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remarkably effective in marshaling the support of their membership in behalf of on-the-job training programs. The association's effort might center around a major promotional campaign aimed at educating the membership to the shared benefits of the training.
Furthermore, that effort could lead to the establishment of industrywide training funds, supporting training coordinators and local instructors, and perhaps, regional information centers. The information centers would provide data on the latest developments and techniques and list the availability of equipment and resources throughout the region.
Many of our larger manufacturers of durable goods, particularly those producing appliances, have a maintenance and repair problem which has never been efficiently handled, generally speaking. The manufacturer is not in the business of maintenance and repair and therefore has left such matters to a haphazard local activity. It certainly would be to his advantage to assist in the training or individuals who could perform this necessary function. This would not only create new jobs, but would also instill viable training programs into needed areas of our economy.
I am not here today to present an administration policy on these matters. In the area of governmental actions and policies, it seems to me that greater use of defense contracts as a method of stimulating on-the-job training might be something worth considering. Many contracts presently include training clauses. If it is not bonafide training, recompensed on a cost-plus basis, it is usually safety and orientation courses.
Perhaps some new directions would be useful to shape defense contracts into instruments of training as well. Perhaps contracts could be written which would call for a certain percentage of the total labor force being drafted from among the unemployed or the unskilled employee for training or retraining.
Finally, there are proposals for some type of incentives for training.
The most prevelent is a bill before the Congress which would grant a 7 percent tax credit to employers for training. What are the pros and cons of this concept?
Speaking for such incentives, rather than direct subsidies, there is the initial advantage of being more in keeping with the free enterprise system.
Employers would have leeway in determining their own training needs and adopting them. Freedom of application would promote more active participation and would spur the expansion of training efforts directly, without the administrative expense involved in collecting the revenues and directing them back through the States into federally financed training programs.
The potential for this incentive is enormous. During the debates on the 1962 investment credit measure, the Congress expressed its willingness to absorb an annual loss of tax revenues up to $1.5 billion for that purpose. The actual revenue loss was $1 billion in 1963, the first year for which figures were available. This represented a total investment in eligible equipment of roughly $20 billion.
In round numbers, therefore, it has been estimated that the potential unused credit that could be made available for costs of training would be in the neighborhood of $3.1 billion, representing a potential total investment in training of perhaps as much as $42 billion.
The enormous significance of such an investment for the economy is, of course, evident. Such an investment would have to lead to more employment in the new skills.
Such a program has twofold significance. The economy is held back by the lack of trained manpower, and the jobs vacated by the upgraded workers would be filled by the unskilled unemployed who present such a serious problem today.
Speaking against this concept of tax savings, is the need for keeping the tax structure as simple as possible
Tax credits for training costs will add to the complexity of the tax system which is already very complex.
It could result in serious erosion of the tax base. If a tax incentive provision to promote training is adopted, requests for additional tax relief provisions justifiable under similar grounds is almost inevitable.
For example, there has been in recent years, considerable sentiment for allowing income tax credit for household expenses incurred by the working housewife for the maid she employs because she works.
The provision itself presents problems in administration which will necessitate the presence of governmental or quasi-governmental agencies to prevent the distortion of the program.
If we should permit credit for all training undertaken by industry, we might be merely allowing an additional tax deduction for training now being performed and, therefore, suffer a loss of tax revenue without a corresponding gain in the objective
To prevent this, the tax credit should be applicable only to training efforts in excess of those currently in effect. This poses a problem of selecting a base period to measure the extent of additional training. This aspect also boils down to the enforcement of the regulations which could lead to abuses in the form of waste and duplication of effort.
How to certify training programs as proper recipients of a tax credit is the overriding problem.
This problem would tend to lessen the advantages of free operation which is advanced as one of the major reasons for preferring tax credits over direct subsidies.
The task is to encourage as much decentralized decisionmaking as possible and at the same time introduce enough controls for reasonable assurances that the tax incentives will stimulate more training of the types needed by the economy.
As long as we are talking about incentives, there is another form which, perhaps, should be studied carefully.
It is the direct training cost subsidy offered employers, large and small, who undertake on-the-job training projects through the provisions of the Manpower Development and Training Act of 1962, as amended. There is no question that this program has been highly successful. Perhaps an expansion of the Manpower Development and Training Act, with special emphasis on on-the-job training is the best method for this Nation at this time.
I can tell you that by pinpointing our efforts in occupational areas where training is really needed, instead of spreading tax incentives indiscriminately across the industrial board, this Nation could see a great expansion of training and corrolated employment.
Until a workable tax plan is developed wherein the highly difficult problems of compliance, procedures, and administration are solved, I cannot profess to know the answer to this question of incentives. Thank you, Mr. Chairman.
Mr. RUTTENBERG. In my capacity as Manpower Administrator in the Department of Labor, I have the responsibility for the administration of the Manpower Development and Training Act and the two major aspects of that program are the institutional vocational-education type training and the on-the-job training programs.
In addition, I have responsibility for the U.S. Employment Service and the implementation of its work in terms of carrying out an active manpower policy by matching men with jobs after individuals have been properly trained for them.
I think in introducing this subject, Senator Kennedy, I would like to try to put the problein in perspective, if I might.
A few years ago the Department of Labor conducted a nationwide survey among 8.200 establishments. When the results of the survey were projected, it indicated that it covered some 700,000 firms and about 37 million workers. Of the 700,000 firms, roughly only onefifth had some type of formal training.
Of the 37 million workers covered by the survey, only 2.7 million were actually enrolled in an employer-sponsored training program.
A very, very small and insignificant percentage really, when we think of it. Of the 2.7 million, however, that were enrolled in train ing, 112 million were in goods-producing industries and 1,300,000 in service industries, but the more significant aspect of this is that more than half of the 2.7 million were actually engaged in some forin of safety program and not training for skills or training for jobs. This fact underscores to me the basic language of true training for skills in American industry today.
Now, only 1.5 million of the 37 million workers were enrolled in courses designed to provide substantive skills, and of this number fewer than 200,000 were being trained in a specifically skilled trade. Clearly, industry has been mainly concerned with the orientation of new employees rather than in skilled training. I think that was the major conclusions that was drawn and can
rawn from the survey which we conducted. Further results of that survey are available and we could insert the whole survey in the record if you so choose.
With that as background, I would like to just briefly relate some of our own experiences with on-the-job training in the Department of Labor under the Manpower Development and Training Act.
We have entered into on-the-job training programs with a large number of corporations and trade associations, and with a large number of small firms. Some of the larger contracts we have entered into have been executed all within the past 6 months to a year. The Manpower Development and Training Act, as you recall, was passed in August of 1962, so it has only been in recent months that we have been able to move more extensively in this area. We have a contract, for example, with the Tidewater Oil Co. to train a thousand individuals; with the American Hospital Association for on-the-job training for 4,000 individuals; with the National Tool & Die Association for 1,200; with the Chrysler Corp. for a thousand automobile mechanics.
Senator KENNEDY of Massachusetts. Excuse me, Mr. Ruttenberg, in that survey did you consider future needs in the manpower area? Did you analyze future needs as far as particular skill demands?
Mr. RUTTENBERG. Yes, in that particular survey there was no material developed in relation to the skill needs. But there are in the Department of Labor continual surveys and research going on in occupational outlook and occupational needs. In addition, there are extensive skill surveys being conducted by the U.S. Employment Service in the local areas around the country. With these surveys we can can either take a broad across-the-board nationwide look at the need for skills or we can take a look more specifically at local labor market areas to determine what the needs are at the local level.
Now, there is a substantial amount of material in this area. Let me make it clear though, Senator, I am not pleased at all in my review of what we have done with the fact that we really know in great detail the needs for manpower requirements. In other words, I think we have more information available than most people are led to believe.
For example, under the Vocational Education Act of 1963, as they move to expand facilities around the country, the law provides that they consult with the Department of Labor and the employment service to determine what the local skill needs are in a particular area. So, you see, these skill surveys are continually under study and under research.
Now, getting back to on-the-job training: In addition to these large contracts which I mentioned that we have, we also have a very, very substantial number with small firms which were unable to introduce on-the-job training without the assistance the Manpower Development and Training Act has given. Let me cite a few specific examples quickly—the St. Mary Manufacturing Co. in North Tonawanda, N.Y., with 100 regular employees, is now training 12 as tool and diemaker apprentices in an on-the-job training program.
In Glastonbury, Conn., the C. & W. Manufacturing Co. with 24 employees, is training 4 lathe operators in an on-the-job training program.
Since last February we have been engaged in carrying on President Johnson's job development program, working specifically to encourage on-the-job training programs in service and related occupations and have been doing this cooperatively with other Government agencies.
Now, let me just indicate the scope of the on-the-job training program in relation to the total number of the Manpower Development and Training Act trainees.
When the program first started in fiscal year 1963, for every 35 individuals being trained in the regular vocational education Manpower Development and Training Act institutional program, there was only 1 being trained by employers in on-the-job projects.
By fiscal year 1964 the ratios had changed to 1 in 11. By fiscal year 1965, just ended, the ratio was 1 to 4, or put another way, we trained 40,000 on-the-job trainees and about 162,000 in institutional training. So the on-the-job ratio is increasing and in the current fiscal year it is the plan to move to 175,000 institutional trainees and 100,000 on the job. The ratio will move to 60 percent of the trainees in institutional, 40 percent on the job, as contrasted to the ratios of 1 in 35 in the first fiscal year, 1 to 11, and 1 to 4 in the last fiscal year. You can see by this that considerable progress is being made in moving the on-the-job training program forward more extensively.
We will be spending in fiscal year 1966, $57 million for on-the-job training programs out of the total appropriation of $342 million for programs in the Manpower Development and Training Act.
Senator KENNEDY of Massachusetts. Let me ask you, have you had drawn to your attention that many of the companies and corporations that have indicated an interest in furthering or at least taken advantage of Manpower Development and Training Act programs have felt that there was too much redtape; that their applications had been delayed and that they had difficulty in seeing the program initiated and started ?
Mr. RUTTENPERG. Senator, there just is no question but that redtape exists and has existed in Government in all kinds of programs, and it is sometimes very difficult to break through.
I must say that our experience has considerably improved in reducing the amount of time lapse between application for a training program and its final approval. As a matter of fact, we have just completed the development of what we call a very short form for on-the-job training program trainees; that if used and properly filled out by the employer, the approval of the project can take place at the local level, by the local representative of the Bureau of Apprenticeship and Training which carries out our on-the-job training program.
So, the amount of time is being reduced, but I would not want in any way to indicate that I think that all redtape has been eliminated, because it has not. You see, an on-the-job training project is actually a contract. Each individual employer signs a contract between the U.S. Department of Labor and himself as a company or a corporation, and as a result, these contracts are all subject to review and audit by the General Accounting Office and by our own auditors and, therefore
, we have to make sure that there is careful provision made for the expenditure of Federal funds.
Senator KENNEDY of Massachusetts. Would you be suggesting that they feel that it would be a more effective and efficient system if the various companies and corporations adopted their own on-the-job training programs through various incentive devices?
Mr. RUTTENBERG. Senator, I do, and my paper does deal with some of the pro's and con's of the various tax incentive proposals that have been made. I would like to move to that, I think, and really discuss that, if I might.
First of all, let me say that the administration has no official position in support of or in opposition to any of the tax incentive bills that have been introduced. There is no official position, and, therefore, I appear here today not as a representative of the administration talking about tax incentives, but only as I see it as the Manpower Administrator—as I see some of the problems that would be incident to the tax incentive program.
I would like to set forth some of the pro's and con's on it and as for a final Department position or administration position, that would remain to be seen what the administration will come up with.
I have tried to bring forth some of the pro's and con's that are involved and let me just say that I think the most fundamental problem that has to be faced up to on any tax incentive program is what kinds of training engaged in by the employer will be subject to having an incentive applied against it.
For example, is safety training to be reimbursed through a tax incentive program, through an investment credit? Is training of top executives who are sent to a 6-month course at, say, Harvard Business School, to be considered training? Is it training just for apprenticeship that we are talking about? Is it training just for hard-core unemployed or those with low educational attainment or those with only unskilled background and no real training? How do you differentiate, how do you pinpoint, to whom do you apply the 7-percent investment credit? If you decide that it shall be an across-the-board 7-percent investment credit, investment in human resource training, then you are reimbursing many employers for training they are normally conducting, and they normally engage in, and you are granting them an incentive credit on that aspect.
It means, in a sense, therefore, that there will be rewards for no effort. The companies that will continue to maintain their same standard and their same level of training will receive a reward. On the other hand, the individuals who engage in new training will receive only a limited amount of support through the 7-percent credit concept.
Now, this means that if you want to try to pinpoint the investment credit to specific types of programs, then you are going to have some kind of government, of some determination by somebody, whether it is the Treasury Department, whether it is the Internal Revenue Service, or whether it is the Department of Labor, indicating whether or not the specific program that the employer is advancing is one which should be subject to the 7-percent tax credit—unless you want to go across the board and give everyone credit for everything that he does.
This is not different than the concept of the original proposal of