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Greenspan says education is key to improving wages, economy

By Nell Henderson
The Washington Post

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WASHINGTON — Federal Reserve Chairman Alan Greenspan said yesterday that U.S. workers must be better educated so they can find jobs in an economy that is increasingly creating conceptual goods rather than tangible products.

Providing "rigorous education and ongoing training to all members of our society" is critical for the economy overall and for individuals buffeted by its changing nature, the Fed chairman said in a speech at the Greater Omaha Chamber of Commerce's annual meeting in Nebraska.

Better education, particularly in elementary, middle and high schools, would go a long way toward boosting the wages of lower-skilled workers and diminishing the income inequality that has become more pronounced over the past two decades, he said. Greenspan used the occasion to elaborate on similar remarks he made last week on Capitol Hill in response to lawmakers' questions about recent job losses, including those attributed to trade and the movement of U.S. production overseas.

The Fed chairman said that data show "outsourcing" of jobs to other countries is not a problem for the U.S. economy.

Greenspan said U.S. workers would benefit more over the long run from enhanced education and job skills than from protectionist measures that restrain trade.

The U.S. may be "graduating too few skilled workers to address the apparent imbalance between the supply of such workers and the burgeoning demand for them," Greenspan said. "Protectionism will do little to create jobs, and if foreigners retaliate, we will surely lose jobs."

In a text of the speech, he said, "The single central action necessary to ameliorate these imbalances and their accompanying consequences for income inequality is to boost the skills, and thus earning potential, of those workers lower on the skill ladder."

Although the Fed chairman has no formal role in crafting education or labor policy, Greenspan has been grilled on the subject recently because of continued anxiety, in this presidential-election year, over the country's weak job market. Although the recession ended in November 2001, the economy has lost 2.2 million jobs in the past three years. And although the economy has grown rapidly in recent months, causing layoffs to abate, it has not caused businesses to hire as many new workers as would normally be expected, Greenspan noted.

While other policy-makers praised Greenspan's analysis, they noted he did not prescribe how to improve education, how to pay for improvements or what role government should play in helping the unemployed — all hot topics this campaign season.

"I agree we should improve secondary and post-secondary education, but that's hardly a total response," said Rep. Barney Frank, D-Mass., who had questioned Greenspan on employment issues last week.

"It's inconsistent for Greenspan to talk about" increasing educational opportunities while also calling for shrinking the federal budget deficit primarily, if not wholly, through spending cuts rather than tax cuts, Frank said. "These are public-sector responsibilities."
Robert Reich, who was secretary of labor during the Clinton administration, said Greenspan is "absolutely right" in seeing education as the key to improving job prospects, incomes and living standards over time. But, Reich said, rising tuition costs have made college less accessible to many families, many states are cutting spending on public education, and funding is insufficient for early-childhood education.

"Education is an investment in our future productivity," Reich said. "Perhaps Mr. Greenspan needs to go to the next step in discussing where will the money come from."

Greenspan said U.S. workers face a "never-ending necessity to learn new skills" because of the changing nature of the economy, particularly the "ever-growing conceptualization of economic output." Because of this, he said, highly educated, highly skilled workers have seen their incomes rise faster than average for the past 20 years. Less-educated, lower-skilled workers have found their wages stagnating.

Greenspan again predicted that job growth "will begin to increase more quickly before long" as the economic recovery continues, but he also repeatedly expressed concern for jobless individuals caught in the transition.

Material from Bloomberg News is used in this report.

Copyright © 2004 The Seattle Times Company

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