WASHINGTON -- Rep. Hilda Solis of California will be nominated as labor secretary by President-elect Barack Obama, two Democratic sources told FOX News on Thursday in a surprise announcement made after one top candidate fell out of contention.
Solis was just elected to her fifth term representing heavily Hispanic portions of East Los Angeles and eastern L.A. county. The daughter of Mexican and Nicaraguan immigrants, she has been the only member of Congress of Central American descent.
Solis, 51, has focused on immigration and environment issues while in the House. An announcement is expected from the Obama transition team in the next few days.
Obama's selection of Solis comes on the same day the Labor Department released a new report showing new applicants filing for unemployment benefits remained near a 26-year high.
Solis was the dark horse in the race but emerged after Michigan Gov. Jennifer Granholm, who had been expected to get the nod, indicated through her closest advisers that she was not interested in the position and had yet to be formally contacted about her interest.
Despite her second-shelf status, Obama's pick was hailed by union leaders and California lawmakers.
"Hilda Solis is a very strong champion of working families and will be an outstanding secretary of labor," Rep. George Miller, D-CA, said in a statement.
"Her record in the California Legislature as a leader on labor issues and her excellent work in Congress on behalf of our nation's working men and women will restore the Department of Labor as an advocate for hard-working Americans," he said.
"Hilda Solis has never backed down from the good fight to make the American Dream available to all," Stern said in a statement. "I can tell you firsthand that this woman is about opening doors for millions of Americans who get up and go to work each day."
But not everyone is thrilled by the pick. The National Right to Work Committee said Solis is a "100 percent proponent" of unions. Mark Mix of the NRWC said that "with the power the Department of Labor has over individual worker freedoms" the vast majority of non-union workers will be hurt by the Solis pick.
"I think this is probably step one or step two of what is a major payback for organized labor for spending up to about a billion dollars in dues money and general treasury monies to help elect this Congress and this president-elect so payback is coming for organized labor," Mix said. "This regulatory regime and the regulatory power that the Department of Labor has, for example, can be a huge weapon to coerce more workers into unions."
Business groups also responded cautiously to the news about Solis.
"There's a new sheriff in town, but they'll still have deal with the business community and they know it," said Randy Johnson, vice president for labor issues at the U.S. Chamber of Commerce. "We would hope she will continue to support programs that help educate employers about voluntary compliance with the law rather than pursue heavy handed enforcement."
Mix said the good news is that the Labor Department budget will probably be slashed in the coming administration so Solis' role will be further diminished. But as the Cabinet secretary responsible for keeping workers trained and in high-paying positions, Solis will have her hands full.
Economists say the financial crisis will deepen in 2009 before improving. That means the unemployment rate is expected to keep rising even as Obama injects potentially $850 billion into the economy over two years as part of his stimulus and recovery plan.
"Recessions, especially bad ones like the one we're in, always have a tail to them during a recovery where the unemployment rate worsens as businesses are recovering," William Beach, an economist with the Heritage Foundation, told FOXNews.com.
"The absolute truth is you can't recover employment until you recover the employer," Beach said.
Obama's plan is aimed at job growth through government-sponsored infrastructure projects. His proposal features spending on roads, making government buildings energy-efficient, building and renovating schools and adopting environmentally friendly technologies.
There also will be some form of tax relief, according to the Obama team, which is aware of the political difficulty of pushing such a large package through Congress even in a time of recession. Any tax cuts would be aimed at middle-and lower-income taxpayers, and wealthy taxpayers won't see their rates go up in 2009.
As part of the economic team, the labor secretary initiates job training and recruitment programs and recommends spending increases in certain areas, Beach said.
He called the position an attractive one that carries an enormous amount of responsibilities negotiating a path between organized labor and businesses.
"They have the power of the purse," he said, adding that the labor secretary is given a podium to speak out on behalf of workers.
"It's a very important position and can influence at the margins," Beach said.
As a member of Obama's economic team, Solis will also have a role in ushering through the economic stimulus package.
While union leaders have pushed the Obama stimulus package as an opportunity to create good jobs and help rebuild the economy, Rebecca Blank, a senior fellow in economics at the Brookings Institution, said the primary objective of any stimulus package is to increase demand for goods and services which in turn creates jobs.
Until the plan takes effect, Blank said unemployment benefits are the "first defense against" keeping unemployed workers from falling through the economic cracks.
"Not much can be done" other than providing unemployment benefits until the recovery plan kicks in, Beach added.
The Labor Department is responsible for congregating the data on unemployment numbers and releasing the data. It can be forceful in indicating how severe a downturn becomes or how rapid recovery could come. On Thursday, the Labor Department revised downward its new applications for jobless benefits to a seasonally adjusted 554,000 from 575,000 the previous week. That's slightly below economists' expectations of 558,000 claims.
A Labor Department analyst said one likely reason for the decline is that the figure was inflated two weeks ago by applicants who delayed filing their claims during the Thanksgiving holiday week.
Blank expressed confidence in Obama's recovery plan, but added, "There are no guarantees with this economy."
The Associated Press contributed to this report.