One of the long-run economic challenges facing the US is the need to ensure that the American workforce is equipped with the requisite skills to compete effectively in an environment of rapid technological progress and global competition, chairman of the Federal Reserve Alan Greenspan told the Senate Banking Committee in Washington on Wednesday.
Technological advance is continually altering the shape, nature, and complexity of the economic processes.
But technology and, more recently, competition from abroad have grown to a point at which demand for the least-skilled workers in the United States and other developed countries is diminishing, placing downward pressure on their wages, he said.
"These workers will need to acquire the skills required to compete effectively for the new jobs that our economy will create," Greenspan said.
"At the risk of some oversimplification, if the skill composition of our workforce meshed fully with the needs of our increasingly complex capital stock, wage-skill differentials would be stable, and percentage changes in wage rates would be the same for all job grades."
"But for the past twenty years, the supply of skilled, particularly highly skilled, workers has failed to keep up with a persistent rise in the demand for such skills.
Conversely, the demand for lesser-skilled workers has declined, especially in response to growing international competition," Greenspan said.
"The failure of our society to enhance the skills of a significant segment of our workforce has left a disproportionate share with lesser skills. The effect, of
course, is to widen the wage gap between the skilled and the lesser skilled," he told the Committee.
In a democratic society, said Greenspan, such a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarisation.
These social developments can lead to political clashes and misguided economic policies that are detrimental to the economy and society as a whole.
Strengthening elementary and secondary schooling in the United States -- especially in the core disciplines of math, science, and written and verbal communications -- is one crucial element in avoiding such outcomes.
"We need to reduce the relative excess of lesser-skilled workers and enhance the number of skilled workers by expediting the acquisition of skills by all students, both through formal education and on-the-job training," he said.