Bernanke Warns Of Growing Income Inequality

Polices need to focus on education and job training.

Federal Reserve chairman Ben Bernanke said earlier this week that the U.S. economy faces a growing rich-poor gap that is "a major challenge for economists and policymakers," and urged more training and education for those in the lowest ranks.

"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," Bernanke said in remarks prepared for delivery in Omaha, Nebraska. "Equality of economic opportunity appeals to our sense of fairness, certainly, but it also strengthens our economy."

But the Fed chief said income inequality has been growing in the U.S. for decades.

He cited a congressional study showing the share of after-tax income for the households in the top one percent of the income distribution increased from 8% in 1979 to 14% in 2004.

Bernanke said a variety of factors including globalization and new technologies have contributed to the change in income distribution. He said it remains unclear how policymakers can address inequalities while retaining economic incentives. "Policy approaches that would not be helpful, in my view, are those that would inhibit the dynamism and flexibility of our labor and capital markets or erect barriers to international trade and investment," he said.

"A better approach for policy is to allow growth-enhancing forces to work but to try to cushion the effects of any resulting (job) dislocations. For example, policies to facilitate retraining and job search by displaced workers, if well designed, could assist the adjustment process."

"The challenge for policy is not to eliminate inequality per se but rather to spread economic opportunity as widely as possible," he said. "Policies that focus on education, job training, and skills and that facilitate job search and job mobility seem to me to be a promising means for moving toward that goal. By increasing opportunity and capability, we help individuals and families while strengthening the nation's economy as well."

Copyright Agence France-Presse, 2007

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