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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 [1/12/95]

Madam Chairman, Senator Kennedy and distinguished Members of the Committee, thank you for this opportunity to discuss how we can make federal employment, training, and education policy work better for working Americans.

We meet this morning in the midst of a strong and sustained economic recovery. Last month, the national unemployment rate dropped to 5.4 percent -- with accelerating inflation nowhere in sight. The "misery index" -- the sum of our unemployment and inflation rates -- is at its lowest level since 1972. And jobs in private industry are growing at their fastest pace in a decade. Corporate America's ingenuity and President Clinton's economic strategy have proven a winning combination.

Yet the upturn in the overall economy conceals disturbing long-term trends. The problem isn't that some Americans are getting rich. That's good news. That's something to celebrate. The problem is that too many Americans are getting nowhere. Millions of families in this country are working harder, but getting less. They're taking extra jobs, scrimping on luxuries, drawing down their savings -- but still they're falling behind. Our middle class, as I've been saying the past few months, has become an anxious class -- their current footing uncertain, their future prospects cloudy.

During the three decades after the Second World War, when the economy grew, nearly everyone's income grew with it. Millions of Americans believed in a simple bargain: People who worked hard and played by the rules could earn a better life for themselves and their families. People with the drive and discipline to make the most of their opportunities had a decent chance to succeed. American business backed the bargain, too. Employees who worked hard and gave it their all could share in their company's success. If the company did well, their jobs were reasonably secure, and their wages and benefits rose.

Growing together was the way it worked in America. But today, Americans are no longer growing together. We are growing apart -- and at a quickening pace. Many of the old factory jobs that once formed a gateway to the middle class are gone. Such manufacturing jobs accounted for more than one-third of all American employment in the l950s; now, no more than 16 percent. Many of the old service jobs have disappeared, too. Telephone operators have been replaced by automated switching equipment, bank tellers by automated teller machines, gas station attendants by self-service pumps that now even accept credit cards, and secretaries by computers and voice mail. Any job that can be done more cheaply by a computer is either gone, or pays far less than before. Global competition has accelerated this revolution.

Yet the same forces are creating millions of new jobs, some paying better than ever. The right education and skills don't guarantee a good job in the new economy, and certainly not job security. But it is getting harder to have either without education and skills. The three-fourths of American workers without college degrees have suffered the sharpest drop in wages and benefits. Fifteen years ago, a male college graduate typically earned 49 percent more than a man whose formal education ended with high school -- not too large a difference for the two groups to share the label "middle class." But by 1993 the average male college graduate was earning 83 percent more than his high-school counterpart -- a difference so great that they no longer inhabited common territory. Women are divided along similar, although less stark, lines.

So in these early days of a new Congress, the challenge that confronts us is this: How to prepare all Americans to succeed in the tumultuous economy of the 20th century's final years? How to restore the middle class prosperity that was once this country's defining feature?

And laced through this discussion is a related, equally important, question: what is government's role in helping to make this happen?

Now, let me be clear: government cannot insulate people from change. Government should not insulate people from change. The history of this country has been the history of constant, at times unsettling, change -- young families pulling up stakes and moving to new frontiers, scrappy entrepreneurs toppling industrial giants, scientists and researchers inventing new technologies to change how we live. What government can do is help ordinary Americans adapt to change. Our history offers a rich tradition of government playing exactly this role. The Homestead Act. Social Security. Unemployment insurance. The student loan program. Federally backed mortgages. The G.I. Bill.

But government cannot continue to do precisely the same things in precisely the same way. We can look to past success for inspiration -- but not for imitation. In this new economy -- a knowledge economy -- skills matter more. Skills are what allow people to navigate change successfully. Indeed, each year of education or job training beyond high school increases average future income by six to twelve percent. More than ever in America, what you earn depends on what you learn.

And skills can be learned. Ask Deb Woodbury of Maine, who was a tenth-grade drop-out struggling to raise three children after her marriage ended. She worked as a cook, then as a factory worker -- and found herself in trouble a few years later when she was laid off. No job. Limited job skills. So she went to the Training and Development Corporation in Bangor, where she earned her GED, followed by college certificates in office and computer skills. She was then hired by Bangor and Aroostook Railroad as an office manager and now has a job that provides a decent income, good benefits -- and a brighter future.

A strong bipartisan consensus in the last Congress has already spurred significant steps towards building the skills and future earning power of people like Deb. President Clinton mapped out the next steps in his call for a Middle Class Bill of Rights, to empower ordinary Americans with the skills to earn their own prosperity in a changing economy.

This proposal directly addresses concerns that you, Madam Chairman, expressed in our very first meeting -- and that are echoed in legislative proposals introduced by you and Senator Kennedy. Nobody knows better than you, Madam Chairman, that Americans seeking a fair shot at improving their lives currently confront a confusing and overlapping tangle of programs, services, and rules. And that's why the President favors a fundamental shift in emphasis from programs to purchasing power.

President Clinton is proposing education and job training tax deductions to help working Americans pay for building new skills. Families with incomes up to $120,000 per year will be able to take tax deductions -- up to $10,000 per year, when the plan is fully phased in -- for money they spend on skill-building at community colleges, technical schools, and other learning institutions. The tax code currently (and properly) encourages investments by businesses -- but it should also encourage investments by families in productive skills. Under the President's proposal, the after-tax cost of post-secondary tuition for a typical family would fall by 15 to 28 percent, rewarding investments in future productivity and spurring increases in post-secondary education. The President is also proposing tax credits for families with children, which they can spend as they see fit, and expanded Individual Retirement Accounts so families can accumulate funds for investing in new skills, buying a first home, or paying medical expenses as well as saving for retirement.

Closely linked with the skill-oriented tax reforms the President is proposing is a campaign of comprehensive employment and training reform to help unemployed workers and low-income adults and youth -- many of whom will not be able to benefit from the tax incentives -- to learn new skills and prepare themselves for better jobs. The President's proposal eliminates more than 50 separate programs and replaces them with an integrated system that minimizes red tape and maximizes individual choice. At the heart of this system are Skill Grants that individuals can use to make their own decisions about post-secondary training and education. Under the President's plan, unemployed and low-income workers can get grants of up to $2,620 per year, for up to two years, that they can use as they choose to learn new skills. We're also proposing extended unemployment benefits to help workers who lose their jobs get the long-term training they need to begin new careers.

We're the first to admit that Washington doesn't have all the answers. States need the flexibility to address local conditions and to respect local priorities. What's good for Kansas may not be good for Kentucky. So the President's proposal gives states the freedom to tailor training programs and delivery systems as they see fit. Federal requirements will focus on results -- not on process. States will be able to apply for waivers from the few administrative rules that remain, and to plow any savings back into additional training.

But even that's not enough. Too often, training providers are not held accountable for their end product -- which shortchanges workers who require results and taxpayers who finance failure. That's why we are proposing a set of measures to boost accountability. Our proposal emphasizes individual choice and competition, so that individuals can pick providers who deliver; it provides good performance data, so that people know what training pays off; and it sets quality standards for training providers, to cut off the frauds and incompetents.

We will put customers first -- by arming them with up-to-date information on what skills are in demand and where those skills can be learned. Reforms woven throughout the initiative -- and centered on the networks of One-Stop Career Centers already under construction by the States -- will give workers access to reliable information on jobs, careers, and the success records of training institutions, so that they can make good choices to improve their futures.

What the President is proposing is about jobs -- not government -- and this means that the private sector has a central role. The programs that have been most successful with disadvantaged youth -- such as the Center for Employment Training (CET) in San Jose, California -- emphasize close connections to the local labor market and combine intensive occupational skill training, hands-on learning, basic education upgrading, and aggressive job placement. As is already the case in the best School-to-Work efforts, business and labor will be full partners in designing and running training, job-search, and information services. I know from my travels around the country that the best -- the most competitive and productive firms -- are also leaders in investing in their workforce.

It is also vital that we prepare America's youth for the world of work. The President's proposal would restructure Federal employment and training programs for young people, including vocational education, into the school-to-work movement already underway in every state, designed and developed by the states and local communities themselves with the private sector.

Not long ago Chris Brady of South Boston decided that school wasn't worth the trouble, so he dropped out and got a job cleaning office buildings at night. When he discovered this work paid barely enough for rent, he found his way into the Project ProTech school-to-work program in financial services, and started to see the connection between the workplace and the classroom. In the morning, he would work at Fleet Bank monitoring large currency transactions -- and then in the afternoon, he would apply his practical experience to his coursework. Once he got a taste of the business world, he discovered why his classes were relevant, and how they could prepare him for a better future. He has since entered a business administration program -- the first member of his family to go to college. School-to-work is a promising foundation on which to anchor a wider range of skill-building efforts for America's youth.

Chris Brady is proof that investing in skills and education can pay off -- for individuals and for the nation. Consider the G.I. Bill, which helped transform a period of conflict and anxiety into an astonishingly prosperous post-war era. The G.I. Bill empowered ordinary Americans by giving them opportunities to acquire world-class skills. The rest is history -- indeed, one of the brightest episodes in our history. The dream of a secure, productive place in the middle class became a reality for a majority of our nation's people.

Half a century later, America faces another turning point. It is time to revitalize the bargain that made this country what it is. Let's respect the evidence about what works and what doesn't, and pledge ourselves together to an efficient, creative, accountable approach to building skills and expanding opportunity. Because even in these days of strained budgets, we need to ensure that hard-working people who play by the rules get a fair shot at the American Dream. Many years of collegial work by members of this committee -- including you, Madam Chairman, as well as Senators Kennedy and Pell -- demonstrate the depth and breadth of the consensus supporting investments in human skills, and provide a model for progress in the future.

I look forward to working toward this goal in cooperation with this distinguished Committee.

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