TESTIMONY OF HON. HAROLD GOLDSTEIN, ASSISTANT COMMIS- Mr. GOLDSTEIN (over the telephone). Goldstein. Mr. GOLDSTEIN. I can hear you very well. Chairman ProxMIRE. In May the unemployment rate rose by 0.1 of a percent, from 6.1 to 6.2 percent. I recognize that, by itself, is not a statistically significant change, is that true? Mr. GOLDSTEIN. That is correct. Chairman PROXMIRE. Does it have economic significance in the sense that unemployment is remaining so disturbingly high for so Jong? Mr. GOLDSTEIN. It might have It might have economic significance, but [inaudible). Chairman PROXMIKE. What I am referring to-Mr. Goldstein, can you hear me? is the fact that in December, last year, unemployment was at a 6.2 level. And, of course, that was because we had an auto strike, in part. I understand if you corrected it for the auto strike to take that out of the picture, unemployment would be around 5.8 or 5.9 percent. In January it was 5.7, then in successive months 6.0, 6.1, and 6.2 percent. This sounds as if there may be a statistically significant trend here. Would that be your interpretation? Mr. GOLDSTEIN. Yes, I think there is a significant increase in unemployment from February to May. Chairman PROX MIRE. Are we correct to say that unemployment has remained essentially at 6 percent over the past 6 months, or to say that there has been a slight upward trend in unemployment over the last 3 months, following a small decline from December to February? Mr. GOLDSTEIN. I think that statement would be accurate. Chairman PROXMIRE. I am going to yield to Senator Miller in just a minute. But let me ask you this: In the past year the labor force has increased by 1.4 million. Is that a normal or average annual increase? Mr. GOLDSTEIN. That would be normal [inaudible]. An increase of 116 million. Chairman PROXMIRE. Just one followup question on that, and then I will yield to Senator Miller. Employment has increased only 350,000. Clearly that is a below normal increase, which explains why unemployment has risen so sharply. Now, how large an increase in employment do we need just to keep the unemployment rate from rising? Mr. GOLDSTEIN. [Inaudible.] Chairman PROXMIRE. I am going to ask Senator Miller if he has any questions he would like to ask. And I want to come back with a couple of questions before we hang up. This is Senator Miller. Senator MILLER. Thank you, Mr. Chairman. Mr. Goldstein, you stated, I believe, that there has been an economically significant increase in unemployment from February to May. What I would like to find out is how much of that significant increase is attributable to reductions in the number of people in our military services during that period of time. Mr. GOLDSTEIN. [Inaudible.] Senator MILLER. We can't understand you. Can you try it again? Mr. GOLDSTEIN. [Inaudible.] Chairman PROXMIRE. I think the Vice President must be at the control over there. Try it once more. Mr. GOLDSTEIN. [Unintelligible.] Senator MILLER. I am sorry, Mr. Goldstein, we didn't understand that. Mr. GOLDSTEIN. There has been a decrease in the amount of the Armed Forces [inaudible]. Senator MILLER. Give us a yes or no answer. It may make it a little easier to understand. Has there been a significant impact on this significant increase in unemployment as a result of the large numbers of reductions in our military services? Yes or no? Mr. GOLDSTEIN. [Unintelligible.] Chairman PROXMIRE. Mr. Goldstein, this is Senator Proxmire again. We want to thank you very much. We do have a number of questions we want to ask you. We had you before the committee a couple of months ago, and you did an excellent job, you responded clearly and intelligently. And at that time we could understand every word you said. We can't understand you now. It is probably the fault of some of our technicians over here. But at any rate, we haven't arranged this very well. And it is obvious from the trouble that we are having that we can't get much information from you. I would hope that the Labor Department could spare the Congress of the United States at least one expert to testify before us an hour after the figures come out, because it is really an outrage that this committee, which has the principal responsibility in the Congress of the United States to secure economic information and to assist other committees to arrive at economic policy-we have this principal factfinding function-that the Congress of the United States can't even get one expert from your Department to appear before us to testify. I talked to Secretary Hodgson on the phone about this yesterday. At first he said that they could come at 1 o'clock, and then he agreed that we could do it by telephone at 11 o'clock. Obviously this is a very unsatisfactory method of proceeding. And I would hope that you would be free to come up here next month. I understand that this isn't your decision to make, but we will be in communication with Secretary Hodgson, and perhaps with others in the administration. Senator MILLER. We couldn't have him come up at 1 today? Chairman PROXMIRE. One o'clock-I feel it is a second-day story at that time. The interpretation under those circumstances I think is quite difficult. I am perfectly willing, of course, to schedule a meeting at 1 o'clock if you would like to do so. We have a vote at 1, and I would hope that we could go on to something else. Perhaps we could ask Mr. Haveman, who is a very competent expert, some questions about this. Mr. Haveman, first, will you give us any technical background that would qualify you to give us an opinion on the unemployment statistics, and then let us ask one or two questions of you? TESTIMONY OF ROBERT H. HAVEMAN, PROFESSOR, DEPARTMENT OF ECONOMICS, UNIVERSITY OF WISCONSIN 1 Mr. HAVEMAN. Senator, I have my Ph. D. in economies from Vanderbilt University. I taught economics to undergraduate students for 8 years at Grinnell College, which is in Senator Miller's State. And I now teach economics to both graduates and undergraduates at the University of Wisconsin. which is in your State, Senator MILLER. He is well qualified. Chairman PROX MIRE. Let me ask you, you have the statistics, and you know from our conversation, at least from our end of the conversation with Mr. Goldstein, that unemployment increased very slightly 6.1 to 6.2 percent last month, that there is a trend upward, and there are other elements involved, including the discharge of substantial military personnel. Would you give us your interpretation of the significance of this latter figure? Mr. HAVEMAN. I feel, Senator, that it is very difficult to talk about the significance of the latest jump in the unemployment rate. It seems to me that what is really significant about the current state of the economy is the absolute size of the unemployment rate. I came before this committee to talk about the use of user charges to improve efficiency in Government and in resource allocation. I guess, after thinking a little bit about the impact of waste implicit in the 6.2 percent unemployment figure, I feel a little "chincy" in talking about saving a few billion dollars here and a few billion dollars there through allocating priorities. If one has to give a rough estimate, Senator, of the kind of economic waste which is involved in an unemployment rate of 6 percent, I think it would not be unfair to use the figure of $15 billion worth of wages foregone in this economy every year, every year that the unemployment rate continues at around 6 percent per year. Now, clearly, when it goes up from 6 percent to 6.2 percent, that is an increase in the gross amount of waste. It is the total waste, however, implicit in the 6 percent---whatever figure-that we end up with. Chairman PROXMIRE. Let me just ask, before I yield to Senator Miller, if you would like to give us your notion of whether or not this trend is significant, the fact that we had an increasing trend since the last quarter of last year, recognizing of course, that the General Motors strike distorted that quarter from 5.8 percent to 6.2 percent. This would seem to me to possibly have some significance for the future. But what is your judgment, as an expert? Mr. HAVEMAN. Let me speak to what is even more disturbing than the current amount of waste implicit in the unemployment figures. And that is what seems to me to be the future picture for aggregate economic policy in this country. Before I came today I did some checking with the major projection models in this country, including the Wharton model. A number of 1 The full text of Mr. Haveman's oral statement, prepared statement, and colloquy may be found in the hearing day of June 4, 1971, before the Subcommittee on Priorities and Economy in Government. Joint Economic Committee, entitled "The Economies of National Priorities," pt. 1, June 1, 2, and 4, 1971. these models are projecting a continued increase in the rate of unemployment in this economy. As I am sure you will recall from the newspapers a few days ago, Pierre Rinfret is projecting that the unemployment rate is going to continue sailing upward until it reaches 7 percent, and then it will top off. In my own view, that is not an outlandish forecast; that is probably in the ball park. Let me give a couple of other points with respect to the future on price increases and unemployment. Just a few days ago some leading indicators were announced, Senator. These leading indicators were viewed by the administration as being favorable because they indicated that five of the leading indicators have gone up, and only three have gone down. However, if you look at the indicators which are cited you will find that the five that went up are the following: materials prices, industrial prices, stockmarket prices, and compensation. Note that all of those leading indicators are price variables. The three that went down of the total of eight that were cited were the average workweek, building permits, and new orders for durable. goods. Those, Senator, are all real production indicators. Chairman PROXMIRE. You only gave four indicators going up. You missed one. Mr. HAVEMAN. I guess I only listed four. The fifth indicator was orders for plant and equipment. Chairman PROXMIRE. That would have significance? Mr. HAVEMAN. That is right. That is a real production indicator that did go up. It seems to me that what these numbers indicate is that when one looks at the future and asks the question concerning the trend of prices, and then the trend on real output on employment, one does not come up with a very encouraging set of signals. The set of signals. one gets is that the leading indicators, which are primarily money or prices variables, are going up, and the leading indicators which indicate real production, employment, are going down. Chairman PROXMIRE. Senator Miller. Senator MILLER. First of all, you talk about the waste involved in the unemployment figure. Mr. HAVEMAN. Yes. Senator MILLER. I think that was a very good approach to use. My only question would be how you arrive at the $15 billion annual figure. Did you arrive at that simply by taking say, 6 percent of the total income that is now being derived and use a sort of rule-of-thumb approach that way or did you take what I suggest might have been the most realistic approach, and that is, say, the difference between 6 percent and a so-called full employment rate of 4 percent, so that you would be talking about a 2-percent factor? Mr. HAVEMAN. My rough back-of-the-envelope calculations were based on assumptions that you would like me to use; namely, the difference between full employment and the current level of unemployment. From that calculation I arrived at a number which was an estimate of the number of people that would be employed had we been at full employment. To those people I attributed a wage and salary figure which was in my view a reasonable one. Senator MILLER. I think that is a very fair approach. Thank you. Now, on the statement you made about the unemployment figure, as you know, the Subcommittee on Economic Statistics of this committee several years ago made quite an in-depth study of performance statistics. And perhaps you saw our report. It brought out the fact that while we had the best unemployment statistics of any country of any comparable size in the world, there still is a long way to go to be accurate. Do you believe that with the softness which exists in your unemployment statistics that economists generally don't worry very much about a 1- or 2-percent increase or decrease in the unemployment rate? Mr. HAVEMAN. The problem with any aggregate statistical series, Senator, is that it is based on a sample of observations, that is, the takers of the poll go out and talk to a limited number of appropriately selected people. When one does that, and then when one tries to extrapolate from that to the Nation as a whole, one runs into some problems of statistical estimation. Now, the sample that is drawn as a basis for the unemployment figures is a good statistical sample. The question is, What kind of extrapolation can one make from that sample to the Nation? It is difficult to say with 100 percent certainty that an increase in measured unemployment from 6.1 percent to 6.2 percent indicates a real increase in national unemployment. On the other hand, one can say with substantial confidence that that difference is a significant difference, meaning that even though it is based on a sample, one can have a good deal of confidence that it does actively reflect the national picture. Senator MILLER. Thank you very much. One last question: You referred to the projections from econometric models. Mr. HAVEMAN. Yes, sir. Senator MILLER. What would be the underlying assumptions that might result in those projections? For example, I must say that with the very substantial decline in the numbers of people in our armed services that has occurred over the last 2 years, and with the further decline that is projected, with the cutback in defense and space contracts that we have, I can very well understand such a projection. It gets down to where we can't have our cake and eat it too, we can't cut down the number of people in our Armed Forces and expect them all to be employed the next day. I think most people understand that. The question is: How quick can we make the transition? Isn't that the real problem that we have? We have got a problem. But nobody should be surprised about it. The question is: How short can we make that transition so thatwell, make it up to 7 percent, and then level off, as you say-how soon can we change things around, especially with the input to the Federal Government, so that it will get back down to where we want it to be? Mr. HAVEMAN. Two points on that, Senator. |