August 25, 1978
Page 27822
Mr. MUSKIE. Mr. President, the legislation we consider here today, the Comprehensive Employment and Training Act Amendments of 1978, would reauthorize the major spending programs for job training and job creation included in the Federal budget.
These programs have expanded dramatically over the past 4 years from $2.5 to $12 billion in response to cyclical unemployment problems created by the recent economic downturn. The major expansion has come in public service jobs funded under CETA, which have expanded since 1974 from 50,000 jobs to the current 725,000 jobs level. The Budget Committee has supported this expansion in light of economic conditions.
During the recent recession the unemployed population was composed largely of skilled workers who required temporary jobs until regular employment became available with economic recovery. These cyclically unemployed people did not require extensive training and supportive services to make them employable.
As a result, most of the resources spent under CETA have gone in recent years to providing temporary public service employment to the cyclically unemployed.
The economy has made considerable progress, during the 3 years of expansion since the severe 1974–75 recession. The unemployment rate has fallen from 8.8 percent in the second quarter of 1975 to 5.9 percent in the second quarter of 1978, entering the 5 to 6 percent range in which most economists would place the point at which inflationary pressures become significant in the labor market.
The current unemployed population contains many persons with insufficient training and work experience to make them employable. These people are the structurally unemployed. Cyclical unemployment has fallen substantially and the emphasis of economic policy should now shift more to the more difficult challenge of reducing structural unemployment while at the same time restraining inflation.
Unless job creation programs are targeted on individuals who have few opportunities in the labor market, such programs run the risk of competing with regular employers for available workers, thereby tightening labor markets and adding to inflationary pressures. The more targeted the program is on the structurally unemployed, the less risk of inflation it entails.
During consideration of the first budget resolution the committee noted the problem of structural unemployment in its discussion of CETA programs.
The committee report stated:
This Committee believes that economic policy, while maintaining the high level of aggregate demand necessary for the success of any employment policy, must gradually shift its primary emphasis from overall economic expansion to the task of targeting employment opportunities on the structurally unemployed.
In order to shift Federal employment and training policy from its current countercyclical emphasis to a more structural focus, the report on the first budget resolution for fiscal year 1979 recommended that at least one-half the resources devoted to maintaining the current 725,000 public service jobs be re-directed to structural purposes.
This bill would bring about a fundamental shift from countercyclical to structural purposes as envisioned in the first budget resolution. Senator NELSON and members of the Human Resources Committee are to be commended for reporting a bill which redirects this important employment and training program to the needs of the most severely unemployed.
The shift in emphasis from the countercyclical title VI to the new structural title II proposed in this bill would reduce inflationary pressures that could result from the continuation of the existing countercyclical program level during this period of economic improvement.
Moreover to the extent that the structural portions of this bill would provide training and job experience for the unskilled and inexperienced, the program would assist recipients in obtaining permanent jobs, thereby expanding the Nation's potential output and reducing the level of unemployment which is consistent with non-accelerating inflation.
To further counteract potential inflationary pressure, the bill would set wage limits on public service jobs and incorporate some measures to reduce substitution of Federal funds for State and local payrolls.
It is crucial that Federal dollars appropriated for countercyclical purposes be used by local governments to hire more people than they would have hired in the absence of the program. If there is simply a substitution of Federal dollars for local payrolls then the employment effects are no larger than those which would result from revenue sharing programs.
Some estimates of fiscal substitution range from 30 to 100 percent over an 18 month period. These estimates, however, tend to focus on the CETA program prior to the increased targeting included in the 1976 amendments.
A more recent and more extensive study requested by Senator Bellmon and conducted by the Brookings Institution found that of every 100 jobs funded, 18 represented positions that would have been financed out of local funds in the absence of CETA, 31 represented positions which already existed but which would have been eliminated in the absence of CETA, and 51 represented CETA-induced job creation. The study concludes that these more optimistic findings result from the increased targeting included in the CETA program in the 1976 amendments.
In light of these findings I am disturbed that targeting provisions proposed for the new countercyclical title VI are liberalized as compared with current law. I do not favor reduced targeting in title VI. The new provisions would double the size of the eligible pool of clientele and encourage CETA employers to hire those who need the jobs least. This "creaming" would encourage substitution of Federal dollars for State and local payrolls.
Furthermore, it is my view that the most needy should be served first, even in a countercyclical program.
There has been some concern that excessive targeting would slow the rate of implementation — a crucial factor in countercyclical programs. Targeting provisions in the existing CETA title VI are much more stringent than those proposed in this bill. Yet existing provisions did not impede the rapid expansion from 310,000 to 725,000 public service jobs funded in the economic stimulus appropriation.
For these reasons I will support amendments to be offered by Senator BELLMON to tighten the targeting provisions for public service employment.
In light of forecast unemployment and inflation, the second budget resolution as reported recommends that the level of countercyclical public service jobs should be phased down beginning in fiscal year 1979. S. 2570 suggests that the countercyclical jobs be funded in view of economic conditions but provides no specific phase-down mechanism and authorizes "such sums" as may be necessary. This bill leaves the appropriate funding level for countercyclical jobs to the budget and appropriations processes, where the responsibility should be.
I urge Senators, not only to support this important legislation, but to support improvement to it through amendments to target spending on the people most in need.