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Testimony of Secretary of Labor Elaine L.
Chao
Before the Committee on Education and the Workforce
U.S. House of
Representatives
Washington, D.C.
February 12, 2003
Good morning. Chairman Boehner and members of the Committee, I thank you
for inviting me to testify on the President’s Personal Reemployment
Accounts Initiative designed to help unemployed Americans make a quick return
to work so they can provide for their families and once again be productive
members of society. I would like to take this opportunity to commend you and
members of this committee for your leadership and prompt action in introducing
the “Back to Work Incentive Act,” H.R. 444, that once enacted, will
make these Personal Reemployment Accounts available. The Personal Reemployment
Accounts will be offered through the nation’s strong workforce investment
system and will be administered through the locally established One-Stop Career
Centers. I will also describe some of the innovative changes we propose be made
to the workforce investment system as Congress reauthorizes the Workforce
Investment Act of 1998 (WIA).
The President’s Growth and Jobs Package
Last month, President Bush announced a comprehensive growth and jobs
package that places great emphasis on improved job growth to ensure the economy
itself continues to grow. The main goals of this economic agenda are to
encourage consumer spending that will continue to boost the economic recovery;
promote investment by individuals and businesses that will lead to economic
growth and job creation; and deliver critical help to unemployed citizens.
As Chairman Greenspan observed recently, we are clearly seeing a notable
improvement in the resilience and flexibility of our nation’s economy. In
fact, we saw unemployment claims fall last month as U.S. businesses hired
nearly 150,000 Americans to fill positions all across the country. Yet while
our economy is sound in the fundamentals, it could be growing faster. Our job
now is to preserve the hard-won gains the economy has made and to speed up
growth, to add new jobs across the country, and to expand the reach of our
prosperity in both the short and the long term.
Under the tax cuts already enacted, taxpayers are due to receive
additional relief in 2004 and again in 2006. The President has asked Congress
to accelerate all of those marginal rate cuts, making them effective January
1st of this year. By speeding up the income tax cuts, we believe
we’ll speed economic recovery and the pace of job creation. This will
leave more money in the hands of the people who earned it and will do so now,
when Americans need the money to buy, to save, to produce, to invest and to do
all the things that create new jobs, add momentum to our recovery and help
ensure long-term economic growth.
I want to emphasize that while the President’s growth package will
help the economy right now, it will also create 2.1 million jobs over the next
three years, according to the Council of Economic Advisers. A private sector
analysis predicts it will create an average of 941,000 jobs per year each year
for the next five years.
Supporting Job Growth through Personal Reemployment Accounts
One of the proposals that would specifically help today’s
unemployed men and women who are struggling to get back to work are Personal
Reemployment Accounts. These accounts will be worker-managed, contain up to
$3,000, and will be used for the purchase of a variety of reemployment services
or as a bonus for obtaining early reemployment. The proposed accounts will be
administered through the established and easily accessible One-Stop Career
Center System, where the unemployed already seek assistance in obtaining
employment
The anticipated economic benefits of the proposed Personal Reemployment
Accounts are numerous. These accounts represent a new and innovative approach
to helping unemployed workers make a quick return to work and provide
businesses with the skilled workforce that they need. They will empower
individuals by giving them more flexibility, personal choice and control over
their job search and career.
Since experience has shown that unemployed workers have a wide range of
needs, the Personal Reemployment Accounts allow each worker to custom design a
reemployment services package in accordance with his or her needs. For example,
some individuals may determine they need extensive retraining in order to
compete for jobs in a high-growth industry while others may only need to
complete a short-term computer course in order to return to work quickly or
purchase child care in order to search for work. The flexibility of Personal
Reemployment Accounts will accommodate these and many other situations, thus
making the delivery of government services more efficient.
By enabling unemployed workers to access the reemployment services they
need most, there is an increased likelihood that they will return to work
sooner and in a job for which they are more prepared and better skilled. The
Reemployment Bonus available under the account also provides an incentive to
return to work quickly.
Implementation of the Accounts—Individual and State
Flexibility
The President’s proposal would provide $3.6 billion in additional
resources to states to fund the Personal Reemployment Accounts in FY 2003. The
Administration estimates that these resources will be spent over two years.
States will determine the dollar level of the accounts, up to $3,000. It is
anticipated that these funds will allow states to serve at least 1.2 million
unemployed workers.
The receipt of account funds will not adversely affect an
individual’s ability to be eligible for and receive Unemployment Insurance
benefits. The accounts are targeted at those newly unemployed workers eligible
for at least 20 weeks of Unemployment Insurance who have been determined as
likely to exhaust UI benefits before finding a new job. States will have the
option of making accounts available to certain current UI claimants who were
previously found likely to exhaust UI or to certain workers who have already
exhausted their UI benefits.
Subject to broad State-established safeguards to prevent abuse, account
holders can use the funds to purchase intensive reemployment services (such as
counseling, case management), training, and supportive services (such as
transportation and child care) available either through the One-Stop Career
Center system, from other sources outside the One-Stop system, or in
combination. This is a flexible way for unemployed workers to access services
and benefits that they individually need to return to work faster.
There is a limitation that applies to the acceptance of the account. For
the one-year period following the effective date of the account, individuals
may not receive free intensive reemployment, training and supportive services
through the One-Stop Career Center system. The reason for this limitation is
that the funds in the account are available to pay for those services.
Another important aspect of the account is the Reemployment Bonus. To
provide an added incentive to find and retain work, new UI claimants who become
reemployed by the thirteenth UI benefit payment will receive any cash remaining
unspent in their account as a Reemployment Bonus. Similarly, the groups added
at State option—certain UI claimants who were previously identified as
likely to exhaust UI and certain UI exhaustees—that become reemployed by
the thirteenth week of the effective date of the account can also receive the
Reemployment Bonus.
The bonus would be paid to the individual in two installments: 60% at
employment and 40% after 6 months of job retention. Individuals who do not find
employment within the thirteenth week rule would not be able to “cash
out” their account but would continue to be able to purchase intensive
reemployment, training and supportive services for up to one year from the
effective date of the account.
Learning New Lessons through Innovative
Service Strategies
The potential to receive a reemployment bonus would provide eligible
workers an important incentive to find new employment. At various times from
1984 to 1989, four states—Illinois, New Jersey, Pennsylvania, and
Washington—conducted controlled experiments to determine the effectiveness
of providing reemployment bonuses to unemployed workers. In these experiments,
a random sample of new UI claimants were told they would receive a cash bonus
if they became reemployed quickly. The advantage of these experiments is that
the effect of offering a reemployment bonus on the duration of unemployment and
on earnings upon reemployment can be directly evaluated by comparing the
experiences of UI claimants randomly chosen to be offered a reemployment bonus
with those of UI claimants not chosen for the bonus (who received the regular
state UI benefit).
An evaluation by the Department of the reemployment bonus experiments
conducted in the states of Washington, New Jersey, and Pennsylvania showed that
a reemployment bonus of $300 to $1,000 motivated the recipients to become
reemployed, reduced the duration of UI by almost a week, and resulted in new
jobs comparable in earnings to those obtained by workers who were not eligible
for the bonus and remained unemployed longer. Similarly, a study of the
experiment conducted in Illinois found that a reemployment bonus of $500
reduced the duration of unemployment by more than a week and did not lead to
lower earnings at the worker’s next job.
Therefore it is likely that giving unemployed workers the option of
receiving the unspent balance in their Personal Reemployment Accounts will
provide them an incentive to find a new job quickly, reducing the time spent
unemployed, but will not result in workers taking lower paying jobs than they
would get if they searched longer.
These Personal Reemployment Accounts will build on our nation’s
strong workforce investment services, the cornerstone of which are the state
and local One-Stop Career Center systems. I will now turn to the
Administration’s proposal to reauthorize the Workforce Investment Act.
WIA Reauthorization
As we enter the 21st century, three key factors of the
economy challenge America’s workforce – globalization, technological
advances, and demographic changes. Global competition is beneficial for the
economic stability of the United States. Our ability to compete in the global
marketplace will depend on the competitiveness of our workforce. We must
anticipate the changes resulting from globalization to ensure that the
workforce investment system addresses contemporary workforce issues and
contributes to economic growth.
Technological advances lead to increases in worker productivity, thereby
keeping inflation low and often leading to higher wages. At the same time, the
pervasiveness of technology will require our businesses to demand greater
skills from our workers. The demand for skilled workers is outpacing supply,
resulting in attractive, high-paying jobs going unfilled. When businesses do
not find the talent they need within our borders, they seek it abroad. Global
competition will reinforce the economic premium on knowledge workers, leaving
low-skilled or unskilled American workers increasingly vulnerable.
The change in the country’s demographics is another important
factor. In the coming years, America’s workforce is going to become much
older. For example, over the next 30 years, for the first time in modern
history, the older, retirement-age population (age 65 and older) will surpass
the younger working-age population (ages 35-44). Many aging baby boomers will
reach retirement age just when increased technological advances demand a
workforce that is even more highly skilled.
The shift in demographics, driven by below replacement birthrates and
longer life expectancies, has significant implications for our economic
prosperity. With a workforce that is growing at a slower pace, it will become
ever more critical that the workforce investment system find a way to integrate
every available worker, including individuals with disabilities, into the
workforce to enable the continued competitiveness of American businesses and to
ensure that no worker is left behind. Our future prosperity will depend on the
world’s most skilled and productive workforce. The Administration’s
proposal to reauthorize the Workforce Investment Act will strengthen the
workforce investment system and enable it to better respond to current economic
conditions and future trends.
The five-year authorization for WIA expires on September 30, 2003. Over
the past year, the Department of Labor has gone to considerable effort to
gather input from stakeholders on how they believe the workforce investment
system can be strengthened to help us address the challenges of globalization,
technological advances, and demographic change that I discussed earlier. We
heard from over 240 individuals at fifteen forums, and 370 individuals provided
comments in writing.
The input from our stakeholders, our experience at the federal level,
and recent research findings has informed the Administration’s proposal
for WIA reauthorization. The Administration’s proposal is designed, first,
to continue to transform and further integrate the One-Stop Career Center
delivery system into a cohesive workforce investment system that can respond
quickly and effectively to the changing needs of business and the new economy.
Secondly, it builds on and improves “what works.” Thirdly, it
identifies barriers to successful implementation and fixes what doesn’t
work. Finally, the proposal seeks to partner and better connect with the
private sector and with post-secondary education and training, social services,
and economic development systems to prepare the 21st century
workforce for career opportunities and skills in high growth sectors. Many of
these reforms are outlined in the President’s fiscal year 2004 budget.
The Administration’s proposal addresses five key areas, on which I
would like to elaborate. Those areas are: advancing a more effective governance
system; strengthening the One-Stop Career Center System; delivering
comprehensive services for adults; creating a targeted approach to serving
youth; and improving performance accountability.
Advancing a More Effective Governance System
The Workforce Investment Act’s vision for implementing a
comprehensive workforce preparation and employment system hinged largely on the
creation of an effective WIA governance system. Under the Act, State and Local
Workforce Investment Boards (State and Local Boards) are responsible for
overseeing WIA at the state and local levels, while youth councils coordinate
local youth programs and initiatives.
The Administration proposes strengthening the role of the State and
Local Boards in part by streamlining the membership requirements. Under the
Administration’s proposal, One-Stop partner programs would have a stronger
role on the State Board to ensure their investment in and commitment to the
integrated service delivery system. The State Board will still be chaired and
directed by business.
With regard to Local Boards, membership would be streamlined to provide
an increased voice for business representatives, community groups and worker
advocates. These changes would make the Boards more responsive to local needs.
Local Boards would focus on strategic planning and policy development
activities.
Numerous stakeholders at the WIA reauthorization forums indicated that
Youth Councils across the country have not always added value to local system
efforts as envisioned under WIA. Because the effectiveness of Youth Councils
varies across local areas, the reauthorized legislation will eliminate the
statutory mandate for local Youth Councils. Under the reauthorization proposal,
Youth Councils would no longer be required; however, Governors and chief
elected officials would retain the authority to create or continue Youth
Councils if they are valuable in their state or local area.
Strengthening the One-Stop Career Center System
The cornerstone of WIA’s workforce investment vision was the
institution of the “One-Stop” delivery system, designed to integrate
workforce programs, services and governance structures under a single,
comprehensive, customer-focused workforce investment system. The Act stipulates
that the costs of those centers are to be shared by the One-Stop partners. In
practice, however, stakeholders overwhelmingly indicate that local One-Stop
systems are compromised by the lack of stable funding for local One-Stop Career
centers.
We believe that WIA reauthorization should create a new way to fund the
cost of the One-Stop system. One-Stop infrastructure funding would alleviate a
great deal of the current local negotiation issues around operations and allow
local areas to focus on what is most important—meeting the service needs
of businesses and workers. The Department of Labor is considering different
methods of funding the WIA infrastructure, in consultation with other involved
agencies.
In addition, we want to ensure that all One-Stop Career Centers make a
broad array of employment, training and supportive services available to both
job seekers and employers. We particularly want to strengthen connections
between the One-Stop delivery system and programs such as Adult Education and
Temporary Assistance for Needy Families (TANF).
Delivering Comprehensive Services for Adults
WIA currently provides adults and dislocated workers with an array of
workforce services and labor market information that can be accessed through
local One-Stop delivery systems. However, the current system faces several
barriers to preparing a truly competitive labor force capable of meeting the
needs of the nation’s employers. Two such barriers are separate and
unstable funding resources, and a limited capacity to respond effectively to
individual needs.
The Administration’s proposal would address the first issue by
combining the WIA Adult, WIA Dislocated Worker and Wagner-Peyser funding
streams into a single formula program. This change would result in streamlined
program administration at the state and local level and reduce the current
complexities of management across 3 separate “programs.” Our proposal
builds upon both current law and our recent budget requests that allow up to 20
percent and 40 percent respectively to be transferred between the Adult and
Dislocated Worker funding streams by giving complete flexibility within the
one, new comprehensive program.
With respect to the second barrier, WIA reauthorization also should
include more flexibility in the delivery of services. This would allow for
greater collaboration and integration of programs in the one-stop setting.
As you are well aware, the current eligible training provider
requirements have often had the effect of reducing customer choice due to the
limited number of eligible training providers in a particular local area. Many
of them consider the system created under WIA burdensome and have opted out.
The Administration’s proposal would provide Governors with greater
authority to determine what standards, information and data would be required
for the eligible training providers in their state. This change would result in
an improved eligible training provider system and ensure the continuation of
such key principles as customer choice and provider accountability while also
making it easier for training providers to participate in the system.
We also propose to improve upon Individual Training Accounts by making
them more flexible and responsive to individual needs. In addition, we want to
incorporate the Personal Reemployment Account concept featured in the
President’s growth package by authorizing the use of such accounts as part
of WIA.
Creating A Targeted Approach to Serving Youth
Currently, funds for the WIA Youth program are spread too thinly across
the country due to the statutory formula and lack of strategic focus. The
Administration’s proposal would reform current programs by focusing
resources on out-of-school youth through a Targeted State Formula program and
Challenge Grants to cities and rural areas.
The Targeted State Formula program would be used at the local level to
serve out-of-school youth. Challenge Grants to cities and rural areas would be
awarded on a competitive basis, with funds going to programs proven effective
at serving out-of-school youth. Under our reform proposal, the Department would
also award grants on a discretionary basis to high-quality programs that
provide activities in a non-school setting that lead to high academic
achievement.
Improving Performance Accountability
Finally, we propose to address the concerns many states and local areas
have raised about the performance accountability provisions in WIA. The
seventeen statutory performance indicators under WIA title I are perceived as
too numerous and overly burdensome. Through reauthorization, the number of WIA
title I indicators would be reduced from seventeen to eight (4 for youth and 4
for adults). As part of the Administration’s new common performance
measures initiative for employment and job training programs, these indicators
would cut across federal job training programs and would have a common set of
definitions and data sets. This would help to integrate service delivery
through the One-Stop Career Centers at the local level. Governors would have
the authority to add measures for use within their states.
Conclusion
Workforce investment is an integral part of economic development, and a
better-trained workforce promotes greater economic growth. I believe the
Administration’s proposal for Personal Reemployment Accounts and reforms
to the Workforce Investment Act respond effectively to both current economic
conditions and future trends. I look forward to working with this Committee as
we move ahead.
This concludes my remarks. I will be glad to respond to any questions
you may have. Thank you.
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