Increasing technological gains will bolster workers’ output and allow them to receive higher wages without causing inflation to accelerate, Federal Reserve Chairman Alan Greenspan said this week.
The explosion of computer-driven changes in the workplace, while leaving many workers already in a state of future-shock, have only just begun, Greenspan told the Economic Club of Grand Rapids.
“Full exploitation of computer technologies–the analog of what was accomplished in making cars that were affordable, standardized, and easily operated–probably still lies ahead,” Greenspan said. “We still may not have progressed very far relative to potential.”
Greenspan’s views are important because interest rates are the Fed’s main weapon in controlling inflation. If the Fed does not consider inflation a threat, it is not as likely that interest rates will increase.
Greenspan repeated earlier statements that the Fed must keep inflation in checks. “Efforts of the Federal Reserve to bring inflation to heel have met with considerable success,” he said, referring to prices that have increased about 2.7 percent annually in recent years. Retail prices rose just 0.1 percent in September and at a 2.8 percent yearly rate in the first nine months of 1995.
At the same time, Greenspan differed with some analysts’ who say the war on inflation “is now complete and that central banks can relax.”
Inflation always remains a threat, and “past successes will not count for much if we mistakenly let down our guard,” he said. “Price stability is widely recognized as a key ingredient of successful economies, a necessary precondition to the achievement of other economic objectives.”
As computer technology spreads through the workplace and into people’s homes, it will bring efficiencies that will help to contain price increases and permit Americans to receive greater purchasing power without causing prices to soar, Greenspan said.
“A significant minority of our labor force has experienced real wage decreases, and this development surely is one factor in the unease that is evident” among the American public, Greenspan said.
As more workers gain technological skills, the growing gap between incomes of the well-educated and others will shrink, he said.
And growing computer-generated advances will allow all workers to have greater purchasing power, he said. While workers’ wages haven’t risen sharply in recent years, over decades “there has been a very strong tendency for the real hourly compensation of workers to move up in step with increases in labor productivity.” he said.
“Competitive forces in the labor market almost surely will bring about a re-emergence of the long-established trends at some point in the not-too-distant future,” he said.
Greenspan’s comments suggest that when workers’ wages begin to grow faster, he wouldn’t automatically decide the Fed must raise interest rates to curb economic growth and wage increases out of a misplaced fear that wage increases will accelerate inflation.
If workers’ wage gains are matched by increases in worker productivity, higher wages wouldn’t be an inflation danger.
Greenspan’s comments came after a Labor Department report showed that worker output rose at a 4.9 percent yearly rate in the third quarter, while hourly wages rose at just a 3.1 percent clip. Over the year ending in September, worker output increased 4.8 percent as the labor cost in each product increased just 0.3 percent.
Greenspan provided a boost for President Bill Clinton’s statements that worker skills must be improved to help raise living standards.
“Better child-rearing and better schools are essential” to that goal, Greenspan said. And “in the shorter run, on-the-job training is a critical necessity.”
Clinton objects to congressional moves to cut funds for eduction, for job training, and other programs to help people land better jobs.
