Serial No. 106-89


Printed for the use of the Committee on Education

and the Workforce

Table of Contents




















Thursday, February 17, 2000



House of Representatives


Subcommittee on Oversight and Investigations


Committee on Education and the Workforce


Washington, D.C.








The Subcommittee met, pursuant to call, at 10:30 a.m., in Room 2175, Rayburn House Office Building, Pete Hoekstra, Chairman of the Subcommittee, presiding.



Present: Representatives Hoekstra, Ballenger, and Roemer.



Staff Present: Faith Cristol, Professional Staff Member; Steve Settle, Professional Staff Member; Rob Green, Workforce Policy Coordinator, and John DeWitte, Staff Assistant.

Chairman Hoekstra. A quorum being present, the Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce, will come to order.

Good morning. The Subcommittee is meeting today to hear testimony in exercise of its capacity to conduct oversight inquiries. Under Rule 12(b) of our Committee rules, any oral opening statements at this hearing are limited to the Chairman and the Ranking Minority Member. This allows us to focus on hearing from the witnesses sooner and helps Members keep to their schedules. If other Members have statements, they may include those statements in the record.

I also ask unanimous consent that the record of this hearing be held open over the next 14 days for the submission of additional statements, information or testimony relevant to this hearing. Without objection, so ordered.

Let me make my opening statement.




We are here today to discuss a trend that's a mixed blessing. It's a disturbing trend, and that is the shrinking pool of available workers. The good news is we've also had record employment levels. So, again, with every good trend there may also be a counter trend that we have some concerns about.

As the American economy continues to boom, many employers find themselves near economic ruin since they cannot hire enough workers to man production levels. Federal Reserve Board officials have recently expressed concern that the shrinking pool of available workers cannot satisfy the global appetite for American goods and services. In fact, many economists now speculate whether the shrinking labor pool will boost inflation pressures, and whether such pressures will lead to a national recession.

Economy theory holds that a free market will adjust to labor shortages through workforce advancements. Advancements generated by the present economy include: an unemployment rate of 4 percent, which is the lowest in 30 years; wage increases for the average American worker to $13.50 an hour; reduced welfare roles and increased employment rates among current and former welfare recipients; and a dramatic drop in crime rates across the country.

Although government should provide some social services to increase workforce participation, too much government intervention will prevent the market from self-adjusting. Many of this country's labor laws were enacted in the 1930s and reflect our transition from an agrarian to an industrial economy.

Several of these Depression Era labor laws seek to address policies that are inconsistent with today's workforce needs and, therefore, should be eliminated. In order for this country to continue its economic growth, policymakers must identify and eliminate those government policies that impede free market adjustments.

Today, we will hear from a panel of experts, labor economists and strategists who will identify ways to enhance the free market's ability to adjust, including repealing the Social Security earnings limit to increase workforce participation. Policies that discourage workers from rejoining the workforce prevent free market adjustments. Repealing the Social Security earnings limit provides a win/win situation to millions of elderly Americans and businesses across the country. Not only will this policy allow older citizens to maintain a decent standard of living, but it will also provide employers with a knowledgeable and experienced pool of workers.

The second adjustment is promoting telework to increase workforce participation. A policy such as OSHA's proposed policing of telework at home is not only bad for employees and employers, but it also discourages innovative business strategies to correct labor shortages. Telecommuting provides employment opportunities to many of America's elderly and disabled citizens, as well as to working family members. Government impediments to workplace flexibility deprive all workers, particularly the unemployed or underemployed, from gaining the best of both worlds, the ability to work and to take care of their family needs.

All the members of our first panel of experts will tell you that private sector labor markets have ways of reducing or eliminating shortages, certainly in the long run, and even in the short run. Without free market adjustments, labor shortages may lead to economic downturn.

Accordingly, we will hear from a second panel, or second group of witnesses, who are business leaders, who will describe how their industries have risen to the challenges of labor shortages through innovative human resource strategies. Given the importance of an unfettered free market through our continued economic prosperity, today we will begin a course to dismantle government policies that hinder free market adjustments to labor shortages.





Chairman Hoekstra. Mr. Roemer.

Mr. Roemer. Mr. Chairman, first of all I would ask unanimous consent to revise and extend my remarks.

Chairman Hoekstra. Without objection, so ordered.

Mr. Roemer. I have a couple reports that I'd ask unanimous consent be included as part of the record; the CRS report entitled, ``Farm Labor Shortages and Immigration Policy.''

Chairman Hoekstra. So ordered.

Mr. Roemer. Along with a couple articles in the newspaper from my district, regarding some of the difficulties they run into on finding enough workers.

Chairman Hoekstra. So ordered.

Mr. Roemer. Thank you, Mr. Chairman, and thank you for this opportunity today to talk about, and reflect on, and learn about more ideas and more innovative programs to address one of the biggest problems I face in my district today.




I could go into almost any business in northern Indiana today, such as a company like Crown International that produces speakers and loudspeaker systems for airports and for musicians, where we currently employ 800 people. I talked to the president of that company back in December. I asked, "How many people would you hire tomorrow if you had the opportunity to have folks walk through that front door?" He answered, "With the demand I have in my business today and the need for workers that I have today in this county, I'd probably hire between 80 and 100."

A couple months ago, I was in Schaefer Gear, a business in South Bend, Indiana. They have 80 people. I talked to their president and human resources director. They said they'd hire 12 to 15 people tomorrow if they could find them.

Now, as our Chairman said, that's an interesting problem to have. The economy is growing. We've got the strongest economy maybe in the history of the country, and we have businesses competing for workers. In my five counties, let me tell you what our unemployment rates are. St. Joseph County, 3.1 percent, lower than the national average and Elkhart County, 2.4 percent and Kosciusko County, 2.1 percent.

I was in a manufactured housing business last Friday in Elkhart County. They said the biggest problem they face is workers leaving for ten and twenty-cent increases to go to one place or another. They are fighting for workers. So, I am delighted to have this opportunity to learn from you, to take some of your ideas back home, and to learn what we can do under the jurisdiction of our Committee.

Now I, like my good friend from Michigan, Mr. Hoekstra, agree on doing something about lifting the Social Security earnings limit. I think the Ways and Means Committee acted unanimously the other day. I'm an original co-sponsor of that bill; I'm strongly in support of that. I think that's one thing we can do. But, I also think under the jurisdiction of this Committee there are a lot of things we should look at as well, too. We need to look at better, more innovative worker training programs.

We need to look at bold and innovative education reforms in our schools. I've worked with many people across the aisle on this Committee on the "Ed-Flex" idea to improve our public schools, on the charter schools, on alternative and magnet schools that can address this issue, on quality of teachers that can teach more math, and science, and technology, and accounting, and some of the skills that we need coming out of our high schools to walk directly into a business in South Bend, or LaPorte, or Michigan City, or Elkhart, Indiana, and contribute to the local business right away, rather than having to have that local business retrain them.

We need to look at such things as the states working with the federal government, or the states working on their own, to provide additional post-secondary educational options with community colleges and networks throughout the state. We need to look at tuition reimbursement programs and other training incentives. We need to look at ways to spur development in technology and medicine, and in biotech areas in the state of Indiana.

So, there are a host of things that I want to look at and consider. This is a heck of a problem to have, when you have such a strong economy. We could have worse problems, but we want to solve these problems. We want to look at some innovative solutions to them, and I'm very curious in the area of education, particularly, under the jurisdiction of this Committee, as to what can we do to solve some of these problems in innovative ways?

So, I am delighted that the Chairman has again come up with a good idea for a Committee hearing, and look forward to listening to the people here with their ideas.

And, with that, Mr. Chairman, I yield back any balance of my time.

Chairman Hoekstra. Thank you, Mr. Roemer.

Before I introduce the witness, I think that you know that we've got lights right in front of you; the little boxes. We've upgraded our technology, and the green light means you've got plenty of time, the yellow light means that you are running out of time, and the red light means your five minutes are up. Of course, you'll have the opportunity to submit additional materials and those types of things, and we don't always strictly adhere to the time, but we prefer to have you stay close to the time limits.

What I'd like to do now is to introduce the panel. Our first witness, and I think it's appropriate that you are here, is Dr. Richard Judy, a leading demographic analyst of economic and workforce development. Dr. Judy serves as Director of the Hudson Institute's Center for Workforce Development and is President of Hudson Analytics, both of which are located in Indianapolis, Indiana. Dr. Judy has published many works, including his co-authorship of Workforce 20/20, a book that has received critical and popular acclaim as a guide to understanding the future of America's workforce.

A special welcome to you and the support that the Hudson Institute provided when we began the process in the American Worker Project three years ago. So, it's been a great relationship, and thank you for being here and being on the panel this morning.

Dr. Judy. Thank you.

Mr. Roemer. Mr. Chairman, can I just join in echoing your welcome to a fellow Hoosier, and somebody from the capital of our great State of Indiana. Nice to have you here, Dr. Judy, and we look forward to your remarks.

Dr. Judy. Thank you, Mr. Roemer.

Chairman Hoekstra. Our second witness is Dr. Harry Holzer, who is a Visiting Fellow at the Urban Institute in Washington, D.C., and also a Professor at Michigan State University's Department of Economics in East Lansing. I'm still figuring out how you got here, all right? I mean, being a U of M grad, I'm still wondering why they had to go down the road to get somebody from Michigan State, but you are very welcome and we are glad to have you here today as well.

Our third witness is Dr. Edward Barlow, Jr., who is President of Creating the Future, Incorporated, a strategic planning consultancy, which is located in St. Joe, Michigan. Dr. Barlow helps governments, organizations and industries ranging from manufacturing to information systems prepare for the workplace of tomorrow. Obviously, this is Congressman Upton's district, which is between Congressman Roemer's and my district. So, welcome, and thank you for being here today.

Then let me just introduce the other panelists as well. We were originally going to have two panels, but from our business component we have Don Huizenga, who is the President and Chief Executive Officer of Kurdziel Industries, which is located in Muskegon, Michigan. Kurdziel employs over 500 people at four domestic locations, and produces 150,000 tons of castings to excavation and automotive markets in Asia, Europe and North and South America. Good morning, and welcome, Don. Don is also a friend and on occasion has watched me hit a golf ball, not all too well, but we are glad you are here.

Mr. Roemer. I may ask you some questions about that. How good is he?

Mr. Huizenga. I have a lot of information, Mr. Roemer.

Mr. Roemer. He calls himself "Tiger," is there any correlation?

Chairman Hoekstra. The next witness is Valerie Ferguson. She serves as the Regional Vice President and Managing Director of the Loews Philadelphia Hotel, located in Philadelphia, Pennsylvania. Ms. Ferguson has worked in the hospitality industry for over 23 years. She has an interesting distinction, an Honorary Doctorate in Food Service, and she has served as the director of numerous boards, including the Urban League of Philadelphia and the Philadelphia Workforce Investment Group. So, welcome, and I'm sure you are looking forward to the summer, with all those great people coming into town. All right.

Then we also have Stephen Guillard, who serves as the President and Chief Executive Officer of Harborside Healthcare Corporation located in Boston. Harborside Healthcare operates 50 post-acute and assisted-living centers encompassing over 6,000 beds in nine states throughout the eastern U.S. Good morning, and welcome to you.

And then finally, we are pleased to welcome Elizabeth Dickson. She's a human resources specialist and member of the Global Mobility Team for Ingersoll-Rand Company, a Fortune 200 manufacturing company headquartered in Woodcliff Lake, New Jersey, also with facilities in Michigan. Ingersoll-Rand employs approximately 47,000 people worldwide, 30,000 of those employees working in the United States. Welcome, and thank you for being here.

Ms. Dickson. …Indiana, too.

Chairman Hoekstra. Breaking news! John McCain has pulled out of the race. No, actually not, just kidding, just kidding.

These are Greenspan's comments next door, "Imbalances in the labor markets, perhaps, may even have more serious implications for employees inflation pressures. While the pool of officially unemployed and those otherwise willing to work may continue to shrink, as it has persistently over the past seven years, there is an effective limit to new hiring unless immigration is uncapped. At some point in the continuous reduction in the number of available workers willing to take jobs, short of the repeal of the law of supply and demand, wage increases must rise above even impressive gains in productivity. This would intensify inflationary pressures or squeeze profit margins with either outcome capable of bringing our growing prosperity to an end." This is an issue that over the last number of months the Federal Reserve Board, especially Dr. Greenspan, has been concerned about.

I think as you can tell from the hearing, this is the tone of this hearing, and of a number of the hearings that we've got coming up over the next couple of months, and an issue that we can work at very cooperatively in a bipartisan way.

So, thank you for that. Dr. Judy.





Dr. Judy. Thank you very much, Mr. Chairman, Mr. Roemer.

It's a pleasure to be with you here this morning. I have provided the panel, as well as the members of the audience, with a handout, which I will summarize in my prepared remarks. I don't know whether everybody has received a copy of that or not, but there are certainly plenty of copies around.

The labor markets, as you've said, are very tight today. We have a 4.0 percent unemployment rate in this country, and it is, indeed, the lowest rate we've had since 1969. The period since the Second World War really is divided into two-and-a-half or two and maybe a beginning of a third major period. Between the period 1948 and 1969, we had an average rate of unemployment of 4.7 percent in this country. Then suddenly, between the period 1970 and 1995, we had an average unemployment rate of 6.7 percent. It looks as if there were two different economies. But, since the middle of the 1990s, of course, the rates have plunged downwards, and we have today's situation of, as we know, a very low rate of 4.0 percent.

Having said that, I think it is well that we should take a nuance approach to this unemployment or tight labor market situation around the country. There are, of course, places where the labor market is so tight that it squeaks, down around 2 percent or less in some places. There are 14 states with an unemployment rate of 3 percent or less. At the same time, there are several with an unemployment rate in the range of six percent a year.

If you look at some of the metropolitan areas of the country, New York, Los Angeles, even here in D.C., you see that we have unemployment rates in the 6 percent range. Farther a field in Puerto Rico, we have an unemployment rate of about 11.5 percent at the present time.

And, within the individual states there are pockets, sometimes-large pockets, of substantial unemployment. In the state of California, for example, there are 12 counties with unemployment rates below 3 percent. At the same time, there are another 13 counties where the unemployment rate is in double digits. One is as high as 20 percent, some of them not so far away from Silicon Valley. So, we have an anomalous situation in some respects, and it would be a mistake to think that we have tight labor markets in all parts of the country.

Having said that, though, it is true that we do have a tight labor market, and I want to look ahead with you to see a few things. I am often asked, "When will these tight labor markets go away?'' I think the answer, the shorter answer, is not soon, and not for very long. That's because, if I may just talk about the reasons for that, we have what I called "worker dearth," and worker dearth, D-E-A-R-T-H, not death, but worker dearth, has two aspects, a quantitative aspect having to do with the size of the pool on the one side, and a qualitative aspect having to do with the quality of the workforce on the other hand. I'd like to take a few moments to talk to each one of those.

First of all, the demographic side. Of course, demography is not the entire thing behind the quantitative aspect of worker dearth, it has to do also with participation rates, which you mentioned earlier on, that percent of the adult population, or working age population, that chooses to be in the labor force, either working or seeking work.

It is worth noting, by the way, that the workforce growth in this country and, indeed, in all of the well-developed countries of the world, is going to be very, very slow. It will account for only about 3.7 percent of the total global workforce growth in the world between now and the year 2010. So, keep that in mind, that the workforce outside the developed countries is growing very rapidly, indeed, but very slowly within developed countries.

In the United States, our situation derives primarily from the roller coasters of birth rates, and births have been up since the end of World War II. We had, of course, the Baby Boom generation that produced on the order of 70 million individual babies, in that period of time up until about 1964. Then we had Generation X, which is a much smaller generation, on the order of 48 million people. Then we had what I call the Echo Generation, which is the generation born in the beginning of about 1979 or 1978, and lasting at least until the mid 1990s. It's a recovery of considerable sorts in the size of the population.

And, as this wave, this roller coaster makes it way through our workforce, they come into the workforce, they work, they eventually retire from the workforce, and it causes great ups and downs in the supply of workers.

Now, one thing that needs to be kept in mind is that, as we look ahead into the future, most of our population growth is going to come from immigrants and minorities. And, when I say minorities, I mean everybody except white, non-Hispanics. This particular chart shows that. This is the period 1999 to the year 2020, and as you can see, if you look at the percent contribution to the United States' population growth in this period of time, 46 percent of the total population growth will be Hispanic, only 21 percent will be white, non-Hispanic.

If you look at the working age population, 16 to 64, you see that the white, non-Hispanic group comprises 3 percent of the growth of the population, Hispanics 55 percent, and African Americans 21 percent, and Asian Americans, or Asian non-Hispanics, 21 percent. These are the Series A Census Bureau projections that I'm quoting.

Furthermore, there are tremendous regional disparities in U.S. population growth and, therefore, in workforce growth. With the West and the South growing very rapidly, with the Northeast and our Central, Midwestern part of the country growing very slowly, we have, as we look ahead, the prospects for much slower workforce growth in the future than we have had in the past. On your handout, this appears as the first line on the first page, by mistake, but, nevertheless, it's in proper order here.

You see the fact of the matter is that in 1978 we reached actually a workforce growth rate of 3.5 percent which reflected the fact that the Baby Boomers were entering the labor force in tremendous numbers at that time. Since about the late '80s, we have had a very different kind of a circumstance. We have had a plunging rate since 1978, and continually drifting downward rate as we've had the smaller generations entering the workforce. And so to some extent, that is what lies behind, in a demographic sense; this worker dearth or these tight labor markets.

So, we can expect lower workforce rates of growth in the years ahead. The Bureau of Labor Statistics, in its recent projection to the year 2008, is looking for something on the order of a 1 percent rate of growth up to 2008. We will have a particularly sharp reduction. I mean an absolute decline now, in the number of young adult workers. Here I'm speaking of workers in the age group 25 to 40, not strictly entry level, but 25 to 40 year olds. The number in this whole category will decline by 1.7 million between 1998 and 2008, that's a very substantial change. We have an absolute reduction in the number of these young workers.

And, as this chart shows, most of that shortfall comes in white, non-Hispanics. The left side shows that in the age groups from 30 to 40, we have a tremendous decline, in the number of workers here, with substantial increases in all age groups for the Hispanics, some not so very impressive increases for African Americans, and very rapid rates, at least in percentage terms, for Asians. So, that is a very remarkable thing.

Looking ahead, looking at participation rates, we see that one of two things is we had a sharp drop in labor force participation rates of older Americans over the past several decades. In 1970, about 70 percent of men ages 62 were in the labor force. That dropped by 1994 to 62 percent, so we've had this huge plunge. Much of it has to do with the influence of Social Security on the decisions of older Americans, particularly men, to remain in the labor force.

It turns out that the Social Security earnings tax, and I don't need to beat this horse because I think it enjoys very widespread popular bipartisan support in the Congress. Nonetheless, it is definitely true, that that earnings test places a very, very high tax on workers, between 30 and 50 percent depending on whether you are 62 years of age or 65. When you add in income tax, and FICA, and local and state income taxes, it turns out that the total marginal rate on income varies from around 80 to 115 percent. So, it's small wonder that we see an exodus of older Americans from the labor force.

This particular slide, I'll breeze right past it, shows the decline of male workforce participation rates over the decades and the rise of women, as women have entered the labor force. These two, I think, are converging, and they may not ever quite converge, but they are moving in that general direction.

Bottom line is that we are going to suffer worker dearth for some time. Tight labor markets are something we need to get used to. It's true that we might have a restrictive macro economic policy, or even a major recession for some other reason, that would boost unemployment for a period of time. But in all likelihood, it's not going to boost it very far for very long.

My anticipation is that we will see a situation much more like the '50s and '60s than we saw in the '70s and '80s in the years ahead, with a maximum unemployment rate of around 6.5 percent, a minimum we haven't seen yet as low as 3.5 percent, and an average of about 4.7 percent over the period from now to the year 2020.

There are a few points that I’d like to make. Some areas are going to suffer much, much more than others from this respect. Our Midwestern area, for the reasons that we are, in a sense, a very slow growing area from a demographic standpoint, is not receiving much immigration. For a variety of other reasons we are going to be hurting a good deal more in terms of worker dearth in tight labor markets than those parts of the country where the population is growing more rapidly, both because of immigration and natural increase.

Some industries are going to be hurt more than others, and those industries that have sufficiently relied upon the workers in the 25 to 40 year range are going to suffer great difficulty in trying to find and retain workers over the next little while. That includes industries like the construction industry, the health industry, mid-level industrial workers and so on. Anybody that employs this shrinking pool is going to have difficulty in the years ahead, and that is a demographic inevitability.

Then, there's the fact that economic success breeds worker dearth. As those parts of the country that are enjoying boom times expand they, basically, tap out their local labor force pools. Take a look at places like Santa Clara County, California, which is the home of Silicon Valley. There you find the unemployment rate way down below two percent in some respects. At the same time, you may find, very close by, very high unemployment rates in California. As I said earlier, there are many counties in California with double-digit unemployment, and we need to address the reasons why those two things persist.

The skills gap situation arises because the attitudes, the skills, and the knowledge required to fill our best and most rapidly growing jobs are rising very rapidly. At the same time, these higher levels of education and training, that are increasingly important for workforce success, turn out to be the fastest growing parts of our labor force and our population, and are the ones without strong traditions of formal education. So, think about that for a moment. The parts of our labor force that are growing really don't have a strong tradition of formal education and training, and it's something we must address as a very important problem.

We talked about the problem of reform of the schools. We have been talking about that now for the better part of the last half century, and progress is modest, to put it mildly. But, in general, too low a proportion of American young people, school leavers, are developing the attitudes, the skills and the knowledge required to succeed in the rapidly changing workplaces in the globally competitive, high-tech economy, and we need to do something about that. Well, what are some of the things we should do about it?

Before I get to the recommendations, let me say that many of the problems I'm describing are not amenable to policy change. They are inevitable, they are parts of demography, and demography is remarkably resistant to things that government policy can do about it. Having said that, though, there are some things we can do.

We do need to abolish the Social Security earnings limit. Don't just raise it, ladies and gentlemen, abolish it. Raising it, in all likelihood, would make the problem worse, for reasons that I don't have time to go into right now, but it would make the problem worse.

The second thing is, and this is not within the purview of your Committee, or your Subcommittee, I'm strongly in favor of the replacement of the federal income tax with a federal consumption tax, which would have the effect of encouraging, not discouraging work, which our present income tax does. It places a tax on work, and effort and savings; the consumption tax would not do that. This is not a sales tax, this would be a federal tax on consumption, which would leave that part of income that is invested and saved, not taxed, and could raise the same amount of income and revenue as the present ones do; but never mind about that.

I think we need to reform our immigration system sharply. I've testified in the Congress before, and I've urged that we implement a point system, similar to that used by Canada and Australia, which do a much better job of seeing that our immigration flow matches more closely our workforce needs.

We need to encourage market discipline and more choice in our educational system, and we haven't time to go into that in great detail, but that is a necessity. Our present system places a tremendous disadvantage in the path of less affluent families who do not have the option of seeking alternative schools in the private sector if they so choose, and so we need to provide choice to all our citizens.

And finally, speaking of the Workforce Investment Act of 1998, we need to do a good job of monitoring its implementation. I'm concerned about it in many respects; what I call my wheel of worries. I'm worried about departmental protectionism at the state level and below that, I'm worried about the sometimes ill-advised burdens of federal regulations. I'm concerned about an "old wine and new bottles" aspect of that law. I'm concerned about the resistance that I see in the public service at the state level, and sometimes at the federal level, to efficient privatized alternatives to providing really up-to-date labor market information systems.

With that, Mr. Chairman, and members of the panel, my five minutes is up. But, in my defense, I must say counsel told me to speak as long as I felt like.




Chairman Hoekstra. You yield back the balance of your time, right? Yes, all right. Dr. Holzer.





Dr. Holzer. Thank you, Mr. Chairman, and Mr. Roemer.

I want to make six basic points and elaborate a little bit on each of those points. Some of them follow up on comments that you made.

Chairman Hoekstra. I've got to tell you I'm impressed that, as soon as you started speaking this whole light just lit up.

Dr. Holzer. Even from Michigan State.

Chairman Hoekstra. I know. It's a remarkable thing.

Dr. Holzer. I'll make these 6 points, and some of them also follow up on points made by Dr. Judy, but maybe with slightly different emphasis in some places.

The first point I want to make, to reiterate comments you made in your opening statement, is that we are enjoying a very tight labor markets in the United States right now. I believe the benefits these tight labor markets offer the U.S. economy have been enormous and they easily outweigh the costs.

You mentioned the lowest unemployment rates in the last 30 years, which is correct; the lowest unemployment rates on record for many demographic groups. Not only have there been employment increases, but significant wage increases for all American workers, with some of the largest wage increases going to the people most in need of wage increases. These are the groups that have suffered a lot in the previous 20 years, as inequality in the rewards of our labor market has widened.

I think that the tight labor markets have contributed to the decline in the welfare roles. I think they have contributed to an important decline in crime rates, which we've enjoyed all over the country, and all of this has occurred without any perceptible loss of output or any limitation on employment growth to date. Employment growth has been very rapid, despite all the talk of nationwide shortages. Output growth has been very rapid, and there's been no sign of accelerating inflation.

Now, a lot of this, of course, is because we've enjoyed productivity growth, which has been very strong, and that remains an important part of this. Nevertheless, to date the benefits have been enormous, and I think we need to recognize that.

My second point as an economist, very simply, is I believe markets work, and I want to reiterate the point you made also. I think that certainly over the long run, and even in the short run, markets have ways of adjusting successfully to these labor market pressures. Wages adjust, benefit levels adjust, and these work on both sides of the market.

On the one hand, it will encourage employers to limit their hiring needs, to find creative ways maybe to use capital, where otherwise they may have used workers to use new technologies. But also, the wage and benefit adjustments will bring more workers into the workforce, and will attract workers into the workforce as they have been doing over the last several years. Housewives, students, the elderly, and especially disadvantaged workers, all have a lot of room to adjust their labor force participation rates in response to market incentives.

And, just to talk about one particular group for which those changes have been quite dramatic; look at the employment rates of single mothers. These have improved dramatically by something close to 20 percentage points in the last 15 years or so. That's partly because of wage adjustments and partly because of welfare reform. It's also partly because of the earned income tax credit, but I raise it as an illustration that participation rates within these demographic groups that Dr. Judy mentioned could adjust to market incentives.

There are many new developments, and new technologies that will help firms recruit. Internet-based recruiting is just in its infancy, and that will disseminate through the workforce. Telecommuting, that you mentioned before, will enable many people with home responsibilities, who otherwise would have stayed out of the workforce, to enter the workforce at least on a part-time basis, and I think that's a very positive development. New institution developments, and temp agencies have clearly been successful in limiting bottlenecks in certain local areas and helping employers recruit over a wider area. I think temp agencies and other kinds of agencies, and other intermediaries, will grow in importance. So, there are ways in which private sector markets can adjust.

My third point is, and I don't want to sound "Pollyannaish," or view this with completely rose-colored glasses, but there are some problems, and there are some risks, and I don't want to minimize the costs to employers that are having these difficulties finding qualified workers. I've actually surveyed several thousand employers in Michigan and some other Midwestern metropolitan areas, and 80 percent report some difficulty hiring qualified workers right now, and close to 40 percent report great difficulty. Again, that's the Midwestern market, that is one of the tightest regional labor markets in the country, as the previous speaker emphasized. I also think there are certain sectors of the economy where this is more serious than others. For instance, in the manufacturing sector, skill needs have grown very rapidly because of all the new technologies introduced into the production process, and that has made it more difficult for manufacturing to find workers with the right qualifications.

I also think the small business sector, retail trade and construction sectors, have great difficulties attracting a large enough applicant pool to find qualified workers. So, those are the sectors that have some of the greatest hardships.

And, there are risks to the broader economy. So far, we haven't seen any damage to the economy in terms of inflation or limitations on output. If labor force growth doesn't keep the pace that its had over the past several years, I think we need to recognize those risks, as Chairman Greenspan is emphasizing right now.

Having said that, my fourth point is at the same time that we seem to have these worker shortages, there are clear areas of worker surplus that we need to talk about as well. There are hundreds of rural counties in this country that continue to have double digit unemployment, when the national unemployment rate is 4 percent. There are dozens of cities and towns in this country that continue to have double digit unemployment. There are demographic groups, such as African Americans who continue to have roughly 8 percent unemployment, which would be recession level unemployment if it were nationwide. African American teenagers have unemployment rates still in the range of 25 percent. High school dropouts, residents of poor neighborhoods, all of these areas have very high unemployment rates, so there are still pockets of worker surplus on top of other areas of worker shortage.

My fifth point is that, in addition to relying only on the private market, I think intelligent public policy can help the private sector adjust. Here there's a broad range of activities that public policy can help encourage. Again, I'm going to mention them in a very general level, without getting into the details of policy. First of all I think we need to ensure, and I agree with Dr. Judy, that all young people coming out of secondary school have the basic cognitive and job-related kills to succeed in the workforce. There's a need to improve the school-to-work system.

Secondly, I think we need to make sure that there's adequate training available for people who are in the workforce with particular needs, such as disadvantaged workers, and dislocated workers, to make sure they can get on their feet quickly and get the jobs that are available. I think public policy can play a role in helping to match workers with employers with the greatest needs, by providing information and job search assistance and those kinds of services. I think public policy can help meet transportation needs and childcare needs that effectively limit the participation of some groups of disadvantaged workers, and finally, I think public policy can play some role in retaining workers that have already been placed, where we haven't done a great job to date, but where more needs to be done.

There's a lot of this already going on, such as the Workforce Investment Act, which is just being implemented as Dr. Judy mentioned, growing use of America's Job Bank and America's Talent Bank, and many private sector intermediaries, like the Welfare to Work Partnership to name one. We need to continue to support these efforts, and also to carefully evaluate them to figure out which are more effective and which are less effective.

Finally, I think there are some particular groups that need further assistance, where their needs are not really being met successfully. As was noted earlier, small employers have some of the greatest difficulty finding workers, and keeping workers. I think in many cases they are not familiar with local agencies, local intermediaries, or new technologies, so there's definitely a role for greater outreach and greater technical assistance to small employers.

We need to do a better job in helping with job retention, perhaps by supporting incumbent worker training or on-the-job worker training, and not just training for workers who are out of jobs right now.

I think there are populations that need greater support in the labor market, and particularly I'm thinking of low-income males. We have a lot of young men in this country who are in prison, and over the next few decades a lot of young men in the millions, who will be ex-offenders. We need to bring them into the workforce and we need to think more creatively about what barriers they are going to face and what concerns employers are going to have about hiring them and trying to bridge those gaps.

And finally, I think we do need to pay more attention, as I mentioned earlier, to the whole school-to-work system, and skills. We need to make sure that those young people who aren't going to community college or to four-year college have job-related skills when they enter the workforce that will enable them to move in more quickly and find the right jobs.

Thank you.







Chairman Hoekstra. Thank you. Mr. Barlow.







Mr. Barlow. I'd just like to begin by saying I feel an affinity for both of you because I pay taxes through the State of Michigan, but when I'm asked where I live I respond, "Northwest Airlines, Seat 1B," because my portal to the world is out of South Bend. So, having that airport close has really been a blessing.

I think it was last year I had 240 "in and outs" to South Bend; travel on airplanes to the 150 engagements that I had last year with different sectors of the American economy.

Mr. Roemer. We welcome you to open a business in South Bend, too.

Mr. Barlow. Okay, well, I think I already spend about $75,000.00 a year in airline fares to go out of there, so it's having one there anyway.

I'd like to begin my remarks by borrowing from the wisdom of Jack Welch, whom we all know well, and is oft quoted. He says, "When the rate of change on the outside exceeds the rate of change on the inside, the end is in sight." And, applying it to this particular situation, I believe that if we do not address this issue quickly the end of economic stability in this country may be in sight. That's what I see as a speaker and a consultant to many industries and sectors of this economy on an annual basis.

The aggregate number that drew my attention a couple of years ago, and seems to draw the attention of the audiences to which I speak, was a scenario laid out by the Bureau of Labor Statistics about a year or so ago, that by the year 2006 this economy will have created 151 million jobs, and we may only have 141 million workers available. That is a 10 million-worker shortfall.

I also became aware the other day of some other information that indicates that 60 percent of metropolitan areas in the United States have unemployment rates of 4 percent or less, 30 percent have rates of 3 percent or less, and 5 percent have unemployment rates of 2 percent or less. This is beginning to create very new dynamics in our economic stability.

There's a fast-food restaurant in an upper Midwest state paying $12.50 per hour for unskilled front-line workers, plus a healthcare benefit package. The restaurant is recruiting them from lower-wage manufacturing companies that have just recruited in the area to support their economic diversification.

A community in the South is coming up to the Midwest in the winter months to recruit experienced manufacturing workers to support the gold-collar jobs they've created. They offer incentives like, work for us from 6:00 a.m. to noon, play golf the rest of the day, and we'll pay you six weeks vacation weeks off in the summer to go back to the Midwest to fish. Anybody want to sign up for that job, I get a fee for anybody I can recruit?

There's also a printing company that I'm familiar with in the Midwest, which strategically recruited the top manager away from a competitor, specifically, to raid their competitor's skilled and unskilled workforce. I suggest this is just a sampling, just a beginning, of what are very negative kinds of situations that will affect the economic stability that we have had.

The young people out there and the workers today are well aware that we are in this terrific economy. If you take a look at enrollments in higher education, and post-secondary education, they are the highest ever, knowing that if they get further education they can qualify for those higher paying jobs.

In addition, we are going to be seeing the Internet used as a way for people to identify or compare their current situation to other alternatives. In fact, I would direct you to look at such web sites as casinojobs.com, coloradojobs.com, internationaljobs.com, or getarealjob.com. And so, the information is prolific out there among individuals who are interested in working.

This is creating a sucking motion up, across, and within various industries that exist in this country. And so, the sucking motion and the implications are now creating such an impact that many organizations, particularly, mid and small-size organizations, do not know how to cope with this new phenomena. They are experiencing increased worker dissatisfaction, because of the pressures that they have to place upon their workers to deal with the issues of globalization, commodities, deregulation, and then technology in this new environment of E-commerce. They are experiencing deteriorating employee loyalty. They are experiencing raids from competitors and suppliers, as well as the cost of having to replace a lost worker, which can equal one third of someone's annual wage. For a $6.00 an hour worker that can be $3,600.00 an employer has to bear to replace that particular worker.

There's also a new phenomenon called "job hopping." I understand, from a recent conversation with an economic development person from a Florida community, there was growing evidence of working with one company in the cool winter months and another in the same industry that has air conditioning in the hot summer months. These workers are always welcome back, because these companies are so desperate for workers.

In my travels of late, in talking to individuals, organizations, and communities across the country, the most recent examples of what they are experiencing are the following. I was on an airplane recently sitting next to a general manager from a rubber company facility in Arizona. He was having a difficult time finding any skilled workers to operate some of the basic stamping equipment, which is at the front end of his manufacturing process. Last November, I was working with a retirement community, which offers nursing home services. This mid-size facility has ten job openings for nursing and facility cleaning aides. It's even wondering if it can continue to offer the services it has promised to people who made guarantees when they entered. In January,

I keynoted two Governor's conferences on tourism and was introduced to a few facilities that may not be able to function during peak season. Their proprietors were joking about becoming a "self-service tourism destination."

Obviously, there is a convergence of the demographic information that Dr. Judy has referred to and the direct experiences of people in the field. Now to the heart and soul of my comments.

Many mid and small-size organizations in this country do not have the capacity to address this particular issue, and I think as a result of it they may not be able to continue to function and we may lose small and medium-size organizations. The market pressures are making it impossible for them to offer new incentives, such as stock options, signing bonuses, pet care, auto leases, child and adult care and telecommuting. In addition, they do not have the professional human resource capacity and experience to handle the sophisticated environment. And so at the moment, many people are challenged beyond their capacity to try to figure out this situation.

As a result of this, I can foresee in the not too distant future: A loss of medium and small-size organizations which provide diversity and competition to the marketplace; the relocation of companies, particularly manufacturing, to offshore locations where workers are more available; businesses in communities not able to sit at the same table and collaborate on issues of common importance because they are so angry with each other because of the recruiting activities where they are stealing each other's workers on a day-to-day basis; and, tremendous interruption in the flow and quality of goods in the supply chain, obviously, impacting today's pressing realities of "just in time" delivery.

It will be a sad, sad day if the following becomes commonplace because of the worker shortage. The general manager of a company says to a good customer, "I'm sorry, I can't complete your order," or a popular tourist destination is not able to open, or there is a prevailing attitude, "you don't ever want to be in a nursing home." I know this Committee will be working hard to establish public policy that will help address the issue.

I'd like to suggest a few things to consider: First, as has been mentioned, remove the barriers that limit the availability of unskilled workers such as income limitations, day and adult care, transportation, et cetera; create a good way to empower the small and mid-size organizations with better information on comparative, competitive wages so they, perhaps, can become competitive; and, avoid workers coming in and out of their organizations.

I suggest we need to better align projected job openings and required educational background with the educational programs that exist. I would suggest Congressman Roemer that right in your state there is a curriculum waiting to happen. It is at Toyota's plant, in their assessment center. I have never seen such an integration of physical fitness, team building, problem solving, and math and science, than I saw in that assessment center. There is a curriculum waiting to be copied and mimicked throughout your state.

I suggest tax incentives for industries and organizations relying upon unskilled labor to automate, similar to the incentives now available to relocate. I think we ought to give a priority status, as has been mentioned, to disabled individuals and also those leaving the prison system. We need to expand the availability of "best practice" information on how to attract and maintain workers. I think we need to expand the labor pool by seriously rethinking immigration policies from the premise that diversity is an asset, not a liability.

And lastly, enhance the appreciation for and value of the role of the unskilled worker in this economy. They are not valued sufficiently enough today. I opened my remarks by borrowing from the wisdom of Jack Welch. I would like to close my remarks by borrowing from the wisdom of Charlie Brown, who while lying in bed with his dog, Snoopy, one night is reflecting, "Sometimes I lie awake at night and wonder where I went wrong. Then a voice says to me, ‘This is going to take more than one night.’"

I suggest the issues that we face are systemic. They will be around for at least ten years, perhaps, more. They require national attention and priority, but I don't think we can take more than one night.

Thank you for the opportunity to be here.







Chairman Hoekstra. Thank you. Mr. Huizenga. You have listened to three very smart people describe the situation, and I think the rest of us will begin to authenticate in our day-to-day stories.







Mr. Huizenga. Thank you. Chairman Hoekstra, also known as "Tiger," Mr. Roemer, and Members of the Committee, I thank you for the opportunity to testify and for holding this hearing to open a dialogue concerning the shortage of unskilled workers faced by the foundry industry and manufacturers across the nation.

My name is Don Huizenga and I am President and CEO of Kurdziel Industries. I have had the good fortune of spending the past 22 years working in and leading three different foundry corporations. Currently, I oversee the operations of three facilities with more than 500 workers.

Kurdziel Iron is a gray iron foundry located in Rothbury, Michigan, employing over 300 workers, and is located in the Chairman's district. In addition, we operate a

100-employee foundry in Sparta, Michigan, as well as a cleaning, finishing, grinding and painting operation in Wauseon, Ohio with 110 workers. Our castings go into equipment, for the automotive and appliance industries as well as the lift truck, excavation and man lift markets.

I also serve as Vice President of the American Foundrymen's Society. AFS is the oldest and largest metal casting trade association in North America. AFS has over 13,000 members represented in all 50 states. Today, 2,950 U.S. foundries employ over 225,000 people. With the demand for unskilled and skilled workers outpacing supply, the dilemma of how to meet the growing shortage is one of the greatest challenges facing the foundry industry today.

Each year foundries produce thousands of tons of different castings by recycling and utilizing metals such as aluminum, brass, bronze, iron and steel. Among the most recognizable cast products are automobile parts, faucets and pipes, propellers, manhole covers, and golf club heads.

Within the foundry industry, unskilled workers perform essential roles in the production process and operation of a foundry. Our industry has been saddled with a shortage of unskilled workers for almost a decade. This persistent labor shortage is compounded by the fact that we compete in a global economy. Foundries have seen erosion in our industry's business to offshore competition, where there is an abundant source of cheap labor.

Our company, Kurdziel, has lost $45 million of revenue to offshore competition. Price is obviously a factor, but so is our ability to produce and deliver. When our customers are experiencing concerns about our ability to deliver the product, whether perceived or real, they have opted to migrate to offshore sources. We know that lower costs associated with fewer regulations and the abundance of employable labor further stimulates this migration. The continued economic growth and prosperity, which the Muskegon, Michigan area is experiencing, as well as most parts of the nation, has created a situation where there are just not enough unskilled workers to meet demand.

At our Rothbury foundry, we currently have 12 job openings for hourly production workers. We routinely face turnover of about 20 percent of our unskilled workforce. I would like to share just a few specific examples of how Kurdziel Industries, as well as others in the foundry industry, are addressing this shortage of unskilled workers.

Foundries across the country have increased first year salaries in an attempt to fill these positions and obtain better candidates. Kurdziel offers $13.00 an hour, which is our standard starting wage, for most starting positions, plus full benefits after three months of employment. Our benefit package includes health and dental benefits, life insurance, and a 401(k) employee retirement program.

Furthermore, with this tight labor market, many workers can take advantage of overtime opportunities at time and a half rates. In spite of these benefits, some young workers are not attracted to the hard work associated with the foundry industry.

The increased used of drugs among our youth is another disturbing trend that my company and other foundries regularly encounter. We have instituted a pre-employment drug screening process, where we test all applicants. In recent years, we have seen a huge jump in the failure rate of these tests. Each of the drug tests additionally costs our company $35.00 a piece.

A successful applicant at Kurdziel must meet three basic requirements. They must be high school graduates, be drug free, and not have a felony conviction record. Based on these criteria, only three of ten applicants qualify for employment at our company.

Also at Kurdziel, we spend a minimum of $1,000.00 a month running want ads in our local newspaper. As part of our recruitment strategy, Kurdziel human resource staff actively participates in high school job fairs and works with state employment offices, trade schools and community colleges.

We now employ the services of temporary employment agencies. This service, of course, comes at a price. For every worker that we hire through the agency, our cost is about 50 percent higher than the standard wage we normally pay. In addition, we, at Kurdziel, have instituted a cross training program for unskilled and skilled workers. Cross training simply means building versatility and efficiency in our workers through job rotation and skill development. We have succeeded in implementing our cross-training program within the structure of our union contract and the results have been a win/win situation for both management and our employees.

Furthermore, we have recently instituted a gain-sharing program, which creates worker incentives for cross training when certain efficiencies are achieved. Our ability to do this was negotiated with the union during our last labor contract.

Foundries are working hard to recruit, train and retain good unskilled workers. Because of the labor shortage, the industry is pursuing workers with increased resourcefulness, but at a significant financial cost. In order for foundries to compete in the global marketplace, we must continue to find employees who can produce quality work, possess good basic educational skills, and be reliable team members.

I do appreciate this opportunity you've given me to share my views on this critical subject and would be very happy to answer any questions you may have.

Thank you.







Chairman Hoekstra. Thank you. Ms. Ferguson.






Ms. Ferguson. Good morning.

First of all, I would like to thank you, Mr. Chairman and Mr. Roemer, for holding this bipartisan hearing and inviting me here to testify today.

The worker shortage is, perhaps, the most critical issue facing the lodging industry and it is important that both political parties join together in recognizing the problem and working on viable solutions.

My name is Valerie Ferguson and I began my career as a $2.90 an hour night clerk at The Hyatt Regency Atlanta, and I am currently the Regional Vice President and Managing Director for Loews Philadelphia Hotel. In 1998, I had the great honor of chairing the American Hotel and Motel Association, which is the trade association of the nation's $93 billion lodging industry.

In the last two years, I have had the opportunity to visit over 37 states, speaking to our member state associations about the challenges and opportunities facing our industry. I've met with numerous colleagues on these visits who have expressed the challenges presented by significant labor shortages.

In Nashville, the general manager of a major chain hotel sent a truck to a competitor's property, and on the side of the truck was a sign offering cash bonuses to employees willing to come to work for him. On the inside of the truck was a man passing out applications. At the Broadmoor Hotel in Colorado Springs, the average housekeeper accumulated almost 500 hours of overtime last year. That is an extra 10-hour day a week. One housekeeper tallied over 1,400 hours. When Disney Hotels was recruiting workers for its hotels and restaurants in Orlando last year, company representatives traveled to Pittsburgh, Pennsylvania, Rochester, New York, and San Juan, Puerto Rico, offering $1,500.00 relocation bonuses and $100.00 airline tickets to anyone who would work for Disney for one year.

Stories like these are not unique, and you can easily imagine the impact on our industry. Morale suffers when employees and management are constantly asked to work overtime to make up for the chronic lack of workers. Turnover is high as businesses take turns luring away each other's employees. Hoteliers struggle to maintain a high level of guest services in these conditions. The situation is so bad in some areas that I've begun to hear rumblings of the unthinkable, and that is, they may turn away guests.

As Managing Director of the Loews Philadelphia Hotel, I see the worker shortage first hand fueled by inadequate educational infrastructure and a burgeoning economy. We hosted a job fair three weeks ago that only provided 180 job offers out of 550 available positions. We are seeking employees to fill positions that are not dead-end jobs. Our industry remains as one of the last that truly represents the American dream. Employees that are committed and are dedicated are rewarded with promotions and career advancement.

Around the country, the lodging industry is trying everything that we can think of to find employees, and I'll briefly describe some of our efforts. Recruitment activities and inducements have been monumental: job fairs, job hot lines, finders fees, fax lists, ads on TV, radio, the Internet and in newspapers, government unemployment offices, temporary staffing agencies, et cetera.

Hotels offer a number of inducements including cash signing incentives, attractive pay, free meals, health and welfare benefits, opportunity for advancement, bonuses, training and development, English as a second language classes, and more. You may hear it claimed that we could attract enough workers if we just paid more, but the fact of the matter is that hotels are paying more and still we cannot find enough employees. According to the Hospitality Research Group of PKF Consulting, "Since 1993, the annual growth in hotel labor costs has ranged from two to three times the growth in labor costs for all U.S. private employers." Most entry-level positions, depending on the market, range from $7.50 an hour to $16.25 an hour.

At the Loews Philadelphia Hotel, for example, we were offering housekeepers $9.50 to start with. That also includes their medical and dental benefits, annual raises and ongoing training.

The lodging industry has also been a leader in welfare-to-work efforts. Loews Hotels was one of the first members of the Welfare-to-Work Partnership. When opening our new hotel in Miami Beach, we initiated a partnership with neighboring hotels offering over 350 positions to former welfare recipients. Loews Miami Beach opened and it extended 45 accepted offers to former welfare recipients and is experiencing very little turnover. The programs of other chains, such as Marriott and Hyatt, have been quite successful. Marriott, for example, has graduated over 2,100 people through its Pathways to Independence program and has been able to retain 72 percent of these new employees over one year. In fact, nationwide welfare roles have been dramatically reduced, and still, we cannot find enough employees.

Our industry is also pursuing numerous school-to-career activities to attract high school graduates. For example, the Hospitality Business Alliance, which is a national educational partnership of the American Hotel & Motel Association and the National Restaurant Association, provides curriculum assistance to high schools and internship opportunities to students. We also help to establish and support a growing number of hospitality high schools that offer students special classes in hospitality and that we hope will show them opportunities in our industry after high school or college. And still, we cannot find enough employees.

I have spoken to scores of high school groups myself, and I have been shocked at what I have seen. Too many high schools in this country are not turning out graduates prepared to join the workforce. In Philadelphia, the dropout rate in public high school is 50 percent, and the competition is fierce among employers and colleges for the remaining 50 percent. In the long-term, the improvement of our schools is critical to supplying the workers we all need.

Our industry has also sought workers from abroad to fill employment vacancies at all levels in the hotels. Some of our students are from foreign hospitality universities, and some are lesser skilled workers earning enough money to send home. And still, we cannot find enough employees.

When considering the labor shortage problem, please keep in mind that the 21st century economy is predominantly a service economy and service economies require employees. When considering possible solutions, please do not focus on outdated models that fit an economy that no longer exists.

Again, I would like to thank you, Mr. Chairman and Mr. Roemer, and the other Subcommittee Members for this invitation, for your time and for your attention.






Chairman Hoekstra. Thank you. Mr. Guillard.







Mr. Guillard. Thank you very much, Chairman Hoekstra, and thank you, Mr. Roemer, and other Members of the Subcommittee. It's my pleasure to be here with you today, and I appreciate the opportunity to testify, and commend you for looking into the issue of labor shortages facing our country.

As noted, I operate a moderate-size long-term care company, providing nursing home services to more than 6,000 patients each and every day, 24 hours a day, 365 days a year, and a total of 30,000 patients each year. I have worked in this industry for over 28 years, and during this entire period of time I have never seen the issue of labor shortages affect this segment of the health care industry as much as it does today.

The labor shortage in our segment has reached an epidemic proportion. It has heightened, obviously, during this intense period of a very strong economy. We experience in our industry annualized turnover rates exceeding 100 percent, and the constricting pool of available workers makes it difficult for us to meet the daily needs of our patients.

Competition for workers has heightened, both for professional workers, registered nurses and LPNs, and also for certified nursing assistants and non-skilled workers. In virtually every nursing home in the entire country there are vacancies and a resultant need for new workers.

On the basis of competition for our available workers, take the State of Connecticut for example. We find that registered nurses preferred the five-day work week and free weekends that insurance companies offer rather than enjoy the work requirements, nights, evenings and weekend shifts of a nursing home. We recognize that the average age today of a registered nurse is 43 and climbing, and nursing school enrollments today are declining. They have declined four years in a row by about five percent each year.

We are severely restricted in our ability to increase compensation due to our reliance on government funding that today does not meet our actual costs of care. We do not operate in our industry in a free market economy, quite frankly. This reliance on government funding that constricts our revenues, precludes us from paying our workers the premium they deserve for the arduous and difficult work they perform in caring for the elderly. In this regard, please note that 80 percent of our patients rely on Medicare and Medicaid payments, programs that have been chronically under funded and the recent Balanced Budget Act has in addition, severely decreased our revenues, affecting our ability to adequately compensate our employees and provide them with a fringe benefit package.

We lack both the ability to raise prices and to cut expenses. The federal and state governments essentially set our funding, and our labor costs approximate 67 percent of our total operating budget.

In addition, we in the industry operate under the greatest level of government scrutiny of any sector. Today, our attempts to respond to the worker shortage and the imminent problems it presents for us are met by the efforts of state officials to raise the minimum staffing standards for our operations. We are not opposed to adding workers,

we simply cannot find adequate workers for the needs of a growing elderly population.

We endorse smart regulations, but left uncorrected the punitive system that focuses on fines and penalties frustrates our best managers who have in the past several years sought employment in other less demanding industries. These are the people we need to help solve our labor shortage crisis.

The elements of this labor problem, together with the financial constraints, have come together to create a crisis, which we have never witnessed in the history of this industry. Today, 1,600 nursing homes across the United States are operating in Chapter 11 bankruptcy. In 27 states, more than 10 percent of the nursing homes are bankrupt. In Massachusetts, it's 20 percent, and in some states it's as high as 45 percent. Workers are very fearful of their future, when their employers are bankrupt, and it obviously complicates our recruitment process. This is the environment in which we must find workers.

A convergence of limited government funding, net income margins in our industry of 1.5 percent, and a growing economy, pose a problem today. With the dramatic aging of the population, this problem is exacerbated more each and every day.

What have we done? We have hired from the welfare roles. Many of our facilities have hired elderly workers for limited capacity kinds of tasks and situations. We have used federal funds for training programs. We have utilized new technology, developed new processes, and new protocols. We provide incentives for hiring, recruitment and retention, and we maintain recruitment retention committees in each and every one of our centers.

We have already witnessed some companies' response to this problem, as they, indeed, have gone forward and closed beds, and turned away patients that cannot be adequately cared for. My company today assesses whether we should reduce our beds in Peterboro, New Hampshire, for example, where we struggle daily to find adequate personnel. Rest assured, if this crisis goes unabated, there would be access problems in communities like Peterboro, New Hampshire, across this entire country.

Despite the forces working against us, I, like many professionals, are committed to working to resolve this problem. We will not let this affect the quality of care that we strive to provide to our patients. The casualties in this may be the little things that make life in a long-term care facility enjoyable. With fewer staff and increased demands, caregivers can only afford the time to provide the essentials of quality care. If you ask them, our caregivers will tell you that they are there to make more than a living, they are there to make a difference, and they do.

But, I am concerned with our ability to continue to serve the frail and elderly who need skilled nursing care, those people who have given our country and us so much. I am here to ask you, who will care for our elders if we really do not get this problem addressed immediately?

Thank you.




Chairman Hoekstra. Ms. Dixon.






Ms. Dickson. Mr. Chairman and Members of the Committee, good morning. I thank you for the opportunity to testify on "21st Century Worker Shortages."

Chairman Hoekstra. Could you pull the microphone over just a little bit closer? Thanks.

Ms. Dickson. I thank you for the opportunity to testify on the 21st Century Worker Shortages and the needs of American employers. I am global company human resource specialist, and my testimony today reflects my direct experience with Ingersoll-Rand's ability to find vitally needed workers. The message I came to deliver is that we are experiencing across-the-board worker shortages in both highly skilled and lesser skilled areas.

Ingersoll-Rand is a Fortune 200 company, as you mentioned, and we do have 28,000 domestic employees. We are a major diversified industrial equipment and components manufacturer. Our annual sales last year were $8.5 billion. Ingersoll-Rand operates manufacturing plants in over 21 countries around the world, and we market products and services along with a lot of different subsidiary companies through a broad network of distributors, dealers and independent sales and service repair organizations.

As you have heard from panelists this morning, the tight labor market has produced unemployment rates at a 30 year low. The economy has been creating an abundant number of jobs at all levels to keep business like ours scrambling for employees. I am certainly not an economist or a statistician, but common sense and the simple principles of supply and demand back up what your distinguished panels have stated. We do have a serious worker shortage, and companies such as Ingersoll-Rand may be forced in the future to move outside the boundaries of U.S. borders to meet these demands. We live this reality on a daily basis, and the human resource managers throughout our different companies continue to tell me that they cannot fill key positions, and that they are forced to look outside the U.S. to hire or out-source this work.

Ingersoll-Rand has always prided itself on being an American company that strives to keep the majority of its manufacturing operations within the U.S. borders. We have manufacturing plants in 24 states and 120 facilities located throughout the United States. Over 40 percent of our profits are tied to export sales. Unfortunately, market forces and the unavailability of U.S. workers have created a problem identifying and retaining U.S. workers across a spectrum of skill levels. I'd like to give you some examples.

For example, our Rotary Drill Division, which makes drilling products for mining and water well application, has been looking for welders for a major project for a very long time. Welders are semi-skilled employees, but they are not considered professionals. But, it is a skill set that involves specific training in order to perform the job competently and also safely. The company has recruited for welding positions across the U.S. Last year, we had 60 open positions for welders at Garland. They have recruited at military installations; we went to shipyards and through employment services. We have our own welding schools, and we still cannot identify sufficient people to attend this type of training to fill our needs. Last year, we did identify competent welders in Mexico, but we were unable to bring them into the United States, because we could not get temporary work visas for somebody who is not considered a professional.

One of our divisions in Michigan continues to experience difficulty finding electricians for their manufacturing operations. The automotive industry is their big competition attracting such skilled workers. The human resource people there tell me that electricians are in very short supply in the Detroit area. Again, electricians require a number of years of training and apprenticeship to be a competent worker, but they are not considered professionals. The human resource manager had identified available electricians in Canada, but there was no way to obtain appropriate work visas for them, and the jobs went unfilled.

We have difficulty finding technicians in our pump repair business. Experienced tool and die workers, stamping technology, again, in manufacturing is one of our shortage occupations. Precision machinists are in very short. As the company continues to expand quality initiatives, metrologists have become a professional occupation, which is also in very short supply. There are only about five universities in the United States with master programs specializing in metrology, and almost all the students enrolled in such programs are foreign nationals. Human Resource Managers advise me they simply cannot find Americans to fill such positions. Our Waterject Cutting Systems business, which is in Michigan and Kansas, spent 20 months searching extensively with professional recruiters and advertisements to find an engineer experienced in industrial robotics and pressurized product development. We finally found somebody from Canada. Metallurgical engineers have been an identified occupational shortage for years in the United States and, of course, are key contributors to machinery development projects. Thermo King ended up conducting a 13-month search for a plastics engineer. Thermo King is our Refrigeration Unit, and we finally found somebody outside of the United States in Canada.

Everybody is aware of the information technology shortage, and that really runs the gamut from the very highly experienced professional programmers and software engineers right down to the technicians who support the help desk function. It has been reported in the New York Times the number of bachelor's degrees in computer sciences awarded in the United States has been steadily declining, while the demand for these occupations continues to explode. There are estimated 180,000 openings for IT positions in the United States today. My eight Directors of Information Technology expect over the next five years that that number will probably go up to 500,000.

In addition, in America there seems to be a skills gap, with the most advanced programmers and engineers coming from India, China, or some of the Eastern European countries. When we are looking for particular skills, such as Oracle database, UNIX, or C++ programming, and particularly experienced programmers for web-based applications, few Americans qualify. Human Resource Managers tell me that any advertisement for an IT position will result in over 90 percent of these applicants being foreign nationals, that is, if they get any response to their advertisements at all. Foreign nationals only work as non-immigrants in the U.S. for very short periods of time, so even if you are using foreign nationals to fill that gap there's continuous turnover of key technology positions. Many of our Y2K projects ended up being out-sourced to other countries. Canada, facing the same shortage for high skilled IT professionals, last year initiated a Software Professional Pilot Program to attract and expedite entry for talented IT professionals into its borders. I know specifically of three or four people that we lost to Canada under that program. Situations like this drive projects overseas, resulting in a loss of U.S. jobs and a decrease in U.S. spin-off revenue. We need workers across a very, very broad spectrum of skills.

We are constantly hearing through the media that the business community must train U.S. workers and invest in the domestic workforce. We at Ingersoll-Rand do this and much, much more. We have training centers at all our manufacturing facilities designed to improve technical manufacturing skills and meet our employees' personal growth initiatives; we collaborate with community colleges and vocational technical schools that provide certificate and college degree programs, as well as sponsoring distance learning on-site; we have tuition reimbursement programs; we have corporate on-site training programs; we encourage cultural exchange.

Our Corporate Technology Group in Phillipsburg, New Jersey, over the last few years has continued to train technical people. In 1995 we had maybe 600 or so people going through that training program, and now we train about 3,000 people a year. Dresser-Rand, in Olean, New York, had a partnership with a local vocational school to hold on-site classroom training and these became certificate programs for these people. Our hope was that if we got them there, we would train them, and then they would eventually come to work for us. As I said, we have a welder's school. Our Air Compressor Group has a lot of cooperative training programs in conjunction with local high schools. Torrington Company, again, has a dedicated training center on site, and they sponsor degree programs through the Hartford University Distance Learning Center. Those are just a few examples of many different things that, not only Ingersoll-Rand, but I think most major manufacturing companies are doing today.

When we recruit from universities, there are two-year corporate professional management training programs in the fields of engineering, manufacturing, finance, human resources and sourcing. These people get a rotational program and they are exposed to many, many things, and some of them are stolen away from us at the end of the training program because it's considered a wonderful, wonderful program.

Ingersoll-Rand is also a major contributor to U.S. colleges and universities as well as national organizations such as the National Hispanic Scholarship Fund, the National Urban League, the National Alliance for Business, and the U.S. Chamber of Commerce.

We continue to conduct extensive recruitment for our unfilled positions. We hold and participate in job fairs. We advertise and print publications such as professional journals, newspapers, and newsletters. We advertise electronically on the Internet. We have our own career web site, and it's really an excellent site where you can go in and put your skill level, where you want to work, what you are interested in, and surf through the whole pool. Anybody that wants to go in and look at it, you'll be flabbergasted how many open positions are listed there.

We are still left begging for more workers, particularly, for the semi-skilled manufacturing positions and the highly skilled design and development engineers and information technology positions. This puts an enormous strain on our productivity. We are left open to raids from our competitors, both domestic and international, and projects could be driven overseas.

Employers currently need, and will continue to need, workers of all skill levels. Ingersoll-Rand is a member of the U.S. Chamber of Commerce and through this organization has joined in coalition with businesses and trade associations across the spectrum to seek a solution to worker shortages at all levels. We are encouraged that the Subcommittee is exploring this issue, and hope to find some resolution to serious worker shortages in this tight labor market.

Thank you for allowing me to testify. I look forward to any questions you might have.








Chairman Hoekstra. Thank you. That is a lot of material.

I've got a couple of areas I want to go to and a couple of areas that I'm going to go to that I don't want to go to. You guys might be excited I'm going to go there

Dr. Judy, what you talked about is that, from a demographic standpoint we are just going to face this problem for another 20 years.

Dr. Judy. That's correct.

Chairman Hoekstra. The demographics are working against us.

Dr. Judy. It's going to get worse, not better.

Chairman Hoekstra. Okay, it's going to get worse; it's not going to get better.

Dr. Barlow, you were talking about a number of unintended consequences that are negative consequences. I'm not sure that's how you put it, but this is not all a rosy scenario, with a growing economy that is only going to do good things, such as escalate all the jobs, and increase pay, and those types of things. There's going to be negative consequences to this, and I think that's a side that maybe has not gotten that much exposure as we've gone through the boom time. So, thank you for bringing that up.

I want to talk a little bit about youth employment, and what's going on with some of our young people. Ms. Ferguson, you talked about that. Do you have any idea? I think you said in Philadelphia that 50 percent of the kids are dropping out.

Ms. Ferguson. They are dropping out of public high school.

Chairman Hoekstra. Out of the public high school; what happens to that 50 percent?

Ms. Ferguson. Well, that's a very important question. A part of that percentage ends up in trouble.

Chairman Hoekstra. Yes.

Ms. Ferguson. Another part of that percentage is able to get some work, but they find themselves limited because of the lack of education.

Chairman Hoekstra. Mr. Huizenga won't hire them because they may have a felony conviction, is that right?

Ms. Ferguson. And then, the cycle continues.

Chairman Hoekstra. And, they won't have a high school degree.

Ms. Ferguson. Our position on the requirements, and the qualifications vary with the positions. There are over 40 to 50 different entry-level positions in hotels. Some positions don't require a high school diploma, which is something that's just happened in the last five to seven years. We urge those young people to get their GED and to get back in school, but the balance just aren't able to move anywhere or to move forward, so they become frustrated, or they jump from job to job for $.25 cents more an hour, and ultimately find themselves in some very problematic situations. So, it's significant.

Chairman Hoekstra. I mean, with or without an economy like this, it's a shame to lose any single person.

Are any of you aware of any communities, or states, or cities that are really successful? I think we've heard it with Education at a Crossroads. As we've gone around the country it seems that in many of our metropolitan areas we are just losing too many of our young kids.

Dr. Holzer. I would think there are two sides to this coin. First we need to reduce the dropout rates and to keep people from failing. Of course, there's a broad range of issues that would involve improving people's skills, and the quality of teaching, and things like that.

There are some programs that have worked, one known as Quantum Opportunities, based in a number of sites across the country, that have had very positive, very cost effective results in reducing dropout rates. Of course, there's many other restructuring of school systems and incentives and things like that that can help this problem.

The other set of models is, once people do drop out there are second chance programs. We are familiar with all the failures, and I think the news media often harps on the failures of programs for disadvantaged young people; there are some successes as well. The Job Corps is one relatively successful program. The Center for Employment and Training in San Jose, California, Project Strive in Chicago, and New York, and some other places, so there are some successful models out there. There's always a big question of how to replicate those successes and how to bring them up to scale. But, there are things happening, at least in some places, and some successful models that we can look at more closely.

Chairman Hoekstra. Mr. Barlow?

Mr. Barlow. Just an observation, I don't know if you've been in a high school classroom lately, but we have got to go far beyond where we are, and make what is going on in the classroom relevant to the world after school and people's lives in general. And, I think that means we have to seriously, from a public policy perspective, rethink a couple of things.

I've been advocating for a number of years, perhaps returning to a K-14 type of construct in education. We had that in Michigan years ago, where those last four years are an integrated school/work kind of experience. That's a public policy kind of thing.

I think another area of public policy, and you may see this in Michigan, I don't know, is that it's time for industries and individual companies to come to the table and apply for charter school licenses. Let's create a pathway and let us redirect the dollars that are available for industries to set up their own schools, and to begin to guarantee employment upon graduation, and some career pathway in a particular industry. I think those are public policy kinds of things.

I think the reason for the dropout is that something is wrong with what is happening in that classroom. It is not relevant, and I happened to attend a back to school night for my son in a high school in Michigan a couple of years ago. To tell you the truth the only relevance I found in the six college preparatory classes that he was taking was in the Latin class, and that was probably a matter of survival. I got more excitement out of what that person was doing to relate Latin to our history, our laws, and the use of the language. Public policy has got to be applied to rethinking what goes on, and maybe to restructuring how the dollars are spent to help create pathways and better alignment of dollars with job needs.

Chairman Hoekstra. When I grew up, I think I started at 12; it wasn't unusual for us to go work in a greenhouse, or a nursery, at 12 or 13, and move into the grocery store at 14, 15 and 16. Today most small and medium businesses that I talk to really don't want to hire anybody under 16.

Any comments on whether that’s a relevance issue? It's issue free time. It's a place where you learn. Do we need to rethink or take a look at the rules and the regulations that in many cases have discouraged the formation of those kinds of entry- level jobs, or is that just too dangerous to do?

Dr. Judy. My own feeling is that our problem is that too many young people in many places are dropping out of school in order to pursue employment. Job opportunities out there are very attractive, whether they are in the illicit part of the economy or whether they are in the legal part of the economy.

And so, many students drop out of school, and don't just become idle. Some of them get into trouble, but some actually do go to work. In some ethnic groups in society, particularly in Hispanic parts of society in various places around the country, we see very high dropout rates, not because they are going to go get into trouble, but because they are going to go to work. There's a very high work ethic there in the families, and there is a propensity to leave school, go to work, and begin to earn income for themselves and for their families. That won't serve them well in the long run, in fact, it will greatly serve them ill in the long run, and it will ill serve the rest of e society in the long run.

Essentially, you know, we have at least two problems. One of them is in society at large, where there's insufficient understanding of the importance of accumulating attitudes, knowledge and skills during one's adolescence for one's future life as an adult. I mean, young people and their parents don't understand adequately how important it is to get the skills that you are going to have to have in order to succeed in the world of work in the 21st century. I would argue that's the most serious part o the problem.

The other part of the problem is that our educational establishment, or our production system, if you like, in education was designed for a 19th century agrarian society for the most part, and it is one in which the normal market corrective forces do not operate. In most parts of the economy, if someone performs very well, indeed, there's a reward for him or her. If they perform very poorly, there is no reward for them. In the public schools systems I have in mind, those forces operate very weakly, if at all, because they are essentially monopolies, and they run in the interests of the producers and the producers organizations. And, until that's stopped, we are not going to see any improvement.

Dr. Holzer. I actually have a somewhat different perspective, at least on the first part of your comments.

Dr. Judy. I'm not surprised.

Dr. Holzer. Studies repeatedly show that a moderate amount of employment for secondary school students, while they are in school, is a positive thing. It increases their success rates in the labor market once they graduate, without hurting their academic achievement; I stress the word moderate. By moderate I mean up to 10, 15 hours a week, something like that.

If anything the problem is too little work for some demographic groups like African Americans, which then makes their whole school-to-work transition more problematic, because they are starting without early work experience that all of us had while we were in high school; summer jobs, part-time jobs, that taught us something about what employers are looking for and what's relevant.

So, I think a moderate amount of work is useful, and important, and can be very helpful. And, I don't think there's great employer reluctance right now, in the midst of this worker shortage, to hire young people, at least in some sectors like retail trade.

I do agree with the comments about sort of the gaps between the school system and the workplace, and the need to improve. I would endorse some of Mr. Barlow's suggestions about trying to narrow those gaps, and trying to have school programs where it's more obvious to students. A lot of high school sophomores sleep through their classes, because they are not motivated, and they don't see the link between what they learn in the classroom and what's relevant to the workforce afterwards. I don't think the problem is too much work for the vast majority of students.

Dr. Judy. I don't think there's a difference between our points. I'm arguing against the dropouts and the full-time work adolescents.

Chairman Hoekstra. My report would have shown that you guys agreed. Mr. Roemer would have signed that, too.

Mr. Huizenga, and then we'll go to Mr. Roemer.

Mr. Huizenga. We have a relatively small perspective, I think, not a global perspective certainly. We have found that we are currently going into the fourth and fifth grades of our local elementary schools, inviting these children in for plant tours, field trips of our foundry, and stressing the kinds of educational skills they are going to need. We are doing the same thing in the high schools, where our people are going and talking to different classes, stressing the math skills, communication skills, the teamwork skills necessary, and why education is so important.

Because of our requirement for high school graduates, we believe that in our area we are making a difference, encouraging students to stay in school to get that degree because they know without it they will not be able to get even a foundry job. So, I think it's important for industry to go into the school district and school system and begin to communicate directly with the students, at an early age. We have had very enthusiastic responses, not only from the students and their families, but the administrators and teachers as well.

Ms. Dickson. I think at Ingersoll-Rand, a lot of the programs that we have definitely try to make a link with the community. First of all, the company is very committed to working within their communities. We have a number of co-op programs, vocational training program that I gave as an example with Dresser-Rand. We actually set up a whole school on site to try to attract people and get them very young. We have a lot of summer intern programs, in the hopes of getting these people to make a relationship with the company, so that then when they are finished with their education they'll come back.

But, I think with the mobility of people now, the young people don't always stay in the community that they grew up in; it's a very mobile society. So, sometimes, particularly, manufacturing plants that are in pretty rural areas, the kids can't wait to leave the area. So, you know, that's a whole separate situation.

Chairman Hoekstra. Mr. Barlow, and then we'll go to Mr. Roemer.

Mr. Barlow. One of the things, by way of observation, I think we are missing in the way we approach capturing the interest of young people in work, is the fact that we are starting with work. We are starting with jobs. We are starting with careers.

If you take a look at all the research, young people are interested in lifestyle. What we now need to do is demonstrate that one is able to achieve a certain kind of lifestyle, in direct relationship to one's attitude towards work and competencies towards work.

Again, going back to the Toyota plant example, one of the things that they do with their new hires is, they take them through a personal financial planning program, before they even start work. The instructors that come in to that personal financial planning program come in and dress in Hawaiian shirts. And, what they put before these young workers is the fact that these are things that they are going to want to have at some point in their life, vacation, hobbies, the resources to recreate, pursue career patterns, et cetera. That provides a motivation for these workers to take advantage of the benefit programs that they have, to save in addition to the incentives they have for 401(k)s. So I think we need to be incorporating this whole topic in the context of the lifestyle that we want to have available in this country, and what it takes to be able to achieve that lifestyle. That has got to be part of the thinking because that's very much in the psychology of young people, and that's not integrated into a lot of the curricular or other options for incentives for young people today.

Chairman Hoekstra. Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman.

Ms. Ferguson, in your testimony you cited the fact that, and I want to preface this by telling you that I have three young children, a six year old, a five year old and a three year old, you have job openings at Disney World. Does that include the admittance to the park, free admittance, and is that still available?

Ms. Ferguson. There are lots of jobs available, yes.

Mr. Roemer. If we do nothing else with this hearing, maybe you'll employ me in the future. We'll see about that.

Let me ask you some serious questions on a very serious topic. We've heard very, very good compelling testimony about the shortage and how it affects nursing homes, how it affects high tech, how it affects foundries, and how it affects manufacturing. The jurisdiction of this Committee is education, and whether it's a 50 percent dropout rate, whether it is a one percent dropout rate, these are often young people that for economic reasons, tax base reasons, resource reasons, or just simply spiritual reasons, we need to start earlier to help, and improve our public education system; we end up building prisons often times, or juvenile facilities.

I'd like to focus on two or three areas. One would be the transition from school to work, which many of you have mentioned. Another would be providing some training to disadvantaged and dislocated workers, and another area would be retention of current workers and training opportunities for current workers, whether they are what Mr. Barlow just cited in Evansville, or whether it be tuition tax credits and other opportunities for workers.

As the co-author of the Charter School bill, Mr. Barlow, I am very excited. Mr. Hoekstra and I are going to have a hearing to try to chart the progress of charter schools across the country. I'm very supportive of charter schools, wrote the law with a Republican from California to increase the number of charter schools in this country. There is a big barrier to charter schools and start-up costs, and getting them facilities, and buildings.

I visit alternative schools all the time in my district. Alternative schools often have a connection to them that is confusing. Sometimes the alternative schools are charter schools, sometimes they are magnet schools driven by science and technology and math. Sometimes they are more focused at smaller class sizes to address the needs of potential dropouts. Maybe sometimes it's a combination of those.

My question to you, and anybody else on the panel would be, how do we try to develop more charter schools, and double choice schools, that businesses can help design curriculum for, and be part of this effort, while not just simply being part of an effort to track students? We don't want just a school of business that doesn't give them the Latin or some of the other choices later on in life too.

Mr. Barlow. A week ago I was here in Washington, and I'd been asked to support a strategic planning activity for the National Association of Manufacturers, their Association's Council. These are association execs that represent all the industries under NAM’s umbrella.

There is a sense of readiness within that sector to do something radically different and come to the table, and I suggest provide resources in the form of public/private sector initiatives.

And, I think within that family, for example, you have industries that are similar in their need for workers, in terms of skills and competencies, that in particular geographical areas would love the opportunity to create in a partnership a charter school, with all the lifestyle interests, and all the opportunities in relationships and incentives to be able to create a pathway from education into work. There would be a bridge between education and work in the junior and senior years of high school, for example. I think they are ready.

And, I think it's just a matter of sitting down with folks from all sectors and outside these sectors who are willing to take a zero-based approach. Too often, when we come to the table for these discussions, we are bringing the baggage of the historical models. You just can't do this. I think we have to now get some zero-based approach and some incentive monies to create these opportunities, and it's beyond what it is we've done today.

Mr. Roemer. And, you think the manufacturers; the high tech community is doing some of this already. Cisco, I think, has academies that they've set up to try to deliver technological services and education to their workforce. We need the business community's help, and some of that will be resources. But you think that with some innovation, some ideas, and some boldness, they are willing to pony up and help us out with the obstacle of the start-up costs?

Mr. Barlow. When they collectively see their loss of revenue, or even loss of existence as an industry or organization within an industry, I think they are ready to try to do something to make a different environment within which they can function successfully.

Mr. Roemer. Dr. Judy?

Dr. Judy. One thing I believe that would enhance the prospects for charter schools, as well as other alternative schools, is to break the barrier to entry into the teaching profession. When Cisco runs an academy, they choose who teaches in those academies. They choose on the basis of their ability to do the job in the classroom. They do not insist on a graduate degree or any other kind of degree from an education school. We need to address that bottleneck, and it is a major one. Until we do address it, we won't make much progress.

Mr. Roemer. Well, I have a bill pending in Congress right now that would increase the opportunities for people in second careers to come into teaching, not circumventing the system through an alternative that is weaker for certification and standards. It would give somebody in technology, math, or science, the opportunity to come in at 40 or 50 years old, still go through a certification process, but come in perhaps maybe not through Michigan State University, but through an alternative rigorous process for teaching.

And, we're hopeful that industry is going to get behind this bill. It's based on the "troops to teachers" idea that was in the Defense Department, bringing people in; we think some of these ideas, rigorous certification, but also alternative certification.

Dr. Judy. Rigorous certification should not be used as a means of restricting entry.

Dr. Holzer. I think charter schools, like anything else, are going to work and some of them aren't. You could say that about any program, or any social innovation, or any market-based intervention. I think part of this process of encouraging this experimentation has to also include a very careful evaluation component, to really try to figure out, and get a better sense. Right now, we know almost nothing. Very few charter schools have been evaluated at all for performance, and I think since we are encouraging this experimentation we need to watch it carefully.

There are, in fact, some models of school-to-work that have shown some promise of success such as the career academies approach, recently evaluated by the Manpower Demonstration Research Corporation, and Pro Tec in Boston. They are beginning to look carefully at, while they encourage new experimentation, some of the previous models and the evaluations of those models, and then try to encourage best practices.

All of us are talking about school to work and things in the high school, and I think we all agree that's very important, but I guess the other thing I would encourage us to talk about is the important things that happen earlier on in the lives of many disadvantaged children that completely turn them off in the school system. Many of them by third or fourth grade are so hopelessly behind, in terms of basic cognitive skills, that they are almost bound for failure, so we need to do things in preschool, such as early tutoring and things of that nature, to keep people up to the line at much earlier ages.

Mr. Roemer. I would only say that I'm not sure I disagree with too much of what you said about charter schools; there are four or five major studies out there that we are assessing now. The beauty about charter schools is they are accountable and we can shut them down when they are not performing well.

And, if there's a poorly performing school in Chicago, for instance, there is the ability to shut down the school, or reconstitute it and bring in new principals and new teachers, to increase scores and decrease absenteeism, or any of the other problems there, too. So, accountability is a big part of this.

Dr. Holzer. I agree, but also some knowledge of what works also helps that process.

Mr. Roemer. Right, I don't disagree.

You mentioned in your remarks, Doctor Holzer, the need to target some of the disadvantaged and dislocated worker community as well. What do we do specifically in some of the communities where we still see the unemployment rates as high as 8 percent, or the teenage unemployment rate as high as 25 percent? What are some specific things that we do to go after that population?

Dr. Holzer. Well, there are a few broad approaches. We all forget disappearing manufacturing jobs, not jobs we can't fill. Fifteen years the Midwest was the rust belt, and our big concern was double-digit unemployment. What’s happened in this past 10 or 15 years is there’s been an adjustment process that has included employers relocating, and sometimes workers relocating by moving to other areas.

So, part of the adjustment process that we can encourage is helping people move to more thriving communities and to move closer to the areas of growing economies by helping the mobility process that already occurs in the economy naturally. That's one approach.

A second approach is to try to address those poor neighborhoods themselves, and to try to improve job opportunities. You know, I think all the programs for disadvantaged youth that have failed are often the ones that don't take into account the neighborhood and the local environment. The programs that seem to succeed are the ones, like Job Corps, which pull people out of those environments, or programs like the new youth opportunity areas that try to saturate a high poverty neighborhood with services, and labor market intermediaries, and things of that nature. So, we need to think more about how to target these areas, and provide a broader more comprehensive range of solutions.

I guess finally, I do want to encourage us to think more about training workers, once they've been hired, the retention problem. Here, I want to offer a sort of word of caution. Again, this is something the private sector already does, and the private sector already spends anywhere from $30 to $60 billion a year training their own workers, as well they should when they see a need.

If we are not careful about how we start subsidizing private sector training, it can be an enormous sinkhole, and an enormous waste of resources. Anything we do in this area has to really target the kinds of establishments that currently don't have the resources or the knowledge to provide a lot of training, such as small establishments with less educated workers. We must try to create the incentives the right way, things like marginal training credits, similar to the R&D tax credit as one model, where you don't subsidize all training. You might target increases in training or training above some carefully subsidized base line, or credits for on-the-job training that might help improve the retention problem that some of us talked about earlier.

Mr. Roemer. Let me turn it over to Mr. Ballenger now, but just end on the note that you insinuated when I asked you the question about, trying to help the disadvantaged populations in communities.

I know Speaker Hastert and the President are talking about some new market incentives to invest in inner city areas. I would hope that the two of them would look at ways to hold schools more accountable and be more demanding in those areas, but also invest more in inner city schools. We can invest in new market initiatives to employ people, but if they are not getting out of the third and the fourth grade, and the schools aren't functioning well enough, then we have huge longer-term problems.

So, again, I hope that this Committee would work with the President and the Speaker to address some of those problems earlier on.

Thank you, Mr. Chairman.

Chairman Hoekstra. Thank you. Mr. Ballenger.

Mr. Ballenger. Thank you, kind sir, and last but not least, since I'm the only southerner talking here, I hate to tell you that we've stolen all your industry from Michigan and we enjoy it very much.

A couple of things I'd like to bring up that we've done that might be positive. In our little four-county area where I live, very industrial area, we are probably one of the most heavily industrialized parts of the United States. We have stolen a lot of the industry from the North, but we went to the school system. We've been short of labor for ten years, and in reality the shortage that Mr. Barlow is speaking of right now, the disaster that's about to occur, really occurred in the '70s, where you could walk across the street for a new job. You couldn't fire anybody because if you did they'd get a job in 15 minutes right across the street.

It was bad then, and it's probably going to get worse, except for a few things, one of which is in my own company, with 250 employees. We've got 35 Vietnamese employees, 5 Hmongs, 5 Mexicans, 2 Salvadorans, one Iranian employee. One thing that somehow is attractive, especially to Hispanics, is if you can find one that speaks English as well as Spanish. That's the way we did with our Vietnamese employee. We finally found one Vietnamese who could speak English, he came to work for us, and pretty soon he had family everywhere. The next thing you know, I think in our area we have the second largest group of Hmong in the United States. These are all the Hmong tribesmen that fought on our side in the Vietnam War.

But, one of the things we also did is this "I have a dream" thing that they did up in New York City somewhere, that's what we picked. We went around to all the business people in the four-county area that we live in and said look, you are short of help, won’t you commit at least $500.00 a year to kids. We'll go to the guidance counselors in the high schools in this four county area and let them pick out the children that look like they are going to drop because of family problems, any problems you can see.

Guidance counselors generally can see a kid that's maybe not going to make it, and what you do is, you invite those kids to come to your plant, and you sit down and talk with them Our community college system in North Carolina, you can educate a child for a year for $500.00, so what you do is, you go sit down and talk with the kids, and maybe there's eight or ten of them in each high school that we hit. We say, look, I'll tell you what we'll do; we'll put $500.00 in the bank for each one of you kids. It's guaranteed to be yours to go to the junior college two years if you'll stay in school and graduate.

It's turned out to be a fairly successful thing, and at least we are doing something constructive, as far as picking those kids up and trying to get the dropout rate down. Another thing we found out, that welfare mothers are ideal workers. I mean, some of them are fabulous people, but the biggest problem they've got is daycare, and so a lot of our industries at home have started their own daycare centers to be able to take care of the children while the mothers work. And, I did it at home, we talked to the county commissioners to give us an old school, and I went to all the businesses in the community and said, look, you all put some money in the pot and we'll rebuild this school, or at least equip it properly, and if you've got money in the pot we'll give you first, or second, or third choice as these mothers come in to interview them for jobs.

I didn't tell you all, I'm a manufacturer myself, so I've got exactly the same problem you have, except for the aggressiveness of our area. I mean, you've got to realize that when you all were the top of the totem pole up in Michigan, and Ohio, we were the bottom of the totem pole. I'll shut up real quickly, Mr. Huizenga, I really will.

But the basic point is that we had the desire to bring in various and sundry

people, and we'd gone out of our way to bring them in. The Hmong villagers that they had in Los Angeles were all similarly on welfare, because they were in one of these pockets of unemployment. And so, the Welfare Department there bought one-way tickets for two busloads of Hmong and sent them to Hickory, North Carolina, and we got them all jobs and it worked real well.

The ones I feel sorry for are those of you that provide services that are labor intensive, and jobs that the rest of us have to have to survive on, and yet in your particular case the government regulations make it difficult. We hope we've taken some of the pressure off of you with changing Medicare, but I know at my age I'm looking forward to one of your places not too far off, and I would appreciate it if we somehow would take the pressure off of you.

I don't have an answer for what Mr. Huizenga asks and I should be able to have one. We have invested substantial amounts of money in automation. Five years ago we had 250 employees and $17 million worth of sales, now we've got 220 employees and $31 million worth of sales, and it's all because of investment in the machinery.

Yes, Mr. Barlow?

Mr. Barlow. A couple anecdotal comments:

You know, language has been looked on as a barrier. Right in your state, Congressman Roemer, I know of a company that went to expand its operations, noticed the traditional pool wasn't there, looked at the folks who were working in the summers and asked if they would like to stay year round, and created an all Spanish speaking shift of workers. That shift now out performs the other two shifts using Spanish as the language of communication in the workplace. So, I think sometimes we don't look beyond the language barrier to opportunities where it can be an asset.

The other thing I'd like to put on the table before we have to finish, is something we've not talked about, and politically I guess I offer this. From the standpoint of being a graduate of a liberal arts college, having a liberal arts education, having worked in higher education for years, and also listening to parents out there, one of the biggest barriers we have relative to youth pursuing these alternative or new career paths, is the attitude of parents that some of these jobs that we're talking about are dead-end jobs.

In fact, I can speak to several school districts where the teachers and the administration have tried very hard to put in place some innovative programs like we've been talking about, but the parents voted it down, because their attitude was everybody has got to go to college.

I think what we need to do is make sure that we bring the parents along in understanding that in this future if you are going to live to be 100 years of age, you don't necessarily have to get all that formal education in the first 18 to 22 years. Do you follow what I'm saying? There can be stop in, stop out, and that working at hospitality, or working in a healthcare facility, or working in an entry level manufacturing job can be a positioning for doing other things later on.

So, I just suggest that's one other area we probably need to take a look at, too.

Mr. Roemer. Would the gentleman yield on that point?

Chairman Hoekstra. Sure, fire away.

Mr. Roemer. I think there's a big difference here, not to try to confuse terminology, and one would be trying to track young people into a specific occupation out of college. The difference between that and charter schools are that may focus on math, science, and technology, and supplement those with other English skills, secondary language skills, primary skills in other areas.

And so, I think the terminology is important here, and none of us are interested in tracking people and steering them in one specific area.

Mr. Ballenger. I'd just like to say, really, I'm glad you all came. I think it's a great idea, I'm not normally on this Subcommittee, but I think what you all are talking about is very important.

And, I happen to live in a place that the unemployment rate is less than 2 percent, and, you know, once you pass 3 percent going down there is no such thing as unemployment. And, somehow, somewhere, I have heard that the Immigration and Naturalization Service is talking about really putting the screws on illegal aliens. I don't know how many of you have the problem, but I'm sure you must and maybe you, Mr. Huizenga, would have had it, but if they really get tough, you know, those of us that employ people are not allowed to question, if you've got a driver's license that says it's American, or something like that, and you've got a Social Security number, you can't question those people.

But, if the Immigration and Naturalization comes around, they are going to find an awful lot of illegal aliens with counterfeit equipment; we can all get sued for that. And, you really end up in trouble, and I hope what I saw in the paper this morning, I don't know how many of you saw it, but the AFL-CIO has decided that we should just declare everybody legal and then we don't have to worry with that, and we'd have an awful lot more workers, and, Mr. Barlow, we could postpone your day of doom for another ten or 15 years.

Thank you.

Chairman Hoekstra. Thank you.

I'm not sure we'd postpone it, they are here working already, and they might just be legal. I just want to make a couple of comments and we're going to close.

I'm sure that when we talk about school to work it's on the assumption that the kids have learned the basics first. School to work only works if they've got their basic reading, writing, math and those types of skills. I think a number of people that we've met with in Education at Crossroads have said, you know, we are now getting kids coming out of school who don't even have the basics, and school to work won't work if the kids don't get the basics first.

There are a number of issues that were raised today that I think this Committee is going to follow up on. You know, I think relatively quickly we, as the Congress and the President has agreed, will eliminate the Social Security earnings limit. I'd love to follow up somewhere along the line and say, right now, if we just raise the limit that would make things worse rather than better, but I think we are headed in the direction of getting rid of it.

We are going to have the hearing on charter schools, so we are going to continue talking about how we take the education model and move it into a high-performing system, rather than the system that we have in place today.

The other issue, if we can follow up with questions to some, or all of you, or if you'd be willing to respond to some written questions, I think we also have to take a look at building efficiencies into the system. You are talking about nurses going to work for insurance companies, so I'm assuming that they are going to work for insurance companies because they are checking your billing records and those types of things, and making sure that you are filling out the forms correctly.

I know that in my dentist or my doctor's office, they used to have two or three assistants, and now they have an office staff of 11 or 12 because they are doing all the paper work. At the end of the day I’m not sure how much value added that is in this system. Is there a need for us to take a look at the rules and regulations that we impose, and move people from one activity into something that may be more productive?

But, there are a number of issues that we wanted to address at the top of my page. I would also would like to get some feedback as to the impact that a minimum wage has on unemployment, or whether it's a non-factor in today's economy, or whether it isn't a factor. And, again, Mr. Guillard, I'm sure that in your company it may be if you raise the minimum wage you can't raise your prices through Medicare and Medicaid.

Mr. Guillard. We really, quite frankly, have very few people, if any, at the minimum wage. One of our lowest categories of payment is our certified nursing assistants earning an average $10.39 an hour.

The difficulty is, though, that any time the minimum wage is escalated it does obviously have continued pressure through a ripple effect. We do not, in our sector, have the ability to pass those price increases along because there is no legislation that mandates that the government has to boost the rates to compensate us for those mandated increases.

Chairman Hoekstra. Right.

Because I may have some written questions, I'd like to just ask if we could keep the record by, unanimous consent, open for 45 days?

Mr. Roemer. I don't have a problem with that. I'd like to submit some written questions for the panel as well, particularly following up on some of the studies that may be conducted in the private sector, the public sector and the think tanks on retention, on job training and on school to work areas. So, I'd be happy to do that.

Chairman Hoekstra. Great, thank you.

With that, I've got no further comments. I'd just like to say, thank you. This has been a very informative and helpful hearing, and a good way to start off a series of hearings on this topic.

Thank you very much the Subcommittee will be adjourned.

Whereupon, at 12:19 p.m., the Subcommittee was adjourned.