updated 2/20/2004 2:45:13 PM ET 2004-02-20T19:45:13

Federal Reserve Chairman Alan Greenspan warned on Friday that “protectionist cures” being advanced to deal with the country’s job insecurities would make the situation worse.

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Entering the politically charged debate over U.S. service jobs being shipped overseas, Greenspan said that it was a lack of adequate educational training rather than “outsourcing” which posed the greatest threat to future American prosperity.

Greenspan, speaking to the annual meeting of the Omaha Chamber of Commerce, said that it was not surprising that there was a high level of job insecurity in the country at present when more than 2 million people in the work force have been unemployed for more than a year.

He predicted, as he did in congressional testimony last week, that the strengthening economy should lead to stronger employment growth in the months ahead.

“We have reason to be confident that new jobs will displace old ones as they always have,” Greenspan said, “but America’s job-turnover process is never without pain for those in the job-losing portion.”

The issue of jobs — how to create them, find them and keep them — has dominated the Campaign 2004 early primary season talk. Sen. John Edwards, now the chief challenger to front-runner Sen. John Kerry, has sought to highlight the issue repeatedly at various stops.

The Bush White House has backtracked on a forecast in the president’s economic report to Congress which said 2.6 million jobs should be created this year.

Greenspan, without referring directly to the political campaign or the individual candidates, said that the current anxiety about losing jobs to other countries is not new. There were fears about losing jobs to low-wage Japan in the 1950s and 1960s and to low-wage Mexico in the 1990s and more recently to low-wage China, he said.

However, Greenspan also said the recent migration of service sector jobs, such as employees working in telephone call centers, to India is a new phenomenon. But he cautioned that any answer that involved erecting trade barriers in this country would be wrong.

“The protectionist cures being advanced to address these hardships will make matters worse rather than better,” he said.

Greenspan said that “protectionism will do little to create jobs and if foreigners retaliate, we will surely lose jobs.”

He said the better approach was to intensify efforts to increase the skills of the U.S. work force, both in better instruction in such areas as math and sciences in high school, and increased support for community colleges, where much of the retraining of the work force occurs.

Both Kerry and Edwards have talked about the need to review such agreements as the North American Free Trade Agreement with Mexico and Canada to make sure that American workers are adequately protected.

Greenspan in his remarks also defended, without mentioning him by name, fellow economist N. Gregory Mankiw.

Mankiw, the chairman of the president’s Council of Economic Advisers, came under fire last week for saying that the outsourcing of U.S. service jobs was just another way of doing international trade.
Mankiw later apologized for remarks he said were misinterpreted and did not exhibit the proper amount of concern for the pain caused to laid-off U.S. workers.

In his comments, Greenspan recognized “a considerable gulf” between the views of economists, who point to the benefits of free trade, and those workers who have lost jobs to increased foreign competition.

“There is a palpable unease that businesses and jobs are being drained from the United States, with potentially adverse long-run implications for unemployment and the standard of living of the average American,” Greenspan said.

But he said that history showed “our economy is best served by full and vigorous engagement in the global economy.” He said the country has always managed to replace jobs lost to lower-wage foreign competition with jobs in more advanced industries and he predicted this trend would continue.

Greenspan said free trade lowers costs to consumers and promotes advances in productivity. He said the best way to help people benefit from that is to provide the best education system possible.

“Technology and, more recently, competition from abroad have risen to a point at which demand for the lowest skilled workers in developed countries is diminishing, placing pressure on their wages,” Greenspan said. “These workers will need to be equipped with the skills to compete effectively for the new jobs that our economy will create.”

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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