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OSEC Congressional Testimony

Statement of Robert B. Reich Secretary of Labor before the Committee on Labor and Human Resources, United States Senate [03/16/94]

Chairman Kennedy, Senator Kassebaum, and distinguished Members of the Committee:

I am proud to have the opportunity today to put before you President Clinton's proposed Reemployment Act of 1994, and to explain the role of this Act in equipping all Americans to prosper in the new economy.

In many ways, the economic picture is clearly improving. Production has surged in recent quarters. Two million jobs have been created in the past thirteen months--1.9 million in the private sector. Accompanying this job growth has been a significant decline in unemployment. And thanks to the discipline and determination of you in Congress, as well as President Clinton's commitment to fiscal responsibility, we have finally begun to regain control of our financial destiny. Next year's deficit has been reduced by forty percent, and future deficits have been firmly set on a downward path.

But recovery is not enough. Budgetary discipline, macroeconomic improvement, production increases, and job growth are all critical elements of national prosperity. But without a workforce strategy explicitly geared to preparing all Americans for productive, rewarding work, we risk leaving some of our fellow citizens behind as the economy moves ahead. And this we cannot, and need not, accept.

Long-term Joblessness and the Skills Gap

The welcome decline in overall joblessness masks a continuing problem of long-term unemployment. Despite the recovery, in 1993 the average duration of unemployment nearly equalled its postwar peak. Only fourteen percent of the workers who lost their jobs in the most recent recession expected to be called back. The rest recognized that their old job was gone for good--the highest percentage of permanent job loss ever recorded.

Permanent job loss and long-term unemployment--especially against a backdrop of recovery--are symptoms of structural change in the economy. The main thrust of this structural change involves the increasing importance of skills, a shift in favor of workers with high-level skills and against those without them. More than ever, what you earn depends on what you learn. If you have the skills that come with a college degree, an associate degree, an apprenticeship certificate, training provided by an employer, or other education beyond high school, your odds for finding a job paying a middle-class wage are good.

Meanwhile, unskilled workers, or those whose skills have become obsolete, find their options shrinking as the old economy of stable mass production and unchallenged American economic preeminence disappears. The days when a worker could walk to the factory gates right out of high school and claim a lifetime middle-class job are fading into history. For both men and women, and at every level of educational attainment--college degree, some college, high school graduate, high school dropout--the earnings gap between the skilled and the unskilled is widening. A typical college graduate, for example, earns seventy percent more than a worker with similar demographic character-istics, but who has only a high-school diploma. Comparable trends apply for the risk of unemployment, and for access to pensions and other benefits: Those with skills do well; those without them are increasingly vulnerable.

While traditional paths to the middle class for workers without college degrees appear to be narrowing, new routes are opening--sometimes even in the same industries. For example, auto plants are beginning to hire again after years of layoffs. But rather than tapping the unskilled and semiskilled workers who once filled entry-level jobs tending the assembly lines, the auto companies are turning to better educated workers. They must. Because the increasing sophistication of production technology and the flattening of the management hierarchy mean that production workers are required to take initiative, make decisions, and exercise discretion. The old distinctions between manager and managed are breaking down. Overall, this is a hopeful development for America. It offers the prospect of less drudgery and routine, more opportunity for all Americans to work with dignity and to develop their potential. But it also means that workplace skills become the ticket of entry into a wider range of careers, including those that used to be open to the unskilled.

About a third of recent production-line workers hired at Ford, for example, had some training beyond high school. (Ninety-seven percent of Ford's recent hires hold high-school degrees; compared to only eighty percent of its overall workforce.) Elsewhere in Detroit, a city still plagued by staggering levels of long-term joblessness, nearly a thousand precision-machining graduates of the Machinist Training Institute have found jobs with local businesses. Across the country in San Jose, California, where workers with obsolete skills are suffering from relentless waves of layoffs, the Center for Employment Training provides intensive skills training, coupled with basic education, to mostly disadvantaged clients and dislocated workers. Companies like San Jose's Touche Manufacturing, which builds computer shells, hire as many of the Center's graduates as they can get.

In industry after industry, managers recognize the importance of high-level skills. The Business Roundtable has adopted as one of its guiding principles the precept that investment in workforce training is an urgent priority for U.S. competitiveness, and that America must be as "willing to invest in upgrading people as we are in upgrading machinery."1 While ultimately each American has to take responsibility for his or her own economic destiny, we must bolster our individual efforts with a national response to the challenge of economic change, and business and government each has its role to play in forging that response.

Americans are used to economic challenges. Less than a century ago, for example, we mastered the move from the farm to the factory. Today, many Americans confront the challenge of moving from the factory to the computer workstation. I have no doubt that today's Americans are as determined and resilient as their predecessors four generations ago.

What is different today, however, is the scale and speed of economic change. Global competition, defense downsizing, technological advances, and corporate restructuring are combining to produce new levels of anxiety about job security. In the first two months of this year, large companies announced plans to eliminate more than 140,000 jobs, to set a record-breaking pace of corporate downsizing. And last week, a New York Times poll revealed that nearly four out of ten employed Americans fear that they might be laid off, or forced to take a pay cut or reduced hours, within the next two years. No segment of American society is immune to job anxieties, and industrial upheavals affect top executives, mid-level managers, and frontline workers alike. But those hardest-hit by economic change, and those who stand to benefit most from a more effective reemployment system, are the most vulnerable members of our economic community--women, minorities, and the unskilled. African-Americans and Hispanic Americans face higher-than-average risks of dislocation, and over one-fifth of the workers displaced from jobs in 1990 and 1991 came from families living below the poverty line.

Government policy and programs must recognize and reflect these new realities. We must not offer Americans the false hope of burrowing into a single job for life. Instead, we must equip them to find security through the skills and flexibility that will let them face a changing economy with confidence.

The widening gap between the winners and losers from economic change is neither inevitable nor unbridgeable. Because even amidst long-term unemployment and job anxiety, the new economy is generating a strong, steady demand for workers with high-level skills. And workers are not born skilled. They earn their skills, and they earn them through processes that policy can affect and improve. The Reemployment Act of 1994 reflects a recognition of this fact, and a commitment to make government play its role, responsibly and efficiently, in equipping the American workforce to succeed in the skill-based modern economy.

The Reemployment Act's Key Principles

Our current array of unemployment programs was designed in an earlier time, to meet the needs of a simpler economy. The system must be fundamentally reshaped to meet the very different requirements of today's workers facing today's challenges. It must be transformed from an unemployment system to a reemployment system.

The Reemployment Act of 1994 is meant to accomplish this transformation. Once it is fully implemented, it will serve about 1.3 million dislocated workers each year--the full population estimated to want and need reemployment services. (Today's dislocated worker program reach fewer than 400 thousand workers.) The Act's design is based on a rigorous assessment of what workers need to prosper in today's changing economy, and on systematic study of what works for getting them into new and better jobs. The Reemployment Act reflects four core principles:

  1. First is access and program consolidation. The current patchwork of programs for dislocated workers is inefficient, confusing, and frequently unfair. The Reemployment Act will immediately consolidate all major dislocated-worker programs into an integrated service system geared to deliver what workers need to get their next job, regardless of why they lost their last job. Six programs, including Economic Dislocation and Worker Adjustment Assistance (EDWAA); Trade Adjustment Assistance (TAA); NAFTA Transitional Adjustment Assistance; the Defense Conversion Adjustment Program; the Clean Air Employment Transition Assistance Program; and the Defense Diversification Program--will be folded into a single program with uniform eligibility standards and streamlined delivery.

    Instead of forcing customers to waste their time and try their patience going from office to office, the new system will require States to provide services for dislocated workers through career centers. It also allows States to compete for funds to develop a more comprehensive network of one-stop career centers to serve under one roof anyone who needs help getting a first job, new job, or better job, and to streamline access to a wide range of job training and employment programs.

    The immediate move to consolidated service for dislocated workers will ease the frustration they suffer with the current system and accelerate their progress to reemployment. The gradual creation of universal one-stop career centers, as States opt into the system, will have even more profound consequences. It will counteract past tendencies to create wholly different services and access channels for different sets of workers--often segregating the disadvantaged into separate delivery systems--and encourage moves toward mainstream programs serving all citizens. It will reinforce the incentives for streamlining and consolidation set up by other provisions of the Act. And it will offer new opportunities for innovation, experimentation, customer orientation, and service excellence.

    One-stop service--coupled with new authority to waive rules and regulations that block innovation and impede efficiency--creates a sturdy framework for building more and more customer-level consolidation into America's employment and training system. As the one-stop component of the Reemployment Act is implemented state by state, it will catalyze continual progress toward less duplication and overlap, simpler rules, leaner administration, lower overhead, less bureaucracy, and more efficiency.

  2. The second principle is customer focus, giving workers a range of options and letting them choose the services they need to get the next job. The system the Act establishes offers a rich array of alternative services, to meet the needs of a diverse workforce in a complex economy. Once the Act is fully implemented for dislocated workers in fiscal year 2000, we estimate that about eight percent of its resources will be devoted to worker counseling and assessment; about twenty percent to job-search assistance; about eight percent to pay for support services; about thirty-six percent for training; and about twenty-eight percent for income support for workers whose reemployment plans indicate that long-term training is needed.

    Most dislocated workers want and need only information and some basic help in assessing their skills and conducting their job search. These services are relatively inexpensive, and have been shown to pay off immediately in less time spent unemployed. Research and pilot projects have demonstrated that basic reemployment services are excellent workforce investments, for the worker, for employers, and for the taxpayer. These basic reemployment services help dislocated workers do what they want to do -- get back to work. The Reemployment Act will ensure that these services are delivered early, when they can do the most good, and are targeted on workers best able to benefit from them.

    Better information is what makes the Act's customer focus meaningful. Too often, workers must look for a new job without enough data, or with the dubious guide of outdated or low-quality information. The difficulty of gaining a complete picture of labor market conditions and trends can make job prospects seem misleadingly bleak, and cause workers to miss opportunities to put their skills to use, or to upgrade their earning potential through relatively simple skill investments. The current system--where responsibility is scattered through multiple programs, and where there are few incentives or institutions to integrate information--squanders much of the potential of modern information technology.

    The Reemployment Act will bring jobs data from the age of the horse and buggy into the age of the information superhighway. It will combine job data systems and expand access to good data on where jobs are and what skills they require. By bringing the nation's workforce information up to modern standards, it will effect a relatively inexpensive improvement with potentially major results.

  3. The third principle is market-driven retraining for workers who need it to get their next job. While most dislocated workers need only job-search assistance to find where best to use their skills, some--we estimate about thirty percent--need to learn new skills. Past retraining programs have had limited effect in part because they failed to ensure that workers were trained only for skills in demand; because they had inadequate provisions for customer choice and quality control; and because they relied too heavily on short-term training programs that have proven ineffective at changing the prospects of typical dislocated workers. Retraining, for workers who need it, often means a sustained program lasting a year or more.

    Training that doesn't lead to a job cheats the worker, the taxpayer, and everyone with a stake in a productive, flexible American economy. The Reemployment Act links training with jobs in three ways: By giving customers choices about where to get their training, it gives suppliers powerful incentives to tailor their curriculums to labor-market trends and to guarantee results. By building up the nation's labor-market information system and offering all customers access to performance information on training providers and jobs data, it empowers workers and employers to make better decisions, and strengthens the links between training programs and the working world. And by requiring a high-level business majority on the board overseeing local training programs (private-sector representatives must be chief executive officers, plant managers, or business owners) it ensures that market perspectives will shape every aspect of the system.

    The Reemployment Act includes provisions for income support for workers who need it to complete their retraining programs. A combination of grants, and where appropriate, student loans will fund training programs. Income support during training will be delivered through the Unemployment Insurance system.

  4. The fourth principle, which fortifies the other three, is accountability. The Reemployment Act of 1994 restructures the incentives facing all those who make up the system--public officials, program managers, center operators, service suppliers--to make them treat workers as customers. Those who do right by their customers, who deliver high-quality services leading to positive workforce outcomes, will prosper in the new system. Those who fail to do so will see their funding dry up.

    Accountability means devoting resources to what works, and getting rid of what doesn't work. It means streamlining and consolidating wherever possible, so that workers don't need to spend their time navigating administrative mazes, and so that taxpayers don't need to support unproductive bureaucracies.

    Accountability is a universal principle. But the principle of accountability must be realized differently in different settings. The Reemployment Act avoids the error of mandating a single approach to accountability to fit a complex and diverse nation. Instead, it seeks to ensure that no part of the system is exempt from the imperative to deliver value to customers, while leaving room for local experimentation and diversity in serving that imperative. It requires funding decisions to be divorced from program delivery, so that conflicts of interest do not erode accountability. It allows States and localities to create competitive systems with multiple suppliers, if that approach to accountability fits their circumstances. But it also allows States and localities which have developed collaborative approaches to accountability to continue down that path, so long as customers are well-served. The Reemployment Act neither specifies nor bars particular models for service delivery, but puts the emphasis on results.

    And accountability, finally, means budgetary discipline. The Act is designed with a keen awareness of fiscal limits. Of the total $13 billion in 5-year costs, only $5.6 billion represents a net increase, and fits within the caps on discretionary spending. A large part of the discretionary financing comes from consolidating separate dislocated worker training programs into this integrated system. Additional discretionary funds come from reductions in other Federal programs. The mandatory component is financed by offsets from consolidation, and by extending and rededicating Federal Unemployment Insurance revenues to income support to individuals and job training. This component is the only non-discretionary spending in the Reemployment Act, and it is firmly capped in the legislation.

An Overview of the Reemployment Act

Title I of the Reemployment Act establishes a comprehensive program for dislocated workers, regardless of the cause of dislocation. It consolidates the six current Labor Department dislocated-worker programs into a single integrated system. Outreach efforts, including State rapid response programs and stepped-up efforts to identify early on workers at risk of long-term joblessness, will improve the deployment of program resources. This Title requires local programs to organize Career Centers for dislocated workers, and specifies the range of reemployment services the Centers will deliver or arrange. Career Centers may be run by the Employment Service, the Job Training Partnership Act administrative entities, community colleges, vocational schools, community-based organizations, or other non-profit or for-profit organizations which can demonstrate the capacity to deliver.

Title I also outlines the requirements for high quality training and retraining, and sets up systems of performance standards and information to ensure the accountability of training providers and to inform customer choices. Finally, it includes provisions for governors to devote a portion of State reserve funds to skill-upgrading programs aimed at job retention, and for the Secretary of Labor to manage a national discretionary grant program.

Title II establishes a program of income support, delivered through the Unemployment Insurance system, for permanently dislocated workers while they are pursuing courses of retraining. It also specifies the funding source for that income support, and ensures that once the system is fully implemented retraining income support will not be subject to the annual appropriation process. At the same time, it puts effective caps on income-support spending. And it adds adaptability to the whole system by giving states new options on unemployment insurance, including letting them pay "reemployment bonuses" to workers who find new jobs quickly, "short-time" insurance to promote alternatives to layoffs, and self-employment assistance to encourage entrepreneurial efforts by jobless workers.

Title III establishes a national program of grants and waivers to encourage and enable States to develop networks of One-Stop Career Centers. These Centers, which substantially extend the one-stop approach of Title I, offer a common point of access to employment, education, and training information and services for employers, and for all citizens who need help getting their first job, a new job, or a better job. Local Workforce Investment Boards will be selected by local elected officials to serve as the "board of directors" for all workforce programs. These Boards will have high-level business representatives comprising their majorities, but will also have balanced representation of labor, education, and other community groups. The Private Industry Councils set up under JTPA may become Workforce Investment Boards, but only if they meet all the new requirements.

The One-Stop Career Centers may be run by a consortium of organizations, including the Employment Service, the State UI agency, and agencies administering JTPA Title II and the dislocated worker program authorized under Title I of the Reemployment Act. Alternatively, States and localities may opt for a competitive approach under which the Employment Service and other organizations are chartered to run One-Stop Career Centers. Under either option, these One-Stop Career Centers will be required to meet customer-oriented performance measures, and will be evaluated annually.

One-Stop Career Centers will provide basic services to anyone who needs help getting a job, and will provide more intensive services to dislocated workers as well as other clients as appropriate. They will also coordinate and integrate the delivery including not just of dislocated worker programs and the Wagner-Peyser Act but also Title II of JTPA, veterans' employment and training programs, the Senior Community Service Employment program under Title V of the Older Americans' Act, and programs authorized under a range of Federal and State Unemployment Insurance laws. The Centers may also integrate other programs such as JOBS, the Job Corps, and adult and vocational education.

Under Title III, States may apply for both planning and implementation grants to build one-stop networks, and can also request waivers of a range of statutory and regulatory requirements for specific Labor Department programs, when such requirements unnecessarily constrain the development of innovative, integrated State workforce strategies.

Finally, Title III requires participating States to establish Human Resource Investment Councils to advise Governors on the coordination and consolidation of all workforce programs and policies. It also requires local Workforce Investment Boards, local elected officials, One-Stop Career Center operators, and participating programs--along with the Governor--to enter into an operating agreement to govern the one-stop networks, and requires State-level "customer service compacts" to set a framework for accountability throughout the system.

Title IV establishes a National Labor Market Information system to provide universal access to timely, accurate, and comprehensive information about where the jobs are, the skills and experience needed to secure and perform good jobs, the location and performance of training programs, and other workforce data. The system will also provide employers with information on job candidates, and will give all clients data on job, career, and skill trends so they can make more-informed decisions that will collectively improve the labor market's efficiency.

Title V extends the themes of flexibility and innovation to title II of the Job Training Partnership Act, by giving the Secretary of Labor authority to waive Federal statutes and regulatory requirements to empower States and localities as they seek to refine, streamline, innovate, and integrate job training programs for disadvantaged adults and young people.

The Reemployment Act of 1994 is about giving Americans the tools they need to take control of their own careers. It is inspired by the themes of customer choice, accountability, and universal access. And it is informed by systematic attention to empirical evidence, and a deep commitment to what works. The evidence shows that skills pay off. The evidence shows that skills can be learned. The hard-won experience from decades of economic change, and from too many programs that failed to deliver as they should for workers and taxpayers, shapes the structure of the Reemployment Act. Through respect for the evidence, and through persistence in pursuit of the American tradition of broadly-shared middle class prosperity, we can help prepare Americans to succeed in the skill-based economy taking shape all around us today. There is no excuse for leaving a single person behind.

This concludes my prepared remarks. I would be glad to answer any questions.

1Workforce Training and Development for U.S. Competitiveness, August 1993

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