- The Washington Times - Tuesday, February 6, 2007

The growing income gap is largely the result of disparities in skill and education between the rich and poor, though globalization, trade and the waning influence of labor unions have played a role, Federal Reserve Chairman Ben S. Bernanke said yesterday.

To remedy inequality, Congress and the Bush administration should enact measures that ensure all Americans receive an equal opportunity to succeed by receiving good education and job skills, while resisting pressure to erect barriers to trade that will prevent Americans from enjoying the overwhelming benefits and higher living standards afforded by global markets, he said.

“Workers with more education are better positioned to adapt to changing demands in the workplace,” and such flexibility has been a hallmark of America’s economic success, he said. That has enabled overall living standards to grow steadily, even as the gap has widened between earners at the top and bottom of the income scale.

Congressional Democrats have floated a variety of measures to address the income gap, including raising the minimum wage, increasing taxes on the most highly paid executives, making it easier for unions to organize workers, and requiring negotiators to focus on the job and income impacts of international trade.

Mr. Bernanke acknowledged that growing income disparities are an important problem for Congress to address, and said many approaches can be considered to ensure everyone receives an equal opportunity to succeed and to provide social safety nets for those whose jobs and incomes are cut off by international competition.

“A bedrock American principle is the idea that all individuals should have the opportunity to succeed on the basis of their own effort, skill and ingenuity,” he said. “We also believe that no one should be allowed to slip too far down the economic ladder, especially for reasons beyond his or her control.”

But he cautioned against remedies that try to eliminate the disparity altogether.

“We do not guarantee equality of economic outcomes, nor should we,” he said. “Without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated” and economic growth would be sacrificed.

People with the best educations and skills have been able to command higher and higher incomes because of the increasing complexity of technology-driven jobs and businesses, while people with minimal education have had to compete with billions of workers around the world who have similar job skills — keeping their wages relatively flat, Mr. Bernanke said.

Evidence of the dramatic link between education and income is seen in the 75 percent gap between the average wages of college graduates and high school graduates and the 42 percent gap between those with high school degrees and those without them, he said.

Studies have documented that globalization — including both trade and immigration — puts pressure on the wages of low- and middle-income earners who compete with foreign workers even while trade and labor flows overall increase jobs and economic growth, he said.

Lower rates of unionization also accounted for between 10 percent and 20 percent of the increase in wage disparity among middle-income men in the 1970s and 1980s, he said.

But by far the largest factor causing inequality has been the skills gap.

Between 1979 and 2006, because of a combination of forces, the earnings of the top 10 percent of workers soared by 34 percent, while the wages of middle-income workers grew by 11.5 percent and the wages of the bottom 10 percent increased only 4 percent, he said.

Even taking into account extensive tax and spending programs that transfer income from the top earners to the bottom half, the disparities have grown, he said. The share of after-tax income enjoyed by the top fifth of workers grew to 50 percent in 2004 from 42 percent in 1979, while the share of those in the bottom fifth shrank from 7 percent to 5 percent.

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