By Nell Henderson
Washington Post Staff Writer
Thursday, July 22, 2004

Federal Reserve Chairman Alan Greenspan, disputing election-year assertions that the U.S. economy is producing lower-quality jobs than it has in the past, said yesterday that continuing wage sluggishness reflects the fact that many workers are ill-prepared to take advantage of the opportunities that the economy offers.

Growing U.S. income inequality largely reflects differences in workers' education and job skills, not an underlying problem with the economy, Greenspan said during a House Financial Services Committee hearing, echoing many of the remarks he made before a Senate committee the day before.

The growing pay gap reflects the "skill premium" commanded by relatively higher-educated, better-trained workers, and represents "a major problem of matching skills of workers to the technological base of the economy, which I believe is an education issue and requires that we address that as quickly and broadly as we can."

Greenspan, in similar remarks earlier this year, said it is critical that the nation better prepare its workers. The alternative is a workforce increasingly divided between those able to earn and compete and those struggling to get by.

"I think that the effective increase in the concentration of incomes here, which is implicit in this, is not desirable in a democratic society," Greenspan told the Senate Banking Committee on Tuesday.

His comments yesterday appeared to support both the Bush administration and its opponents in the campaign debate over how workers are faring in the recovery from the 2001 recession.

Critics argue that most of the jobs being created are in relatively low-wage industries, such as retail, hospitality and personal services, and note that the wages of workers in those jobs have stagnated even during the recovery. The Bush campaign and its supporters disagree, pointing to job gains in industries that pay above-average wages, including health care, construction and financial services.

Greenspan, responding to questions about job quality from committee members, said tracking employment gains by industry doesn't prove that jobs are low- or high-paying because of the substantial pay differences within industries.

Because of how information is collected, there is no way to know whether a new hire at a retail company is flipping burgers in the kitchen or overseeing global operations from a headquarters office.

There is evidence that jobs are being added at both ends of the spectrum, Greenspan said.

For the economy as a whole, he said, "it balances out. . . . We've not been able to find a significantly meaningful change in the quality of the jobs being produced relative to the quality of jobs being lost for the nation as a whole over the last year."

However, Greenspan noted that businesses continue to hire relatively more temporary employees, who have less job security and typically fewer benefits than permanent employees. He said people have a hard time finding new jobs that pay as much as the ones they've lost.

Supervisory workers, meanwhile, have reaped a "disproportionate" share of recent wage gains, Greenspan said.

The average hourly earnings of non-supervisory workers, who make up 80 percent of the workforce, "have been subdued in recent months and barely budged in June," Greenspan said. Supervisory workers have received bigger pay increases, he said, citing a Fed analysis of Labor Department and Commerce Department data.

Average hourly earnings for production, or non-supervisory, workers rose in June by 2 cents, to $15.65, according to the Labor Department. It doesn't publish a comparable figure for supervisors.

Because the number of hours worked fell last month, average weekly earnings of production and non-supervisory workers fell by $2.45, to $525.84. After adjusting for inflation and seasonal variation, average weekly earnings fell 0.8 percent last month. They declined 1.4 percent in the 12 months ended in June, after similar adjustments.

Average hourly and weekly earnings for non-supervisory workers were lower in June, on an inflation-adjusted basis, than in November 2001, when the recession ended and the recovery began, according to an analysis of the Labor Department data by the Economic Policy Institute, a think tank that focuses on labor issues.

Greenspan said yesterday that the wages of the "lesser skilled" have not kept up with inflation for much of the past 50 years.

"We have not been able to keep up the average skill level in our workforce to match the required increases of increasing technology," he said.

But the institute cites other reasons for the recent slide in inflation-adjusted wages. Although employment has been rising recently, the job losses during the recession and slow pace of hiring since have left the economy with "an oversupply of workers relative to employers' demands," economists Jared Bernstein and Elise Gould wrote in a recent analysis. "There is little pressure to bid up wages."

The pickup in inflation in recent months also has meant that "wages need to grow faster to beat price growth," they wrote.

Greenspan did not offer any policy recommendations to address the pay gap other than to repeat his call to improve education and training both for school-age children and for adults throughout their working lives. However, he rejected proposals to increase the minimum wage, saying that he has long believed that a higher minimum wage reduces employment.

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