STATEMENT OF PROF. GLEN G. CAIN, DEPARTMENT OF ECONOMICS, UNIVERSITY OF WISCONSIN

Mr. CAIN. Mr. Chairman and members of the committee, I have been introduced as professor of economics at the Department of Economics, University of Wisconsin at Madison. I am also a research professor with the Institute for Research on Poverty at the University of Wisconsin.

Thank you for inviting me to discuss certain labor market issues. raised in connection with the Equal Opportunity and Full Employment Act. In the few minutes that I want to use to read my statement I would like to briefly deal with the question of the alleged trade-off between unemployment and inflation. I believe you will find my remarks compatible with the spirit of your bill but critical with respect to some of its details.

At the outset let me express my general agreement that we should not base economic policies on the idea that full employment is incompatible with price stability. I agree with the priority you have given to full employment and with your recognition that in the almost 30 years of our history since the Employment Act we have tolerated unacceptably high levels of unemployment. The individual costs have been severe, sometimes devastating for the millions of unemployed workers, and the costs have been substantial for society as a whole because of the resulting lost output and social tensions.

Based on my interpretation of the economic research on the relation between unemployment and inflation, I believe that a level of unemployment that ranges between 3 to 4 percent should be compatible with a price level that rises at the modest level of around and under 2 percent. To state the issue in the negative, there is no firm statistical evidence that the annual unemployment rate is negatively correlated with the annual inflation rate on the contrary, inflation rates have been high when unemployment has been high, as in the past several years, and inflation has been low when unemployment has been low, as in the 1952-53 and 1965-67 periods. If one were to correlate unemployment and the inflation rate for the 28 years from 1948 to 1975, one would find a correlation that is negative but it is so low and so unreliable that the prudent person would call it a zero correlation.

This evidence speaks to an average relation spanning three decades, however. The evidence is highly relevant to the goals and standards we can set as a longrun policy and for the near-term future. Unfortunately, there is almost unanimous agreement among economists, including me, that the immediate short-term effect of any rapid attempt to decrease unemployment by monetary and fiscal policies will be associated with increases in the inflation rate. It is also unfortunate that policies other than monetary and fiscal policies, such as wage and price controls or training and public employment programs, have generally proved inadequate to deal with overall unemployment.

On a longrun basis I happen to be in favor of training programs and some measure of public employment, although not wage and price

controls, but my main point here is that they are not adequate shortrun remedies for large-scale unemployment. Thus, and I here disagree with certain details of your bill, I do not see how the desired goal of 3-percent unemployment can be reached within 18 months without setting in motion inflationary forces. I say this even though I recognize that the increased output from the lowering of unemploy-ment would by itself, dampen inflation.

I conclude by restating my support for the general thrust of H.R. 50; namely, the primacy of full employment among our macroeconomic goals and the feasibility of achieving full employment with reasonably stable prices.

Thank you.

Mr. HAWKINS. Thank you, Dr. Cain.

Next we will hear from Prof. Gerald Somers, Department of Economics of the University of Wisconsin.

Dr. Somers.

STATEMENT OF PROF. GERALD G. SOMERS, DEPARTMENT OF ECONOMICS, UNIVERSITY OF WISCONSIN, MADISON, WIS.

Mr. SOMERS. Thank you, Mr. Hawkins.

I am pleased to have an opportunity to make a statement on H.R. 50. I am more or less in agreement with my colleagues in that I am not in full support of every detail of H.R. 50, but I can certainly support the spirit and the major thrust and most of the provisions of the proposed act. I feel that we should direct our efforts toward the attainment of full employment, and that is a very popular phrase with economists these days. I would, however, favor that as a principal goal of our economic policies defined somewhat as the proposed bill that defines it as at least as many decent job opportunities as there are jobseekers.

I believe that we should give the reduction of currently high unemployment rates a much great priority than we have been doing. I favor substantially greater expenditures on policies and programs of job creation, employment, and training. I am convinced that such expenditures can do more to reduce unemployment without undesirable inflationary effects than other policies that have been proposed-for example, policies such as a tax cut accompanied by corresponding reductions or ceilings on Federal expenditures and especially Federal expenditures for employment and training programs.

Since I have spent much of the last decade in evaluating employment and training programs, formerly called manpower policies, I think we are in the process of shifting the title of these two policies to employment and training programs. I wish to direct my remarks primarily to the past record and future potential of such programs in enabling us to attain full employment without inflationary effects. This is also my area of jurisdiction in my discussion with my colleagues as to how we would make statements on this bill without overlapping too much.

Those of us engaged in the evaluation of such employment and training policies in the early 1960's were a little chargined when Congress seemed to ignore our detailed scholarly evaluation findings in its pell-mell rush to expand such programs. Even though careful and

rigorous evaluations were scarce in those early days, questions were raised even then about the accomplishments of potentials of training under the Area Redevelopment Act and the Manpower Development and Training Act.

These early evaluations indicated deficiencies as well as strengths in the programs. They stressed the importance of the availability of job opportunities for successful outcomes of training and employment programs. The studies noted the length, the quality and content of the courses and helped to determine whether they resulted in increased employment and earnings for the trainees. These are similar criteria that we have today in evaluating the CETA programs under your somewhat decentralized system of employment and training.

The inevitable backlash to the euphoria of the sixties when we rushed pell-mell into passing more training and employment legislation has come a dozen or so years later with national unemployment at record high levels and poverty still rising. The claim that so-called manpower policies can solve almost all labor market problems has now been replaced by the contention that they have solved almost none, and instead of unquestioned expansion there is an emerging view among some commonly placed people that employment and training programs have only limited potential.

Admittedly the methodology and evaluations of employment and training programs have serious problems. However, those evaluations which have been most carefully designed and conducted, primarily focused on MDTA institutional training, have generally concluded that the benefits of the programs in terms of employment and earnings for enrollees were greater than the cost of the programs. Evaluations of some of the other employment and training programs such as the Neighborhood Youth Corps and some of the other work experience programs are less numerous and less rigorous because of the lack of data. Even here you have more positive findings than negative findings.

In the absence of compelling and definitive evidence to the contrary, it appears to be reasonable to adopt a working hypothesis that the completion of a significant period of on-the-job or institutional training would add to the program enrollees' human capital, thereby furthering employment and earnings. This assumes, however, that jobs are available for graduates of these job training programs when they complete their program, and this leads to the question of job creation.

Job creation programs such as the Neighborhood Youth Corps, the Emergency Employment Act and more recently public service employment under CETA have been successful in placing unemployed workers on jobs. There are questions surrounding the guidelines for such programs, the job displacement effects and the maintenance of effort by State and local authorities. However, in my view, these problems are more in the realm of mechanics, procedures and monitoring than in the nature of fundamental, substantive problems.

In keeping with the spirit of H.R. 50, it is desirable that public service job creation serve primarily as a transition to employment in the private sector. There is not yet decisive evidence that the recent programs or public service employment have been completely successful in providing such a transition. However, a recent report by the

West End Corporation for the Department of Labor comes up with a quite favorable finding on that score as well. The economic climate of the past couple of years has not been conducive to a ready transition of public service employment to the private sector.

The so-called manpower policies of the sixties, especially skill training, are of vital importance in furthering the placement of the disadvantaged in public services employment and in facilitating their transition to private employment. Here I would like to emphasize the point Mr. Bert McNamara made and Richard Perlman has just made. It is not just a question of just saying this measure is good but it alone is not enough, that we need some additional pieces of legislation or that we ought to pay more attention to the problem of unemployment of youth and minorities.

I feel that unless we integrate other kinds of policies, especially the so-called manpower policies and employment and training policies with this bill, with public service employment, with public works, with job creation measures, none of them is going to work very well, none by itself will be effective. When we integrate a number of measures of job creation, of programs giving disadvantaged workers skills to increase their mobility, occupational as well as geographic, then I think we have a much greater hope of a total success. In other words, the sum of the parts is greater than the total of any one bill measured with another. Many skills acquired before or during their public srevice employment will help to open the doors of private employers to disadvantaged workers. There is a danger, I think, with public service bills including this proposed measure which stresses adult workers. As Mr. Perlman has noted, the disadvantaged youth-the major source of our unemplovment problem at the present time and in the past few years— will be bypassed. Therefore, the predominant employment and training policies of the sixties must be integrated with the predominant policy of the seventies-that is, public service employment-if the latter is to fulfill its role in attaining a full employment economy for all Americans.

Given the data currently at hand with regard to the costs and benefits of training, work experience and job creation policies, there is reason to believe that expenditures on such programs will have less inflationary impact than other less direct policies of economic expansion. Other types of governmental expenditures, especially if accompanied by tax cuts, will reduce unemployment but the effect on employment via increased aggregate demand is likely to be less direct and more inflationary than Government expenditures that go to the heart of the unemployment problem.

An expanded program of training, work experience, and job creation can go far toward meeting the objectives of H.R. 50 in moving the economy toward full employment without major inflationary pressures.

Thank you.

Mr. HAWKINS. Thank you, Dr. Somers.

Certainly I would like to commend the witnesses on behalf of the subcommittee. I think you have been constructively critical and exceedingly helpful to the committee. I certainly want to indicate that one of the purposes of the hearings is to hear the critical aspects of

some of the provisions of the bill as well as to obtain support for the concept, and I think in that regard you have been exceedingly helpful. Just one or two points.

Dr. Perlman, in your particular statement which outlines several specific criticisms of the bill, your second criticism, that the title includes the equal opportunity concept and that there are no specific provisions to implement that particular phase of the title, it was the thought of the sponsors that there are presently existing a great number of antidiscrimination statutes which are not being adequately enforced. This committee, which has jurisdiction over many of those particular programs, thought that one of the reasons why current antidiscrimination laws are not being enforced is that there just simply is not an acceptance of job creation or full employment commitment. We cannot possibly move ahead in seeing the enforcement of those acts without at the same time including some type of expansion of opportunities.

I think that is why in the proposal H.R. 50 we tried to combine them so that both concepts would be included under the same title so that as we moved to expand opportunities using the full employment phase of the bill and making discrimination unlawful to the extent that it is stated and also would be backed up by already existing laws, we would emphasize that in the creation of the jobs there should be no discrimination, that the enforcement would be under the already existing laws rather than specifically under this particular one.

Now maybe we have not made that point strong enough and perhaps we have not included in this particular proposal stronger provisions, but at least it was the thought that we already do have those laws on the statute books but that it just is not politically feasible to expect blacks, women, and other disadvantaged groups to obtain any specific job opportunities if it meant transferring those job opportunities from someone else, so we have tried to include it in a broader context.

Now you have indicated that you feel that it is not strong enough and that we should have it included. I am simply offering this as an explanation of at least the approach that we have tried to use. I think there was also some criticism of the target. I don't know whether you in particular made this criticism of the so-called elimination of the younger groups. We refer to adult Americans. However, in the definition section of the bill "adult Americans" is defined as all citizens and permanent residents of the United States who are 16 years of age or older plus such younger age groups as may be expressly included by local, State, or Federal law and implemented by administrative regulations under this act. Now I don't know whether that completely eliminates the criticism but at least I think it defines adult Americans in a broader sense than what would at first glance appear to be the actual definition.

I just simply offer those as some degree of explanation. I think we are willing to accept your criticism at face value and certainly where needed to modify some of the provisions of the bill to make it more clear what we actually intend to do.

Dr. Somers, I think you referred to public service employment as being purely transitional and it was not really the concept necessarily in this particular proposal that such jobs would be entirely transitional, that there would still be some left over, still be a need for