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OSEC Congressional Testimony

Statement of Robert B. Reich Secretary of Labor before the Committee on Education and Labor Subcommittee on Human Resources United States House of Representatives [06/01/94]

Chairman Martinez, Representative Scott, and distinguished guests: I am pleased to join you today in Alhambra to discuss the Administration's commitment to equip all Americans to prosper in today's challenging economy, and specifically the role of the Reemployment Act of 1994 in helping workers to continuously adapt to the demands of our dynamic economy.

Before I get to the substance of my testimony, I wish to thank you, Chairman Martinez, for agreeing to be an original co-sponsor of H.R. 4050, the Reemployment Act of 1994. I also appreciate your support in helping to put in place the first two pillars of the Administration's workforce investment strategy -- the School-to-Work Opportunities Act and the Goals 2000: Educate America Act. I will continue to seek your counsel this year to enact the Reemployment Act -- another critical component of that strategy.

California is engaged in critical efforts to expand and solidify its economic foundation and open up the way to a new period of long-term growth and prosperity. A key element in this effort is the skills development of its workers. In your letter of invitation, you spoke of the challenge to American cities that are on an economic competitive edge, teetering between renaissance and ruin. I believe that we are up to meeting that competitive challenge and that America's future and California's future are bright.

At the national level, and in California, the economic picture is clearly improving. Production has surged nationwide in recent quarters; nearly 2.9 million jobs have been created since this administration took office -- over 2.6 million in the private sector. California is a story of two economies: North-ern California mirrors the national trend and has experienced positive job growth. Southern California appears to be turning around; for example, although the Los Angeles metropolitan area lost about 280,000 jobs between April 1991 and April 1993, it lost less than 34,000 jobs over the last year, mostly in manufacturing. During this past year Los Angeles also has had strong gains in the services (14,700 jobs) and construction (1,300 jobs) industries.

California's economy is in transition. In such times, government's role is to make those transitions easier for working men and women. In the past 12 months, the Department of Labor awarded more than $100 million to assist displaced Californians make such transitions. With these funds, local agencies provide counseling, job search assistance, and classroom and on-the-job training to help workers get back on their feet. This includes special projects to find new jobs for defense workers in Los Angeles, Anaheim, and San Diego who were laid off as a result of reductions in national defense spending, and other projects to help workers who lost jobs as a result of layoffs in the electronics and computer industries or because of the natural disasters that have literally rocked Southern California. California also has been able to establish an active military base closure team that provides services to workers at bases scheduled to close.

Despite recovery across America, in 1993 the average duration of unemployment nearly equalled its postwar peak. Some 23 percent of the workers who lost their jobs in the most recent recession expected to return to their old jobs. 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. A 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.

But 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. 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, successful routes are opening -- sometimes even in the same industries. For example, in San Jose, where workers with obsolete skills have suffered from relentless waves of layoffs, the Center for Employment Training provides intensive skills training, coupled with basic education, to 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. 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 as well as all levels of government each has a 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.

National Economic Trends

Global competition, defense downsizing, technological advances, and corporate restructuring are combining to produce new levels of anxiety about job security. A recent New York Times poll revealed that nearly four out of 10 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. 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.

Government policies 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.

California is doing so. It has recently reinvigorated its State Job Training Coordinating Council to accomplish four goals: Better coordinate training and employment resources, firm up links between these programs, increase capacity of education and training providers to respond with high quality services, and enhance State and local partnerships.

The goal of the Administration's workforce investment strategy is to establish a system of lifelong learning that enables all American workers to constantly build their skills. We've begun with a path-breaking school-to-work plan that cuts across institutions to build the skills of all students, particu-larly the often-forgotten three-fourths of our workforce that does not graduate from college.

Through the School-to-Work Opportunities Act, which President Clinton signed into law last month, young people will receive classroom experience, coupled with worksite training, during the last two years of high school and typically for at least one year beyond. This will make it possible for thousands of young people to follow the path of lifelong learning and develop the skills they need to take advantage of the vitality and adaptability that drive America's labor markets. California continues its progress in the design and implementation of a statewide school-to-work system.

While visiting California this March, the President also signed into law the Goals 2000: Educate America Act, another part of our workforce strategy. This landmark legislation will facilitate the development of voluntary national skill standards. Businesses will be working with educators, human resource professionals, labor and community leaders, to identify the skills that are in short supply and the training needed to master them. This way, workers can know what to train for, and after completing their training, have a skill certificate to show employers anywhere around the nation, a credential with real currency in the labor market.

The newly authorized National Skill Standards Board will benefit from the pioneering work of many groups, including the American Electronics Association, headquartered in Santa Clara. Under a Labor Department grant, the association, on behalf of a broad coalition of electronics-industry employers, workers, educators, and training, is developing voluntary skill standards for key jobs throughout the high-tech industry.

The Reemployment Act

Our third workforce investment initiative -- the Reemploy-ment Act -- is our boldest. Two months ago the President sent to Congress legislation that will turn America's unemployment system into a reemployment system. Our current array of unemployment-related 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.

H.R. 4050, the Reemployment Act of 1994, is meant to significantly advance this transformation to a reemployment system. 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. 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 consolidate all six 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. These six programs 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.

    The Reemployment Act 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, a new job, or a better job -- and that anyone covers students, welfare recipients, you, and me, as well as dislocated workers -- and to streamline access to a wide range of job training and employment programs.

    The immediate move to consolidated services for dislocated workers will do away with inequities 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 facilitate access to 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 program 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.

    Californians can relate to this. The North Valley Private Industry Council (NOVA) in Sunnyvale has been a State and national leader in pioneering the one-stop concept. Its one-stop career center has co-located service staff with the Employment Service, is active in the area economic development, and develops specialized services for targeted populations. Waiver authority will help State and localities integrate the delivery of program services to all jobseekers.

  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, including worker counseling and assessment, job-search assistance, support services, training, and income support for experienced workers who participate in long-term training.

    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, and 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 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 world class 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 30 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, can mean 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, by building up the Nation's labor-market information system and offering all customers access to performance information on training providers and jobs data, and by requiring a high-level business majority on the board overseeing local training programs.

  4. The fourth and final 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. The Reemployment Act puts the emphasis on results.

REA Benefits California

In a variety of ways, the Reemployment Act will benefit workers in California and in other States.

  • First, the creation of single points of access at career centers will make it easier for dislocated workers -- including those part-time and seasonal workers who suffer permanent job losses -- to obtain readjustment services. These centers will use the latest communications technology to minimize the need for a worker to actually go to a center to receive basic information or apply for services. Cali- fornia also will have the option of establishing on-site transition centers similar to those at (examples of those currently on CA military bases) to provide immediate assistance to those located where military bases or plants are closing or streamlining.
  • Second, the employment prospects for many workers will be improved through better labor market information on job openings, particularly outside the local area and from "consumer reports" giving them meaningful standards to evaluate services offered by education and training providers and career centers. Some also will benefit by becoming self-employed in a different occupation, since California will have the opportunity to provide dislocated workers with Unemployment Insurance benefits while starting their own businesses.
  • Third, workers who need longer-term training to get a new job will have access to "reemployment insurance" -- income support through the UI system that makes training practical. Beginning in 2000, all workers with one or more years of tenure with their previous employer will receive capped mandatory income support beyond the receipt of regular UI. Maximum income support will be 52 weeks (26 weeks of UI plus 26 weeks of income support) for workers with tenure of more than one year and less than three years, and 78 weeks (26 weeks of UI benefits plus 52 weeks of income support) for those with three or more years. (The use of job tenure screens and a UI benefit screen to determine eligibility for mandatory income support will have virtually no effect on the eligibility of female and minority workers for such support.)
  • Fourth, we have committed EDWAA, the existing program for dislocated workers, to providing $12 million per year over three years from the Secretary's National Reserve Account to fund readjustment services for dislocated timber workers in California, Oregon, and Washington. With the significantly increased funding proposed for the Reemployment Act, it is more feasible to make such commitments to assist dislocated workers in particular industries and geographical areas.
REA Budget

Under the President's proposed budget plan for the Reemploy-ment Act, all States are likely to receive large increases in funding for dislocated worker services over the next five years. For example, California's funding would increase from under $60 million this year to $157.6 million beginning this July under the current EDWAA program to $206.5 million under the Administra-tion's proposal for 1995. This July's increase (increasing California's funds for dislocated workers by almost 250 percent) is the first downpayment for the Reemployment Act which will serve all dislocated workers.

I want to make special mention of how the Administration's three-part workforce investment strategy will affect the disad- vantaged and of the Department's long-standing and very important programs targeted to the disadvantaged. Be assured of our deep commitment to helping this group of Americans compete in today's labor market and to creating a training and employment system that better prepares economically disadvantaged individuals for decent jobs. Indeed, to this end, we are undertaking a system-wide dialogue with the entire employment and training community to achieve broad consensus -- in collaboration with the anti-poverty community -- on an action plan to strengthen and improve job training and employment programs for this important group. Nothing is being ruled out to better address the needs of the disadvantaged -- including budget increases and/or legislative proposals if our dialogue deliberations reach such conclusions.

Moreover, while our individual workforce investment initia-tives may not be typically viewed as benefitting disadvantaged persons, these effort will be of much use to them. The school-to-work initiative, for example, is targeted on those who do not complete college and includes a 10 percent earmark for grants to high poverty areas. The beneficiaries of the Reemployment Act are much more likely to be poor than are other adults -- over one-fifth (21 percent) of the families of workers displaced in 1990 and 1991 were living in poverty as opposed to 14 percent for other members of the working age population.


Much of my testimony has been about the Reemployment Act which I have attempted to depict as an effort to give Americans the tools they need to take control of their own careers. The proposed legislation is inspired by the themes of customer choice, accountability, universal access, and integration. 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 dream of 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.

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