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