Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
II. EMBARGO, INFLATION, AND RECESSION The l974 Oil Embargo and Unemployment The oil embargo by the Arab nations began in October l973, and the effects were quickly felt throughout the nation's economy. The unemployment rate for the first full month of the crisis, November l973, moved up 0.2 percent to 4.7 percent, although experts discounted the effects of the energy crisis on the rise. By December, however, the unemployment effects of the energy crisis were spe- cifically being felt. The unemployment rate rose again by 0.2 percent to 4.9 percent, and an estimated l00,000 workers lost their jobs because of the oil embargo. The 0.4-percent increase in unemployment in January l974, to 5.2 percent, underlined the spreading unemployment effects; an additional l50,000 people lost their jobs because of the energy crisis. The crisis was chiefly reflected in the automobile and automobile accessory manufacturing sec- tors, and states such as Michigan and Ohio had long lines at their unemployment insurance offices. It was in the light of this potentially serious unemploy- ment situation that Senator Henry Jackson (D-Washington), the chief architect of the proposed National Energy Emer- gency Act of l973, had developed an unemployment insurance amendment (soon dubbed the "Jackson amendment"); it was added to the energy bill on the Senate floor in early December by a vote of 73-l2. The amendment provided a program of supplemental unemployment insurance benefits of not less than six months or more than two years for "unem- ployment resulting from the administration and enforcement of this Act." It came to be known as the "causality" pro- vision because the unemployment benefits provided for in the Act could only be paid to individuals whose unemploy- ment was "directly as a result of the implementation" 45
46 of any of the Act's provisions. In other words, unemploy- ment benefits could be paid to gas station attendants laid off because of short gas supplies but not to auto manu- facturing workers, because slow car sales were only an indirect result of the oil embargo. We were in the final stages of enacting CETA and launch- ing the program in December l973, and the Jackson amendment caught us by surprise. It had apparently been developed quietly by the AFL-CIO and given to Senator Jackson just prior to floor consideration of the bill. We were faced with a fait accompli in the Senate before we had a chance to understand the full implications of the legislation. We quickly concluded that the "causality" provision was an administrative nightmare because it required a case-by- case finding as to the precise cause of unemployment. It would require thousands of unemployment insurance claims takers in 2,400 local offices to make hundreds of thou- sands of independent judgments on complicated economic situations; it seemed bound to creat chaos and introduce inequities into the unemployment insurance system. There were other problems with the amendment. The six months to two years duration of benefits went well beyond anything available under regular unemployment insurance, thus providing special benefits for this group of "energy crisis unemployed." Also, while the regular unemployment insurance program was financed by specific employer taxes, thus providing a built-in policing mechanism, this program would be paid for by the general revenues of the federal government, with no incentives to the states for the tight administration of the program. In retrospect, one provision of the amendment had an unexpected but permanent and major impact on federal unem- ployment insurance policy. The amendment provided that the unemployment assistance was to be available to individ- uals who were otherwise not eligible for regular unemploy- ment compensation. Approximately l2,000,000 workers were, at that time, working at jobs that were not covered by the regular unemployment insurance laws. The amendment mandated almost "universal coverage" for the purposes of the National Emergency Energy Act. As is explained later in this paper, this concept of "universal coverage" became an important part of the entire anti-recession program of the unemployment insurance system. Our preliminary soundings in Congress showed that the amendment had strong support and was moving very rapidly toward passage as part of the Act. Our first strategy was to try to derail it, but with the energy crisis deepening
47 and unemployment increasing rapidly, our success in stop- ping it seemed unlikely. A fallback strategy was needed, and we settled on trying to prepare and sell a more at- tractive and sensible alternative proposal. We set out to design an alternative measure that would avoid the administrative problems inherent in the Jackson amendment but would be a positive, credible, and effective response to unemployment resulting from the energy crisis. Our proposal dispensed entirely with the concept of cau- sality and instead substituted a supplemental unemployment insurance program available to all eligible unemployed if they lived in an area of very high unemployment that qual- ified for the programâthe shorthand description became known as "triggering on" and "triggering off." Internal work within the Department on our proposed alternative was completed by early January, and we began to meet and work intensively with Paul O'Neill of OMB and his staff on January ll. The week of January ll-l8 saw a flurry of meetings and policy developments. By this time our alternative was pretty well agreed to, and on January 23 I accompanied Undersecretary Richard Schubert to the AFL-CIO to try and convince officials there of the serious administrative problems with the Jackson amendment and to convince them to shift their support to our alternative. Our work had progressed to the point at which the Presi- dent's energy message the week of January 24 contained general words that indicated that the administration would be shortly submitting a proposal for a "special payments" system that would make general supplemental unemployment insurance payments available in areas of high unemployment because of "a number of energy-related factors." During this period the energy bill was stalled in the Conference Committee, and we were beginning to have some influence on the Committee to alter the amendment. Early in February the Committee redrafted the amendment to cut the duration of eligibility from two years to one year and expanded the eligibility definition to cover unemployment due to "fuel allocations, fuel pricing or consumer buying decisions clearly influenced by the energy crisis." These alterations were clearly an improvement, but the basic "causality" problems still remained, and we continued to press for deletion of the amendment. On February l3 Secretary Brennan transmitted to Congress our proposal to augment unemployment benefits, and he held a press conference on the subject. Our proposals were pack- aged as Title II of a bill providing for basic amendments to the regular unemployment insurance (UI) system, which
48 had been before the Congress since mid-l973. Our proposal was characterized as a temporary area-triggered program of additional unemployment benefits that would "trigger on" in areas of high unemployment and would not be re- stricted to those affected by the energy shortage. It provided for l3 additional weeks of benefits for those who had exhausted (used up) their regular benefits and 26 weeks of benefits for workers who were not covered by reg- ular unemployment insurance. (Our preparation of this proposal had always included the Jackson amendment con- cept of covering all workers; with the "causality" approach deleted, our proposal extended coverage to both covered and not covered workers in areas of high unemployment.) The Secretary made a particular point of stressing the expanded coverage. "This bill would make it unnecessary to enact any special legislation designed only to meet the problems of workers harmed by the energy shortage. It demonstrates this administration's concern for those who will lose their jobs and have great difficulty finding new jobs if unemployment reaches certain levels in the months ahead." The latter statement, in retrospect, had much greater importance than we attached to it at the time. The unemployment rate was then about 5.2 percent and Sec- retary Brennan, when pressed during the press conference, estimated that unemployment might rise to 5.5 or 6 per- cent by the end of l974. Meanwhile, Congress completed work on the energy bill late in February and sent it to the President for a pre- dicted veto. In vetoing the bill, the President cited the "objectionable program for unemployment" as one im- portant reason for his action. "Under it, the Government would be saddled with the impossible task of determining whether the unemployment of each of the Nation's jobless workers is "energy re- lated.' In addition, eligibility for these benefits would not take into account the availability of jobs in the area." He went on to urge support for the adminis- tration's proposals to expand the regular UI system. "The correct answer to the problem of those who become tempo- rarily unemployed for any reason, energy or otherwise, is to strengthen our regular unemployment insurance pro- gram, extend it to workers not now covered, and provide additional benefits to those who lose jobs in areas where high unemployment rates show that other jobs will be hard to find." Senator Jackson tried to iron out the differences be- tween Congress and the administration that had led to the
49 President's veto. However, in early April, failing to reach a compromise with the administration, he again re- introduced an energy bill that contained his amendment. It was one of four major provisions of the bill that the administration continued to find unsatisfactory. Starting early in April, the administration's unemploy- ment insurance alternative began to get some attention in the Congress. Undersecretary Schubert appeared before the House Ways and Means Committee on April 2, l974, to dis- cuss the proposal, and I appeared before the House Inter- state and Foreign Commerce Committee on April 4. Although neither Committee showed any enthusiasm for our alternative, it gave us the opportunity to put before the Committees two important concepts: (l) as unemployment continued to rise, we needed a new general purpose program to take care of those who exhausted their regular 39 weeks of benefits be- cause they were in high unemployment areas where jobs were hard to find; and (2) equity required a new program to cover those who were not a part of the unemployment insurance sys- tem but were nevertheless suffering equally because of the high levels of joblessness. On April 22, l974, the Under- secretary appeared before the Senate Finance Committee in a hearing that was similar to those in the House. Without realizing it at the time, however, we were providing a cru- cial prebriefing to those Committees on important unemploy- ment insurance concepts that were to become key parts of the nation's anti-recession program later in the year. The oil embargo ended in April, and unemployment due to the energy- crisis began to diminish, although general un- employment levels continued at previous levels. The end- ing of the embargo signaled a gradual loss of congressional interest in energy legislation, and the administration's alternative unemployment insurance bill never got beyond the hearing stage previously described. By mid-May the intense interest in energy-related legislation had subsided. The foregoing events may seem to be a digression from the central theme of this paper, but, as will become clear later, the flap over the Jackson amendment was a key reason that both the administration and Congress could later act swiftly to enact an anti-recession program with a broad- ened unemployment insurance program as its kingpin. The Jackson amendment was a dress rehearsal for the coming main event.
50 A Counterinflationary Manpower Strategy The oil embargo was, of course, followed by rapidly escalating fuel prices. And the ending of wage and price controls on April 30, l974, set off a round of price "bulges" and collectively bargained "catchup" wage in- creases. At the same time, food prices had shown a steady rise. These factors resulted in a major inflationary spi- ral, which, by mid-summer, was being characterized by a new termâ"double-digit inflation." During the period from March to September l974, the consumer price index rose by 8.6 percent, and for the entire year, the overall rise was a whopping l5.7 percent. Those responsible for managing the nation's economy began to realize that a major deflationary program must be undertaken. Since the necessary fiscal and monetary tightening seemed likely to result in increased unemploy- ment, there was renewed interest in the role of a much larger public service employment program and other man- power measures to help counteract the expected unemploy- ment effects of a deflationary program. On May l, l974, Arthur Burns, Chairman of the Federal Reserve Board, sent an "eyes only" letter to the President suggesting an expanded public service employment program, set in the context of measures to control inflation. In the covering letter to the President, Dr. Burns suggested "an early return to a balanced budget" as "essential to assure the country that your administration is really serious in its fight against inflation." The employment program Dr. Burns suggested called for an expenditure of an additional $4 billion, if the unem- ployment rate exceeded 6 percent, to provide 650,000 pub- lic service jobs. These jobs were to be of short duration and at a wage not to exceed $6,000. The program would be triggered on and off as rates of unemployment rose and fell. Dr. Burns estimated that, even with an allowance for "substitution effects"âstate and local governments substituting federal funds to finance jobs that they would otherwise have financed from their own resources, thus resulting in no net new job creationâa $4 billion program could be expected to reduce the national unemployment rate by about 0.06 percent. Inflationary pressures continued to grow in May, June, and July, although unemployment rates stayed at about 5.2 percent. While there was much discussion and concern about the surely developing problems, the nation and the federal
5l government were so absorbed with the final stages of Water- gate that the policy development apparatus of the govern- ment was essentially paralyzed, and virtually nothing happened during those three months. When Gerald Ford was sworn in as President on August 9, l974, after President Nixon's resignation, he inherited a rapidly deteriorating economic situation, and events tumbled on top of each other in succeeding months as the government attempted to contain inflation and respond to high levels of unemployment. On Monday, August l2, I as- sembled a staff group, including Bill Hewitt and long-time associate, Robert T. Hall, to begin to prepare program options for a counterinflationary manpower program. Presi- dent Ford was clearly going to put first priority on mea- sures to get inflation under control, and we wanted to be ready with our program. Although we picked up signs of strong interest, mainly about public service employment, we decided that a wide range of employment and training programs should be considered for possible inclusion in a new policy package. The following Monday our group met again to go over the product of a week's work. I realized we had gotten a little "ahead of the power curve" that day when I received a call from Edgar Fiedler, the Assistant Secretary for Economic Policy at the Treasury Department. He had been requested by Secretary William Simon to lead a small group from OMB and the Council of Economic Advisers (CEA) in ex- amining the possibility of increasing the public service employment program. On Wednesday, we met with Fiedler and discussed not only PSE but the entire range of options that we had been considering and that we wanted Treasury offi- cials and the President's other economic advisers to con- sider. On Friday, August 23, l974, I wrote a memorandum for Fiedler and the other participants summarizing our dis- cussion. I stressed that I and others at DOL believed the basic issue was broader and more substantive than an ex- panded PSE program. I stated it would be desirable to examine and explore a range of manpower and related activ- ities for an overall counterinflationary effort, including: some form of special transitional income maintenance; the targeted use of skill training and basic education as a form of "self-improvement employment" albeit at stipend wages; selected use of intensified job-search and place- ment assistance; other forms of work experience; and so on. I stated that public service employment would clearly play a major role in helping to combat any increasing
52 unemployment rising from counterinflationary initiatives, and, in response to questions at the meeting, reported that currently available funds could accommodate expansion of the PSE program from its current level of 73,000 to about l70,000 jobs. Finally, I noted that there were several substantive issues that would have to be addressed if a significant level of additional funds were to made avail- able for PSE: (l) the absorption capacity of state/local government; (2) the displacement of regular employment; (3) the ability to target to affected areas; (4) the abil- ity to target to affected groups; (5) trigger(s); (6) allocations and funding levels; (7) timing and phaseout; and (8) wage levels. By August 29, l974, we had prepared a final plan and transmitted it to the President and the White House early in September. The plan had seven major elements: l. A new temporary unemployment assistance program to strengthen the basic workers' income protection system. 2. If the national unemployment rate reached 5.5 per- cent, funds currently available would be immediately obligated for public service employment; this would sus- tain a level of approximately l70,000 PSE jobs for one year. 3. If the national unemployment rate reached 6 per- cent, an additional $l billion for manpower programs would be triggered inâpublic service employment and "self- improvement employment"; this would sustain more than 200,000 PSE jobs for one year (at an average of $5,000 per job). 4. If the national unemployment rate reached 6.5 per- cent, another $l billion would be triggered in for ex- pansion of such programs to support another 200,000 positions. 5. If the national unemployment rate reaches 7 per- cent, a final $2 billion would be triggered in; this would bring the PSE program to a total of $4 billion and 800,000 jobs. 6. All the additional funds triggered in would be targeted to areas where the unemployment is most severe by use of an area unemployment trigger of 6.5 percent as is done in the PSE program under Title II of CETA. (With a 6-percent national unemployment rate, an estimated two- thirds of the nation's unemployed would reside in such areas; with a 7-percent rate, more than four-fifths of all unemployed would be in such areas.)
53 7. As national or area unemployment receded below the indicated trigger levels, the added funds would be trig- gered off. President Ford's first concrete action dealing with the economic slowdown was to announce on September ll, l974, the immediate creation of 85,000 additional public service jobs, bringing the total to l70,000. The President had quickly picked up our first and most immediate recommenda- tion. The President also promised to "develop contingency plans against the possibility that unemployment might give evidence of rising to substantially higher levels." (Early in September the President had announced that he would hold an Economic Summit Conference at the White House to gather advice on the measures that should be taken to combat inflation and the slowing economy. Public service employment received strong support from many at the Con- ference on September 27-28, l974. In his closing remarks to the Conference the President said that "productive work for those without jobs" would be part of his economic pro- gram. He also announced the creation of an Economic Policy Board to consolidate "all the federal government's economic efforts.") By mid-September, we felt reasonably sure that an ex- panded manpower and PSE program would be part of the Presi- dent's proposals to Congress, so we began speaking publicly on those proposals. The Secretary, during a television appearance on "Meet the Press," spoke of our $4 billion trigger proposal and our proposal for supplemental unem- ployment insurance. In a speech before a National Civil Service League conference on September 24, l974, I spoke in some detail about the nature and size of our proposals. Late in September, Dr. Burns once again reiterated his idea for a $4 billion PSE program and the Joint Economic Committee of the Congress released a report recommending an additional 650,000 PSE jobs, when the unemployment rate reached 6 percent. The importance of Dr. Burns's proposals should be emphasized. They received broad attention across the country because of his reputation as a key conservative economist and his powerful position as Chairman of the Fed- eral Reserve Board. His proposals were considered by many as a major policy breakthrough that made PSE a much more "respectable" subject of attention as one of the measures in a counterinflationary or counterrecessionary economic strategy. It was the Burns proposals that emboldened key congres- sional figures to begin to prepare new PSE programs. Also,
54 it began to become clear in late summer that the adminis- tration was likely to send a new set of manpower proposals to Congress, and there was an urge to get ahead of the administration and "beat it to the punch." Congressman Daniels was the first to introduce a PSE expansion bill on September ll, l974; by early October, he had already held three days of hearings on the bill. In late September and early October, first Congressman Esch and then Senators Nelson and Javits jointly introduced PSE bills. By September 20 we had converted our proposals into draft bill form and were ready to move. During the next two weeks, the President's new Economic Policy Board at the White House was engaged in preparing the President's program to be presented to Congress the following week, but we in the Labor Department were not a party to these discussions: in the early days of the Economic Policy Board, neither the Secretary of Labor nor the Secretary of Commerce were members, though both were later added. On Saturday morning, October 5, l974, we met with Paul O'Neill in his OMB office to finally settle on the adminis- tration's manpower proposals. The President was scheduled to address a joint session of the Congress the following Tuesday, October 8, to present his economic proposals. O'Neill was serving as the spokesman for the Economic Policy Board, which was then in session in the White House during most of the day. At a number of points when ques- tions arose, he either telephoned or walked across to the White House to consult with the Board. The centerpiece of the President's manpower proposal was to be the unemployment insurance proposal we had de- veloped in response to the Jackson amendment. Paul O'Neill and Alan Greenspan had been strong proponents of emphasiz- ing the unemployment insurance piece of a manpower package, rather than the public service employment and related ele- ments. The question of providing coverage for those not covered by the regular program had been hotly debated within the Economic Policy Board, and the President had personally settled the debate by choosing to provide coverage. The entire supplemental UI program was to be financed by general funds of the federal government rather than by the employer taxes that financed the regular UI program. The PSE program accepted by the President was signifi- cantly different from what we had proposed. It was smaller, more circumscribed and targeted, with six major elements:
55 l. It was to be administered by CETA prime sponsors. 2. It was to be limited to 6-month projects, although they would be renewable. 3. Funding was to be based on graduated triggers: $500 million at 6 percent unemployment; another $750 million at 6.5 percent unemployment; and an additional $l billion at 7 percent unemployment. 4. Eligibility for PSE was to be limited to experienced unemployed workers who had exhausted unemployment insurance benefits. 5. There was to be a $7,000 limit on wages. 6. As with the unemployment insurance program, the PSE program would come into effect only in areas that had an unemployment rate above 6.5 percent. The major issue in the Economic Policy Board on PSE was the wage limitation. There had been much support to limit the wages to $6,000âthe minimum wage level proposed by Dr. Burns. O'Neill and others had prevailed in raising the wage level to $7,000, which was still well below the $l0,000-limit in effect under Title II of CETA. As the legislative decisions took shape, we discussed the various ways of packaging the proposals so they would receive both maximum public visibility and also be posi- tioned strategically to have the best chance of early con- gressional action. I suggested, and it was agreed, that the UI and PSE proposals be made Titles I and II of a single bill and that the bill be written so that it would be referred to the Labor Committees in both House and Sen- ate. Unemployment insurance is normally handled by the Tax Committees of both houses (House Ways and Means Committee and Senate Finance Committee) since it usually involves tax matters; however, since our emergency UI proposals were to be financed by general revenues, it would be possible to bypass the Tax Committees. We had had such a difficult time getting the Tax Committees even inter- ested in holding hearings on the UI proposals, including our alternative to the Jackson amendment, that I thought it would be wise strategy to get the entire emergency bill referred to the more sympathetic Labor Committees. After deciding to name the package the "National Em- ployment Assistance Act," we began to prepare the final legislation before the President's address to Congress on Tuesday evening, October 8, l974. Because of the develop- ing emergency nature of the situation and the expected impact of the President's speech, I determined to try to get both the Senate and House Committees to hold a joint
56 hearing on the President's proposals on Wednesday, October 9, the day after the President's address. Both Congress- man Daniels and Senator Nelson agreed to hold the special extraordinary joint hearing we desired. The hearing was held in the Senate Committee room and was chaired by Congressman Daniels. A full complement of members was present from both Committees. Although the Senators and Congressmen were conciliatory in their ap- proach to the Secretary, there was universal criticism of the PSE portion of the bill. They told us that the PSE proposal was an "unrealistic approach" and would create only low-paying, "leaf-raking jobs." Congressman Esch was critical of the 6-percent trigger for funding, describing it as "artifical, contrived, and inequitable," and Con- gressman Daniels joined in this criticism. Esch was also critical of the 6.5-percent area trigger. The six-month project concept was attacked as being administratively unworkable, and the $7,000 wage limit was characterized as "poverty level." In short, the Committees were critical of almost every aspect of our billâand we were not surprised. The PSE bills authored by various members of the Com- mittees authorized much larger sums of money; were not targeted to areas of high unemployment but generally pro- vided funds to all prime sponsors; authorized salaries of $l0,000-$l2,000 rather than the $7,000 we were proposing; were not for limited-time projects but for general con- tinuing activities; and were not targeted to those who had exhausted UI benefits but were open to all unemployed. Clearly, our PSE bill was very different from those that the committee members had prepared. The UI title of our bill got little attention, even though we constantly highlighted it as the "first line of defense" against the impact of increasing unemployment. We particularly highlighted the fact that we were proposing to cover all workers, including the l2,000,000 people not then covered by UI. Of course, UI was strange to these labor committees, and we did not expect a lot of searching questions at this first hearing. I remained convinced that our ploy of getting the UI proposals before these committees would pay off in the long run. Secretary Brennan, by his every word and action, made it clear to the Committees that, above all, the adminis- tration wanted a bill to emerge from Congress and that we wished to work closely with the Committees to develop leg- islation that would pass before Congress adjourned. The Secretary's offer was openly accepted as the hearing ended by Chairman Daniels, who noted that "the spirit of com- promise is in this room." And within hours after the
57 hearing, Secretary Brennan telephoned both Congressman Daniels and Senator Nelson to re-emphasize his desire to work with the Committees in developing acceptable legis- lation. Congress was scheduled to take an election recess from October l7 through November l8, l974. Although several more days of hearings were held on the administration bill and other related bills before the Committees, the Congress recessed without having really given any public indication of whether legislation would or could be considered and passed in the short post-election session. Privately, however, Senators Nelson and Javits caucused and then jointly instructed their staffs to work out a bill during the election recess. When Congress recessed in September, the unemployment rate stood at 5.8 percent, up 0.4 percentage points from August. Developing a Game Plan As Congress recessed, we took stock of the legislative situation and began to develop our plans to achieve pas- sage of the legislation in the short post-election session. It was not an easy task: not only did we need major new authorizing legislation, but also billions in new appro- priations in order to put the programs into operation. We were also well aware that the legislation would involve not only the Labor and Appropriations Committees in both houses, but also that the provisions were bound to cause jurisdic- tional frictions between the Ways and Means Committee, the Finance Committee, and the two Labor Committees. In all, at least six committees would inevitably be involved in the legislation. Only major national emergencies or over- riding political imperatives had ever impelled the Congress to act very speedily. Would rising unemployment and the resulting political risk of inaction be enough to galvanize the Congress into action? We set out to make sure that we did all in our power to steer events toward passage. We prepared a formal written "game plan" to guide all our actions over the next several months. The original author of the plan, Bill Langbehn, had facetiously put a cover sheet on the document formally entitling it "Game Plan" and just below had put a famous quotation from the Washington Redskins coach, George Allen: "Winning is everything and losing is nothing." Although it was a jest, we laid our plans with every intention of winning.
58 The plan started by analyzing where the legislative package stood in both houses and attempted to predict the actions of each house. Our analysis highlighted several key points: l. The unemployment insurance piece of the package was not well understood and its key importance had been missed. We needed, therefore, to devote attention to public education on this feature and also make widely known that we would not decouple UI from PSE and allow only a PSE program to be enacted. 2. The easy and quick road for the Congress would be to pass a supplemental appropriation for PSE under Title II of CETA (which the Senate Committee staff thought the likely course); therefore, we must make known that the President expected action on his temporary PSE program, was against adding more funds to the existing permanent PSE program, and was likely to veto a supplemental ap- propriation. 3. Even with all our energies directed toward achiev- ing new authorizing legislation, we thought that the out- look was dimâunless outside events spurred the Congress to action. We stated in the Game Plan that the key date in all of our actions must be the December 6 release of the November unemployment data: "if the rate...is very bad (6.2 percent or higher) Congress would probably act very rapidly and probably through the supplemental ap- propriations route." The plan went on to detail the public information cam- paign that should be mounted; the congressional relations work; necessary meetings with labor and management groups to garner support; and work with the governors, mayors, and counties to develop support. As a first step I called a press conference on October 28, l974. Having in mind the specific topics that needed attention, I specifically indicated the President's strong desire for legislation and our willingness to compromise to achieve results. I stated that the President would veto any supplemental appropriation for Title II of CETA because he is "very aware of the difficulties of turning a long-term program off." I further indicated that we would not separate the UI and PSE titles of the bill in the hopes that Congress would pass a separate UI bill. I indicated that UI legislation had been before the Ways and Means and Finance Committees for two years and that all we had achieved was two days of perfunctory hearings. There- fore, we had consciously directed the UI title to the Labor
59 Committees hoping for favorable consideration and action. Finally, I predicted that the Democratic Congress would not delay on this crucial legislation in the face of the President's strong urgings and the rapidly rising rate of unemployment. Carrying forward our Game Plan, we met with representa- tives of the governors, mayors, and counties on October 29 to try to gain their understanding and support for legis- lation. Although these groups preferred PSE approaches other than the administration bill, they strongly supported some new legislation. We stressed the particular signif- icance of the UI provision, Title I, to state and local governments: the largest single group of employees still left out of the UI system were state and local employees, and our proposed bill would provide coverage for them, paid with federal funds. On October 29, I addressed the Na- tional Chamber of Commerce's unemployment compensation committee. I didn't expect to win their support for our emergency UI programâand I didn'tâbut it was another step in the process of public education. On October 3l Bill Hewitt and I journeyed to Jersey City at the invitation of Congressman Daniels, to partic- ipate in an all-day session on CETA and how it was working in New Jersey. In the course of the day, we had an op- portunity to spend some time privately with Daniels, and we discussed the upcoming session. I indicated to him again (by this time our relationship had matured so that it was one friend to another) our strong desire for legis- lation and our willingness to compromise. Although Daniels made no commitments, our talk helped to lay the groundwork for moving ahead as soon as the Congress returned. On November l4, we met with Ken Young and Bob McGlotten of the AFL-CIO to again try to develop support for legis- lative action. They strongly supported our UI proposals. They had basic problems with our approach to PSE, but believed, as we did, that new legislation was necessary. Several days later the Secretary and I met with Leonard Woodcock and Douglas Frazer of the United Auto Workers (UAW) for the same purpose. Many of the auto workers had been laid off since the energy crunch and were beginning to exhaust their unemployment insurance benefits. We surmisedâcorrectlyâthat Woodcock and the UAW would give us strong support on the UI part of the bill. On November l the unemployment rate had hit 6 percent, a rise from 5.8 percent the preceding month and up from 4.6 percent a year earlier. Fears of a major recession were rapidly replacing the early fall concerns with double- digit inflation.
60 Recession: Congress Responds in Twenty-Five Days Congress returned on November l8 and the next day Undersecretary Schubert, Paul O'Neill, and I met with Representatives Quie, Esch, and Steiger to lay out our strategy and discuss grounds for compromise. On November 2l Chairman Daniels notified his Subcommittee that he in- tended to convene the Committee on November 26 to mark up his PSE bill. He was at the same time trying to decide what to do with Title I, the UI title, of the administra- tion's bill. He could predict that Congressman Esch would be strongly pushing the administration's position and would insist that the UI provision be added to any PSE bill. (Esch did, in fact, issue a press release on the day of the Subcommittee markup that indicated that he had written to a number of congressional and labor leaders urging them to "join in a bipartisan push for passage before the Christmas adjournment of legislation to pro- vide a two-pronged attack on unemployment." He also said that he did not "care whether the Ways and Means Committee or the Labor Committee moves on increased unemployment com- pensation, but action certainly must come before Christmas. If Chairman Mills of the Ways and Means Committee is not going to push for this...program then our Labor Committee must assume the task. The unemployed in this country deserve more than partisan haggling and jurisdictional disputes.") Also on November 2l, the Secretary, the Undersecretary, and I once again went to Senator Javits's Capitol office to meet with him and Senators Nelson and Taft and their staffs to begin the process of compromise and negotiation. The meeting laid the groundwork for the staff work that followed. On November 26, the House Subcommittee proceeded to mark up Chairman Daniels's PSE bill and left it mostly in- tactâand agreed to postpone the decision on whether to add the UI title to the bill until the full Committee markup. The Secretary and I met with Daniels in his office that day to go over the situation and again explore possible compromise. From the discussion with Senators Javits and Nelson, the markup actions of the House Subcommittee, and the discussion with Daniels, the general outlines of the PSE legislation began to emerge. The administration had proposed that the new PSE pro- gram be authorized separately from CETA in order to high- light it as temporary in nature and countercyclical in
6l purposeâas opposed to the regular ongoing structural pro- grams authorized in CETA. This proposal was unacceptable in Congress. There seemed to be a clear preference for authorizing the new program as a separate new title of CETA, although there was some sentiment for just adding funds to the existing Title II program. In any case, we had no problem in accepting a new title in CETA as a com- promise. There was no controversy over using the CETA prime sponsor system to administer any new PSE program, but the "project" concept had no support. It was clear almost from the beginning of negotiations that Congress would have no part of triggers; neither to make more funds available as national unemployment levels increased nor to trigger on PSE funds in local areas of 6.5 percent unemployment. By this time we had been through enough formal hearings and informal discussions on triggers on this and other legislation to know how politically sen- sitive the subject was: triggers have a way of going on and off at unforeseen and sometimes embarrassing times. Political figures are typically fearful of entrusting basic program decisions to the operation of statistically con- trolled triggers. (In all, over my four years in office, we proposed area triggers five different times and only succeeded the first time in Title II of CETA.) Congress seemed unwilling to approve a rigid eligibility criteria for the program. Rather than limiting eligibility to those who had exhausted unemployment insurance, as we had proposed, a much looser criteria began to emergeâsuch as "preference" or "preferred consideration" for the long- term unemployed. We held out on this point for some time, arguing that a specific "gate" should be constructed that would limit eligibility for the program. Without it we feared that there would be no way of differentiating be- tween those most in need and all the unemployed. With something like 6,000,000 unemployed we argued that, at best, the PSE program could only reach a small percentage and that that small percentage should meet a needs criteria. Another way of constructing a gate would be to require that all potential new participants should have been unemployed a given length of time. Our proposal meant that, on the average, eligibility would be restricted to those who had been unemployed l5 weeks or more. Title II of CETA re- quired an unemployment period of 30 days prior to entry in the program. We not only could not get support for our proposal, but Congress seemed interested in relaxing even the 30-day unemployment criteria in Title II. In fact,
62 the House bill required only 7 days of unemployment prior to entry intp the program. Another way to make PSE jobs short-term and counter- cyclical was to put a cap on wages. Thus, our proposed limit of $7,000 on annual wages was designed to ensure that these jobs did not become so "good" that they would draw workers from the private sector, that neither prime sponsors nor participants would be tempted to treat these jobs as long-term career jobs, and that the low wages would have the effects of both attracting only those who had no other alternatives and motivating them to seek pri- vate employment as soon as the economy improved. Again, it became clear very early that our proposal had little support. The $l0,000 wage limit in Title II seemed to be as low as the Congress would consider, and the outside clientele groups were unanimously against our proposal. Overall, it did look like the Congress was willing to agree with the general size of the program we had pro- posedâ$2-2.5 billion. Finally, with respect to UI, there was a surprising amount of acceptance of and agreement to the administration's proposals. Congress seemed willing to accept our proposals without amendment. On our own list of priorities, the UI proposals remained of first importance. We were willing to compromise on PSE in order to gain acceptance of a package that included UI. As this paper highlights, we early on realized that we would be unsuccessful in selling some of the basic elements of our PSE proposals. If we wanted new legislation, we would likely have to forget (a) targeting the program by area triggers, (b) setting rigid and specific eligibility criteria, (c) setting a rigid low-wage limit of $7,000 on PSE jobs, and (d) controlling the length of the program by limiting project duration. On the other hand, there was general receptivity to a new and separately authorized PSE program to be run by CETA prime sponsors, at a total cost recommended in the administration's proposal. As the balance of this paper portrays, these early indications, on both strategy and substance, were quite accurate and very consistent with the final outcome. On December 3, l974, Chairman Perkins got word from the House leadership that the Labor Committee should take im- mediate action on Congressman Daniels's PSE bill (HRl6596) and that the Committee should also go ahead and handle the UI title. This move amounted to a decision by the leader- ship to take action on both PSE and UI before adjournment. The following day, December 4, the full House Labor Committee proceeded with the markup of the Daniels bill
63 and added the UI title. To avoid a jurisdictional fight with the Ways and Means Committee, however, Perkins and Daniels subsequently worked out an agreement with Acting Chairman Ullman of Ways and Means whereby the Labor Committee bill would restrict its work on UI to workers never previously covered, and Mr. Ullman would introduce a bill to extend benefits for workers already covered by UI. Ullman subsequently did introduce such a bill (HR l6596) on December l0, and Daniels then deleted that sec- tion from his bill during floor debate. The December 6 news that the November unemployment rate was 6.5 percent finally settled the question of whether the Congress would complete action on the new legislation in the short session. As our Game Plan had correctly pre- dicted, this rise in unemployment galvanized Congress into action. The Democratic Congress could not politically risk inaction in this emergency situation when the new Republican President had taken the initiative of putting an emergency program before them for immediate action. Not only had the unemployment rate reached 6.5 percent, but it had jumped 0.5 percent in one month. It was the highest rate in l3 years, with 6,000,000 people out of work, and the November figures did not reflect the lay- offs in the auto industry. It was generally assumed that this was only the beginning of a very rapid rise in un- employment and an extraordinarily serious situation. In any case, the legislation now became the absolutely "num- ber one" priority on everyone's list, and for the remain- ing two weeks of the session the Congress acted with whirlwind speed. The House Labor Committee reported out its bill on December 9, and it passed the full House on December l2 by a 322-53 vote. The Senate Labor Committee reported out its bill on December ll, and it passed the Senate, also on December l2, by a vote of 79-l3. The Conference Committee filed its report on December l7 and both the House and the Senate adopted the Conference report on December l8 and cleared the bill for the President. Meanwhile, Chairman Uilman's UI bill, extending bene- fits for an additional l3 weeks for those covered by the UI system, was reported out by the Ways and Means Com- mittee on December l0 and passed by the full House on December l2. The bill was sent directly to the Senate floor and passed on December l6 with a minor amendment. The House accepted the Senate amendment on December l9, thus clearing that bill for the President.
64 A third action by Congress was necessary, however, be- fore we could get the new programs under way: the new programs required billions in new funds. Early in December we had begun to prepare our estimates of funds necessary to implement the new PSE and UI programs. With the rapidly escalating unemployment situation, we had a difficult time estimating our needs for the ensuing months, particularly for unemployment benefits, since it was an open-ended en- titlement program. By December l3, however, we had settled on a request for $5 billion and transmitted that request to OMB. On Saturday, December l4, we met with Paul O'Neill at OMB and agreed that $4 billion should cover us for the near-term future until we got a better fix on the rapidly developing situation. I was authorized to inform Chairman Daniel Flood of the House Appropriations Subcommittee on Labor and HEW that the President would be sending up a supplemental request for $4 billion and to ask for an im- mediate hearing on the request. On Tuesday, December l7, the House Subcommittee held a hearing, and it was noteworthy in two respects: The Pres- ident's official request for supplemental funds had not reached the Congress, and I doubt whether it did reach the Congress before the Congress took final action on the ap- propriation (as one who grew up in the Bureau of the Budget, I knew how extraordinary this was). Second, the Appropria- tions Committee's major concern was that the $4 billion request might not be enough. On the next day, Wednesday, December l8, I appeared before the Senate to present and discuss our $4 billion request. On December 20 the Congress cleared for the President H. J. Res. ll80, appropriating $4 billion to fund the three new emergency programs. The Congress had accomplished the seemingly impossible: completing action on a $4-billion appropriation in four days! Conclusion On January 3, l975, the December unemployment rate rose to 7.2 percent, 0.7 percentage points above the November level of 6.5 percent. It confirmed our fears: the country was in the grips of a major recession, which was still getting worse. We in the Department of Labor hadn't had to wait for the official figures: we knew that in the week of December 26 an unprecedented one million people had come into the UI offices across the nation to file initial claims for benefits. (By May l975 the rate reached 9.2 percent,
65 far and away the highest unemployment rate since the great depression of the l930s.) On December 3l President Ford signed the Emergency Jobs and Unemployment Assistance Act (HRl6596) and the Emer- gency Unemployment Compensation Act (HRl7597). In his signing statement, the President commended "the 93rd Con- gress for its action on these two vital measures" and expressed "confidence that the spirit of cooperation and conciliation which marked their passage will carry over into the new year and the new Congress." Both in terms of a scorecard and for reference later in this chronicle, how closely did the final laws resemble the proposals put forward by the administration? The administration's unemployment insurance proposals, developed initially as a response to the Jackson amend- ment, were enacted with relatively minor changes. Up to l3 additional weeks of benefits were made available to those who were already covered, although the program was triggered on at a 4-percent (insured) unemployment rate nationally or in individual states, rather than on a na- tional trigger of 6 percent or local triggers of 6.5 per- cent as we had proposed. Up to 26 weeks of benefits were made available for those not covered, providing universal coverage, precisely as we had proposed. Thus, we had achieved our central objective of putting in place a major and far-reaching broadening and extension of unemployment insurance, which would provide basic income support for millions of unemployedâwhile PSE was benefiting only thousands. The new law authorized a new Title VI of CETA for PSE for one year, at $2.5 billion, to be administered by prime sponsors. We had failed, however, to shape the new program into an effective countercyclical device with safe- guards against abuse and substitution and had perhaps sowed the seeds for future problems. Instead of the program's being targeted by triggers only to areas of high unemploy- ment (as for Title II), it was available to all areas. Instead of being restrictive in eligibility, it was avail- able to all unemployed who had been unemployed for l5 days (Title II required 30 days). Individual projects were not required, and the wage limit was $l0,000, as in Title II. At the time we were so caught up in the emergency nature of the unemployment situation that we could not and did not pause to reflect on legislative scorecards. Instead we were conscious of the good luck, hard work, and extensive cooperation between the executive and legislative branches of the government, which had succeeded in having ready
66 emergency measures to help the victims of the recession by the time the full effects of the recession were being felt. The whole experience left me impressed with the resilience of our governmental system in responding to emergency sit- uations; I believe it also constitutes a telling argument for having such emergency measures available in a standby state so that they can automatically be implemented when needed.
