It
is, in this case, unclear how voluntary the agreement to comp time in
lieu of overtime pay is. It is also unclear how much choice private
sector hourly workers would have about when to use comp time. Private
sector employers might shut operations during slow times and subtract
the time from workers' comp time accounts. In an ``employment at will''
system such as we have in the U.S., many workers will be afraid to
complain about such treatment and will simply go along to keep their
I would like to thank Senator Enzi for his question and for the
opportunity to address this important issue.
response by jacob hacker
Question 1. Professor Hacker, I note that to a large degree you
used the word ``insecurity'' in a psychological sense, pointing out
that individuals are increasingly worried about their economic future,
or feel negatively about the economy even if the statistical evidence
may suggest a more positive picture. Isn't this kind of ``insecurity,''
at least in part, a direct function of increased personal
responsibility? Once any of us assumes responsibility or control for
something don't we worry more about it?
Answer 1. I use ``insecurity'' to mean lack of adequate protection
against hardship-causing economic loss. This definition does have a
psychological component, as one person may view their own protection as
``adequate'' while another similarly situated person may not. But in my
testimony, I meant to focus only on the objective or measured
insecurity of Americans--that is, the extent to which they actually
lack protection. And, as I showed, using this objective measure,
Americans appear to be substantially less protected today than they
werequarter century ago. Health insurance is less common;
health costs are astronomically higher; guaranteed pensions are fast
becoming a thing of the past; bankruptcy and home mortgage foreclosure
are more frequent; families are more deeply indebted; and family
incomes are less stable.
As I noted in my testimony, however, Americans also appear to feel
less economically secure. We know surprisingly little about what
influences public perceptions of economic security--a topic of my
ongoing research. And there may well be truth to your claim that
increased responsibility for financial planning is part of the reason.
For example, 401(k)s require that people make sometimes vexing choices
about how to allocate their money across investments and manage their
savings in retirement. Nonetheless, the evidence suggests that those
who feel least secure are least likely to have access to 401(k)s, least
likely to own substantial assets, least likely to have health
insurance, and least well equipped to meet their present financial
obligations. Thus, my own strong impression is that the main reason why
more Americans feel insecure is that they are having a harder time
making ends meet and feel that government and corporations aren't
looking out for them.
Question 2. Professor Hacker, is there such a thing as ``healthy
insecurity?'' By that I mean isn't a certain sense of concern about a
necessarily unpredictable economic future a good thing since it causes
us to act in a rational and prudent way and prepare for the negative
economic contingencies that life sometimes brings? Doesn't such concern
or ``insecurity'' motivate individuals to act responsibly and make
beneficial decisions like acquiring marketable job skills, increasing
personal savings, curbing debt, and preparing for retirement?
Answer 2. To a certain degree, anxiety about the future is healthy.
It can indeed prompt people to make prudent long-term decisions.
Problems occur, however, when (a) anxiety itself is unhealthy (and
there is a good deal of evidence that the stress associated with, say,
involuntary unemployment can be quite debilitating) or (b) anxiety
encourages people to shy away from taking risks they might otherwise
take. After all, we give corporations and entrepreneurs protection
against full liability and financial bankruptcy precisely because we
want them to take risks they otherwise would avoid. By the same token,
we should give workers and their families protection against the most
severe economic risks they face. For example, we should provide people
with protection against the dislocations associated with losing a high-
skill job so that people feel confident investing in specialized skills
in the first place. Unfortunately, I believe that the pendulum has
swung too far in favor of making people bear risks on their own. As I
often put it, we still have limited liability for corporations, but
increasingly we have full liability for American families.
Question 3. Professor Hacker, have your studies examined, at all,
the role that personal behavior plays in creating either the sense, or
reality of economic insecurity? For example, what role does excessive
consumer purchasing, and consumer debt play; or what about inadequate
personal or retirement savings; or other spending, saving and lifestyle
Answer 3. As I indicated in my earlier answer, we know relatively
little about what shapes personal perceptions of economic security.
Certainly, people without ``personal or retirement savings'' do feel
less secure. The question is why the rate of debt has risen so sharply
over the last two or three decades. Why, that is, are so many people
have such trouble saving for retirement and other long-term ends? The
evidence that we have indicates there has not been a fundamental shift
in consumers' views of financial responsibility. For example, the
Survey of Consumer Finances suggests that people are no less patient or
consumer-oriented in their financial decisions today than they were two
or three decades ago. (See, e.g., http://www.federalreserve.gov/Pubs/
My own conclusion is that people feel more constrained financially
for three main reasons: (1) growing inequality, which means that
middle-income Americans have not shared fully in the gains of economic
growth and have thus fallen farther and farther behind those at the
very top; (2) rising ``fixed'' costs, primarily the cost of housing,
health care, and education--which leave people with less and less
discretionary income after the mortgage or rent, health premium, and
tuition bill have been paid--and (3) declining employer guarantees in
health care and retirement, requiring that people save on their own
(perhaps in a 401(k)) and pay more of their health costs directly. When
you add up these three factors, it strikes me as understandable why so
many middle-income Americans feel they are financially hanging by a
james a. forbes, jr.
Question 1. The minimum wage increase which is currently pending
before the Senate will raise it to $7.25 an hour. This is only 10 cents
higher than the current minimum wage in your home State of New York. It
is hard to imagine this victory having a very significant benefit for
your congregation. Do you believe that there are other ways to improve
the income of those working at the lowest earning levels of our
economy, such as education and job training?
Question 2. I know that your church provides many services for
parishioners and community members. I believe that churches and faith-
base organizations are in a unique position within communities to
provide many different types of services and programs. I am very
interested about any childcare and early education services and
programs your church may offer or facilitate. Can you please describe
Question 3. Do you believe that having churches and other faith-
based community organizations provide social and educational services
is important for those organizations and the people they service? What
can government do to assist in this important work, and what should
government avoid doing that might impede the delivery of these
[Editor's Note: Responses to the above questions were not available at
time of print.]
[Whereupon, at 12:08 p.m., the hearing was adjourned.]