private industry for retraining workers. Members of this committee will recall that Senator Jordan and I joined in recommending a tax credit to employers for employee training expenses in our views in this subcommittee's report, "Toward Full Employment," in the spring of 1964.

On February 17 of this year I introduced a bill entitled "the Human Investment Act of 1965." This bill would provide a 7-percent tax credit to employers toward the expenses of training employees in needed job skills. Over the past 6 months I have worked very hard to obtain expert opinion and recommendation on this new approach. As a result, last Thursday I was able to introduce a substantially improved version of the Human Investment Act, S. 2509.

This new bill incorporates suggestions and expertise from business, labor, manpower experts, economists, and tax experts and a large number of staff members on both sides of the Hill.

I am happy to state that 46 Members of the House have introduced companion bills to my Senate bill; 7 of these 46 are members of the Ways and Means Committee, where it will be considered. I understand Senator Javits has also introduced a bill along the same lines.

I do not wish to take any more time now, Mr. Chairman, but I do want to state again how pleased I am that the Senator from Massachusetts has taken the initiative in calling these hearings, and I am hopeful that the experts who will appear before us will shed a great deal of light on current problems and opportunities, including the potentialities of the tax credit-private industry approach to job training embodied in my Human Investment Act.

I have also just been handed a statement which Senator Javits, who could not be here, has asked me to read on his behalf.

STATEMENT OF HON. JACOB K. JAVITS, A U.S. SENATOR FROM THE STATE OF NEW YORK

A major unsolved problem for our Nation is the matching of existing manpower to the demands of our advancing technology for everhigher levels of skill. I am very pleased that our subcommittee is undertaking the task of following up on an important aspect of this process, training programs conducted by employers on the jobsite. This aspect has been a prime focus of recommendations by this subcommittee in the past, particularly by the minority members of the subcommittee.

I have introduced, along with Senator Vance Hartke, a measure, S. 2343, to create an incentive for such training programs by making the 7-percent tax credit adopted in 1962-which is now available for investment in new machinery and equipment-available also for investment in the training and retraining of workers. I look forward to hearing expert testimony on this and other similar tax proposals which will, I hope, create a record of sufficient urgency to get the administration and the House and Senate tax committees moving on enacting a tax incentive.

The efficacy of tax incentives is testified to by the first year statistics under the existing 7-percent credit: credit in the amount of $1 billion was taken in 1963, representing a total investment in eligible equipment of roughly $20 billion. The incentive was particularly effective

for small businessmen, according to a survey recently taken by the National Federation of Independent Business. Members of the federation were asked whether they had expanded or otherwise modernized their operations in 1964 and what was helpful in financing such changes. Of those who said they had expanded or modernized, 63 percent said they found the 7-percent investment credit helpful, a much higher percentage than those who pointed to the 1958 and 1962 depreciation changes or the 1964 tax cuts.

Clearly all these proposals, and the fact of these hearings reflect the dissatisfaction all of us must feel at the inadequacy of our present efforts at manpower training. All the programs consistently championed by myself, along with others on this subcommittee-the Manpower Development and Training Act, the Area Redevelopment Act and the Economic Opportunity Act-are training a total of about 462,000 persons, but it is estimated that there are 2 million persons classifiable as structurally unemployed, that is, as requiring additional training to become employable.

We are not doing enough even to keep abreast of this problem, much less to catch up with it. And the most effective training resource has remained relatively untapped, the vast resource of U.S. business and industry, which can and does train millions of its employees annually. It is my hope that these hearings will document the even greater training job which private enterprise could be doing if the Federal Government provided an encouraging climate for that training.

I think I should point out for the record that while there may well be a great deal of merit in tax inducement for on-the-job training, unfortunately that is not in the jurisdiction of this committee, because it must go to the Finance Committee of the Senate and the Ways and Means Committee of the House.

Nevertheless, Senator Kennedy, I think you will want to explore this in these hearings.

I wish you well in your efforts.

Senator KENNEDY of Massachusetts (presiding pro tempore). Thank you very much, Mr. Chairman.

As Chairman Clark pointed out, we are beginning today 2 days of hearings on the subject of on-the-job training. Our purpose is largely educational and exploratory. This subcommittee, under the chairmanship of Senator Clark, conducted an extensive study of employment and manpower problems in 1963. As a result, the subcommittee reported many specific recommendations for legislative and administrative action and suggested areas for further intensive study.

In its report, the subcommittee recommended that particular stress should be given to the encouragement of on-the-job training. On-thejob training is the primary means by which the skills of employed workers are upgraded.

In many areas, on-the-job training has been demonstrated to be the most efficient and least expensive method of training the unskilled for specific jobs and retraining the unemployed.

We know that in times when the supply of skilled labor is scarce, employers are forced to tailor job specifications to available manpower. The less skilled are hired and more on-the-job training is provided. Thus, employers recruit and train job applicants whom they might otherwise screen out.

However, when labor markets are characterized by oversupply, employers tend to raise their hiring standards to exclude the untrained and the less skilled. The doors are often closed to those who make up the bulk of the unemployed.

Our hearings will focus on this problem. We will attempt to find out whether employers can be further encouraged, through Government action, and by other means, to make greater use of on-the-job training. In this connection, we hope to find answers to questions such as the following:

What types of employers are currently facing problems of recruiting trained workers?

In what occupations do shortages exist?

Would on-the-job training programs help alleviate these shortages? Should the Federal Government help encourage employers to develop such programs?

What is the Federal Government now doing to help stimulate greater employer participation in training and retraining?

What nongovernmental efforts have there been to encourage on-thejob training; and

What can be done to further promote the development of on-thejob training programs?

We are deeply honored to have before this subcommittee during these next 2 days of hearings some of the people who have demonstrated an understanding and who are experienced in this very im-. portant area.

Our first witness this morning will be Mr. Stanley H. Ruttenberg, Manpower Administrator of the U.S. Department of Labor.

Mr. Ruttenberg, we are honored to have you here. I believe we have a copy of your testimony.

STATEMENT OF STANLEY H. RUTTENBERG, MANPOWER ADMINISTRATOR, U.S. DEPARTMENT OF LABOR

Mr. RUTTENBERG. Thank you, Senator Kennedy. I am very pleased to be here and I welcome the opportunity to appear before the committee. I have a longer statement which I would suggest having inserted in the record, if I might, and I would then like to briefly summarize it.

Senator KENNEDY of Massachusetts. The statement will be included in its entirety in the record.

(The prepared statement of Mr. Ruttenberg follows:)

PREPARED STATEMENT OF STANLEY H. RUTTENBERG, MANPOWER ADMINISTRATOR, DEPARTMENT OF LABOR

I welcome the opportunity to appear before this subcommittee.

With the increasing emphasis and interest in the United States on the training of workers, it is essential that the respective roles of Government and industry be clearly defined.

I appear in my capacity as Manpower Administrator for the Department of Labor. In this capacity, I have been deeply involved in the promotion and development of all aspects of training in the Nation. This includes formal apprenticeship, vocational education, institutional and on-the-job training.

The clear purpose of these hearings-on-the-job training in private industrypermits me to focus on the general disposition of such training, some of the inherent problems which Government and business face, and suggests some possible solutions.

Let me state from the outset that except for public education, private industry is probably the Nation's largest developer of skills.

How this is done is a matter of great concern to all citizens-whether in Government or in the private sector.

Several years ago, the Labor Department conducted a study to find out what the private sector of our economy was doing in the field of training. In 1962 the first nationwide survey on training was conducted. More than 8,200 establishments participated.

The results, projected to cover 711,000 firms employing 37 million workers, established these facts:

1. Only one of every five establishments sponsored some type of formal training. 2. Of the 37 million workers employed in these establishments, only 2.7 million were actually enrolled in an employer-sponsored training program.

3. Of the 2.7 million workers in training, 1.5 million were employed in goodsproducing industries and 1.2 million in service industries.

4. Better than half the number of trainees were enrolled in some type of safety program. This fact underscored the basic lack of true training for skills in American industry.

5. Only 1.5 million trainees out of 37 million were enrolled in courses designed to provide substantive skills. Of this number, fewer than 400,000 were being trained in a specific highly skilled trade. Clearly, then, industry has been mainly concerned with orientation of new employees rather than skill training. 6. The larger the number of employees in an establishment, the greater was the probability that a training program was in operation. Smaller firms were more inclined to hire ready-made workers.

In view of the increasing skill demands brought about by automation and technological change, the extent of on-the-job training in industry (less than 8 percent of 37 million workers) is hardly encouraging.

The survey report, called "Training of Workers in American Industry," does show that a wide variety of training was being conducted.

It also shows that some employers have already recognized the importance of training and retraining as the best means of meeting their changing manpower and skill requirements.

Our own recent experience in federally assisted on-the-job training programs indicates the usefulness and wide acceptance of jobsite training. It also, perhaps, suggests some directions we may want to pursue with respect to totally private efforts in this field.

The Department of Labor has entered into on-the-job training contracts with a number of large corporations and associations. These include the Tidewater Oil Co., for 1,080 trainees; the American Hospital Association, for 4,000; the National Tool & Die Association, for 1,200; the Chrysler Corp., for 1,000; and the New York Transit Authority, for 1,010.

But our contracts have not been limited to very large organizations with outlets throughout the land. Here are examples of smaller firms which, for various reasons, had found themselves unable to introduce on-the-job training before the Manpower Development and Training Acts:

In North Tonawanda, N.Y., the St. Mary Manufacturing Co., with 100 regular employees, is now training 12 more as tool and diemaker apprentices.

In Ansonia, Conn., the Preston Machine Co., with 10 employees, has 3 in training as lathe operators.

In Glastonbury, Conn., the C. & W. Manufacturing Co., with 24 employees, is training 4 lathe operators.

In Phillips, Maine, the J. L. Coombs Co., which manufactures shoes, has 25 regular employees, and is now training 10 additional hand sewers.

Since last February, the Department of Labor has intensified its efforts to develop on-the-job training. As a result, two-fifths of all new potential jobs developed since that time are in on-the-job training situations. This is significant, since on-the-job training (as opposed to institutional training) provides an unemployed worker with a job now. The worker, while in training, receives a wage from his employer, fringe benefits, and is virtually assured of a continuing job after the completion of training.

The desirability of on-the-job training is clearly established by the results we have noted. As the Secretary advised Congress in his manpower report, more than 94 percent of those who completed training in 1964 were employed as fulltime employees by the employer who did the training. This is better than the 72-percent rate experienced under the institutional phase of the Manpower Development and Training Act.

The on-the-job training provisions of the Manpower Development and Training Act permit direct Federal aid to an employer who establishes training courses for unemployed and underemployed workers, provided that these represent an addition to (not a substitute for) the firm's previous training activities, if any.

Many employers who have had to evaluate their training programs to determine the need for Federal training assistance have discovered to their surprise the large amounts of money they have been spending for training without planning or standards.

In addition, our experience clearly establishes a significant reduction in employee turnover rates after formal training has been introduced and completed. The reason for this is simple enough: better trained employees are more productive and, thus, can be paid a higher wage.

The Manpower Development and Training Act has undoubtedly been an inspiration to many employers who have initiated training programs for the first time and will surely carry them on after Federal assistance is terminated.

The record under this phase of the program demonstrates two facts very clearly: The high degree of effectiveness of on-the-job training, and the tremendous potential that exists throughout the Nation for stimulating a greater use of it through efforts in the private sector.

The Manpower Development and Training Act has proved highly successful particularly in on-the-job training portion. This success underscores not so much the efforts of the Federal Government but that of the basic efficiency and nature of such training.

It underscores the ability and knowledge of industry in training its own employees for its own specific purposes. In short, industry has bought Manpower Development and Training Act on-the-job training.

It underscores the difference between educators training workers for broad and general labor markets with narrow and specific skills and businessmen hiring new recruits for actual production or service.

It is against this background, I believe, that we should proceed with our consideration of the topic at hand.

It is obvious that the great majority of business establishments in the United States which have conducted little or no training have not done so for reasons which we might briefly explore.

Essentially, six factors tend to pose problems for the development of on-thejob training programs in private industry.

1. It is undeniably expensive, requiring Instructor-trainers, the cost of instructional materials, and the scheduling of trainees in work processes while maintaining production goals, in addition to the time allowed trainees for offthe-job classroom instruction.

2. Among smaller employees especially, authorization of overtime pay for present employees becomes more practical than investing in additional equip ment, facilities, and fringe benefits involved in the training of new employees. 3. There is too often a reluctance on the part of some management people to enter into collective bargaining agreements with labor which include provisions for on-the-job training. This is because of management's fear that hard and fast trainee ratios would be established, adding to his cost of doing business regardless of economic conditions.

4. In many establishments, piece rate journeymen tend to resent time spent away from their jobs while serving in an instructional capacity, for this ordinarily involves a loss of income to them.

5. Employers find it financially beneficial to take advantage of the basic training provided in the local trade and vocation schools, which is fine as far as it goes. Such training is limited in scope and requires additional inplant training by industry.

6. There is a very real fear on the part of employers of "pirating" of workers in whom much time and money has been expended. This aspect has resulted in the cancellation of many training programs.

What can private enterprise do about increasing on-the-job training?

It is obvious that cost is the prime consideration of the employer. Costs could be greatly reduced if there were a more sharing among employers of common resources and techniques and a better exchange of information.

For example, a group of smaller firms with associated interests has undertaken a job development program through on-the-job training. They will share in a skilled manpower program since they share the same market for such skills. I think that our Manpower Development and Training Act experience with trade associations has clearly demonstrated that these organizations could prove