Greenspan sees slow, steady job growth

Federal Reserve Chairman Alan Greenspan told Congress yesterday that he expects job growth to keep accelerating, but only gradually because businesses remain unusually reluctant to hire new workers.

The scarcity of jobs and income continues to spook consumers, and Congress has added to their worries by not extending jobless benefits for about 2 million people who have been out of work for more than six months and are experiencing hardships, he said at a hearing of the Joint Economic Committee.

“The anxiety that many in our work force feel will not subside quickly,” he said, though “the pace of hiring should pick up on a more sustained basis” as confidence grows among businesses that the economic recovery is a lasting one.

He noted that about 85,000 people are exhausting their jobless benefits each week while long-term unemployment has crept up to a 20-year high.

“It’s an exceptionally high number,” he said. “Our unemployment insurance system has been crafted and has evolved in a way which seems to me as close to optimum as you can make such a system. It does not encourage undue unemployment by creating excess benefits.”

Congress’ extended-benefits program expired in December. Efforts to renew it have been blocked by House Republican leaders, despite support from President Bush and the Senate.

While all signs are the expansion continues to be “vigorous,” few jobs have been created and income growth has come to a near standstill because businesses continue to cut jobs and benefits where they can to boost productivity and plump up profits, Mr. Greenspan said.

To help workers adjust to the slow recovery in the job market, he urged Congress not only to extend jobless benefits, but to broaden worker-retraining programs so that all workers displaced by technology and trade are eligible.

“We ought to assist those who, through no fault of their own, happen to be in industries which are under significant international competitive pressure,” he said. “I think that ought to be a priority in this nation.”

Mr. Greenspan stressed that it is difficult and ultimately futile to distinguish between workers who lost their jobs because of foreign competition and those who are displaced by improved technology or for other reasons.

“It doesn’t matter why they lost their job,” he said. “A job loss is a job loss, and people have got to get to the next job” through retraining, he said, urging that the educational system be reformed and geared to help those workers.

Mr. Greenspan was skeptical of proposals that try to prevent corporations from shifting jobs overseas through a system of tax incentives and penalties, such as that proposed by Massachusetts Sen. John Kerry, the presumptive Democratic presidential nominee.

“I’m not sure it works,” he said, predicting that, instead of preserving jobs, it might cause jobs to “disappear.”

In testimony before the Senate Banking, Housing and Urban Affairs Committee Tuesday, Mr. Greenspan expressed concern about an increasing concentration of income among the nation’s top earners, which he said “is not good for a democratic society.”

The bulk of income is going to relatively few people, including not only executives whose pay has been soaring, but also to the most highly skilled and educated workers, who are in the greatest demand, he said.

That has left “a large number of people below the median income whose real wages have not changed at all over the last 20 years” — mostly those who have little education or skills, he said.

The growing disparity of incomes between the skilled and unskilled is another reason Congress should focus on improving the education and training system for workers, he said.

Analysts said Mr. Greenspan’s emphasis on the plight of jobless workers in yesterday’s testimony suggests he remains reluctant to raise interest rates, despite a modest pickup in inflation.

Stocks and bonds plunged on Wall Street Tuesday after Mr. Greenspan noted the uptick in prices, out of fear that the Fed might soon raise rates. The markets greeted yesterday’s testimony more calmly.

“How can the Fed justify a near-term rate hike with labor market conditions in such dismal straits?” said Richard Yamarone, an economist with Argus Research Corp.

“The deleterious effects of unemployment” have taken a toll on consumer confidence, he said, which worries the Fed.

Mr. Greenspan pointed out that depressed wages and benefits, while hurting consumers, also help to keep prices low and are a major reason the Fed is not worried about a rapid acceleration of inflation.

In addition, workers’ productivity continues to grow rapidly, enabling businesses to keep prices low. As long as that continues, inflation should remain under control, he said.