Testimony of

Rebecca Yanisch, Commissioner

Minnesota Department of Trade and Economic Development

Before the Senate Committee on Health, Education, Labor and Pensions

October 4, 2001

Thank you Mr. Chairman, Senator Gregg, Senator Wellstone and Members of the Committee:

In the brief time I have today, I won’t dwell on the tragic events of September 11th.  Unfortunately, today, there is little we can do on behalf of the victims of these horrific terrorist attacks.  Instead I want to look ahead at how we – at both the federal and state levels – might alleviate the enormous suffering of all Americans and mitigate the long-term economic disruption that surely lies before us.

This economic shock comes at a time of weakness in the economy.  Moreover, the economic fallout has rippled far beyond “ground zero” in New York and Washington.  Many state governments, already struggling with the economic slowdown and budget shortfalls, have been pushed into further financial distress by recent events.

In Minnesota, the initial impact of the attack is being felt in the airline industry and closely related industries.  Northwest Airlines (NWA), one of the top three private employers in Minnesota, has announced plans to lay off up to 4,500 in this state alone.  This will be the largest one-time layoff on record for the state.   Minnesota-based Sun Country and Mesaba Airlines have also announced plans to lay off an additional 600 employees.

The 4,500 NWA employees who will be immediately impacted are in an industry seriously affected by the attack; therefore the industry is not likely to be hiring again soon. Furthermore, NWA employees are in relatively specialized, highly paid occupations.  The training and experience of these workers is not likely to translate easily to occupations in other industries. As a result, laid-off NWA workers are likely to have difficulty finding well-paid employment in the near term.    

NWA is not only one of the largest employers in Minnesota, but also a large purchaser of Minnesota goods and services. For example, when NWA announced layoffs, it also announced plans to cut food service in coach class.  This will have an immediate impact on the firms that supply this food— Marriott and Skychef.  Both of these firms are also planning layoffs, although it is as yet unclear exactly how many workers will be impacted.

Other firms with close ties to the commercial air transportation industry in Minnesota will also feel immediate impacts.  Honeywell, Inc., for example, has already announced job cuts in an attempt to “help weather the troubles in the air transport industry.” 

The airline industry alone will lay off or furlough more than 5,000 Minnesota workers, at least in part as a result of the September 11^th attack.  Indirect effects of the downturn in air travel will likely result in additional layoffs— over and above the announced airline layoffs— by the end of 2001.  The total number could easily reach 15,000, pushing the unemployment rate up by 0.6 percent and resulting in a statewide seasonally adjusted unemployment rate of 4.2 percent by the end of the year.   The last time the state's jobless rate reached 4.2 percent was 1996.

It will be difficult over the next year to separate out the impact of the general economic slump in Minnesota from the shock of the September 11^th attacks.  Many hotels and restaurants in Minnesota have lost business as a result of reduced commercial flights and the drop off in air travel (Scenario 1).  If the drop in commercial travel persists, whether due to fear among consumers or to decreased service, the hospitality industry is likely to suffer (Scenario 2).  Furthermore, the retail industry is likely to suffer. The Mall of America, located in Bloomington, Minnesota, will be uniquely affected due to its reliance on national and international tourism and because economic and political uncertainty is likely to depress the holiday shopping season this year (Scenario 3).

Annual job growth has steadily fallen from 2.1 percent in 2000 to 0.3 percent in August 2001.  It is likely to be flat over the next few months as the economic shock of the attack compounds the existing economic slowdown.  Until job growth picks up, the unemployment rate is likely to exceed 4.0 percent.

In Minnesota, we have a rich history of progressive involvement in workforce development issues. We view our well-educated, well-trained and highly skilled workforce as one of our chief competitive advantages – and we never hesitate to use that advantage aggressively in our economic development efforts. In fact, Governor Jesse Ventura has included workforce development as one of the key organizing principles of the “Big Plan,” his broad strategic vision for our state.  He understands that in order to strengthen Minnesota's position as a global competitor, the skills of our workforce must be continually upgraded and retooled to meet the high-tech demands of today's employers. 

In Minnesota, workforce development IS economic development, and it’s my duty as commissioner to carry that vision forward.

Last year, the Department of Trade and Economic Development created a new division – the Workforce Development Division – which incorporates two critical components: the Dislocated Worker Program and the Job Skills Partnership Program.  Minnesota recognized the importance of re-aligning programs to better assist unemployed and dislocated workers in meeting the needs of business. And we are continuing that process by merging departments and programs to maximize resources and services.  By next summer, all WIA programs will be incorporated into the new Minnesota Department of Economic and Workforce Development.  We want to build on this model of cooperation to ensure a seamless transition from layoffs and dislocations to return-to-work through supportive training programs.

The Minnesota Job Skills Partnership Program was patterned after the groundbreaking Bay State Skills Corporation in the Commonwealth of Massachusetts nearly twenty years ago. Since then, we have built partnerships and forged strong links between our educational institutions, our businesses and our labor force.

The Dislocated Worker Program is the fundamental cornerstone of our workforce development strategy.   This program operates not as an entitlement, but as a program designed to help Americans who, through no fault of their own, lose their jobs.  Let me share the experience of one Minnesota worker, a man in his 50s who has never availed himself of any social programs. When he called last week to seek our help, he said: “I feel like I have paid for these programs all my life and now I need them. I didn’t want to lose my job, and I’ve never had to seek help from anyone before and I don’t need much.”  What was he looking for?  He needs $400 for a skill certification class and $700 for related training -- $1100 worth of help to return to the workforce.

This is what the Dislocated Worker program is all about, and Minnesota’s commitment and investment goes beyond the federal allocation.  As one of only 10 states to create its own separately funded program, Minnesota has carried over more than $20 million from the “good” years to help laid off workers through the current crisis.  Minnesota has acted responsibly, and will continue to act responsibly in tapping every resource at our disposal.

Beyond the tragedy of thousands of deaths and untold human suffering, the terrorist attacks on September 11 quite likely will result in long-term economic disruption.  As public officials, our reaction to this disruption is crucial. As the unemployment claims rise throughout our nation (in Minnesota we are at a nine-year high) we will need the support of programs such as the Workforce Investment Act to ensure that our unemployed and laid off workers have the opportunity for training and retraining to compete in our economy.  In particular, it will be important to increase funding for all of the Workforce Investment Act programs.  The formula funding to the states for the basic disclocated program will need to be increased along with the funding for the Secretary’s reserve.  The latter is the fund to which  Governor Jesse Ventura has submitted a National Emergency Grant application to the U.S. Secretary of Labor for $24 million to assist in the thousands of dislocations we will be facing in Minnesota.  We know that other states are going to be facing these layoffs as well and we need to be sure that there are sufficient funds in the reserve to handle the need.  In addition, the dislocations we will experience will put an inordinate burden on the entire one-stop system.  Additional funds for the basic adult and youth programs will be important as the states struggle to meet these increased burdens.  I would urge your continuing  support for the important services that the Workforce Investment Act provides.

Complicating matters in Minnesota is a recent dramatic increase in unemployment caused by a series of mass layoffs before September 11. In the last two years, Minnesota has witnessed record numbers of layoffs in commercial and manufacturing industries. LTV Steel Inc. closed its doors last year, leaving 1,400 unemployed steelworkers. Honeywell, American Express, 3M, Boston Scientific, Farmland and Prudential, among others, also laid off large numbers of employees. Because of this recent activity, all Program Year 2001 federal WIA Dislocated Worker funds have been obligated through formula funding.

Minnesota is a national leader in developing one-stop Workforce Centers offering job counseling and recruitment, computer training and a variety of other services for unemployed workers. Today, these highly effective Workforce Centers serve as the building blocks for the state's response to the current crisis.  In the immediate aftermath of the Northwest Airlines layoffs, Minnesota’s Rapid Response Team initiated a series of group information meetings near the airport in Bloomington, Minnesota.  In addition, a mobile resource center was located on the site to assist workers with a computerized job search, provide unemployment benefit information, and offer phones, faxes, computers and copy machines for the use of dislocated workers. We have also scheduled job fairs and are forming employment management committees to provide direction and oversight to our services.

In short, Minnesota officials are doing everything they can to broaden and strengthen the state’s response during this very challenging time.  Minnesota is proud of its economic diversity and well-educated resilient workforce.  We have held our own despite the recent economic slowdown and - with your support - I am confident our state and our nation will emerge from the current crisis stronger than ever before.