U.S. Relations With the People's Republic of China (2008)

U.S. Department of Labor

Remarks Prepared for Delivery by
U.S. Secretary of Labor Elaine L. Chao
U.S. China Strategic Economic Dialogue
Beijing, China
Session II, December 4, 2008

Thank you, Vice Premier Wang.

Let me commend you, and Secretary Paulson, for your leadership of the SED. Our countries have discussed many ways to create sustainable growth through policies that balance investment, savings and consumption. And I'm pleased to note that after SED V has concluded, the Labor Department and the Chinese government will continue our dialogue on worker protections issues with a review of the progress made under the Letters of Understanding.

Strong social safety nets -- including unemployment insurance, pensions and health care -- are a key part of balanced growth. They help lower precautionary savings and support consumption, which promotes job creation and raises living standards for workers.

Let me recap some of our discussions on two key elements of the social safety net, unemployment insurance and pensions.

Unemployment Insurance provides workers with a partial wage replacement that supports continued consumption during job loss and layoffs. During difficult economic times, it also provides continued income injections into the local economy. The United States has extended Unemployment Insurance benefits twice already. And as we speak, the U.S. Congress is considering a third extension.

Unemployment Insurance is financed by state and federal taxes on employers. The current federal Unemployment Insurance Tax (FUTA) is 8/10ths of one percent of the first $7,000 in wages per employee, or $56 per worker. The state Unemployment Insurance tax rate varies. Each state is different. All of these taxes must be deposited quarterly in accounts maintained by the U.S. Treasury. And by law, these funds can only be used for Unemployment Insurance.

Another common challenge is the aging of our populations and providing retirement security for workers. Retirement security in the United States rests on a three-legged stool: the government sponsored Social Security system; private, employer-provided pensions and, personal savings. Private, participant-directed, individual account plans under the jurisdiction of the Department of Labor hold over $2.2 trillion in assets. They cover more than 65 million participants.

As noted in previous SEDs, there is a savings imbalance in both of our countries: China saves too much, while the United States saves too little. The United States has taken major steps to address this structural imbalance through a new law, the Pension Protection Act. One regulation implementing this new law took effect on December 24, 2007. This regulation encourages employers to automatically enroll workers in their company's pension plan, unless workers say "no" in writing. The worker's contribution to the pension plan is then automatically deducted from his or her paycheck.

This single change is expected to significantly increase overall retirement savings by $134 billion over the next 25 years.

Strong social safety nets reduce precautionary savings, so that workers will have more money to spend on goods and services that will increase their standard of living. The SED has built a strong foundation for continued cooperation on unemployment insurance, pensions and health care, which we hope will continue. These programs are key to ensuring the long term, sustainable, balanced growth of both of our economies.

Thank you.

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