Reich Says Jobs Fail to Offset Wage, Income Inequality : Labor: The secretary warns that workers without advanced skills are locked out of the middle class. He points to deepened divisions within the work force.

Rapid job growth since President Clinton took office has failed to offset growing wage and income inequality in the United States, as workers lacking advanced education and uneasy with new technology find themselves locked out of the middle class, Labor Secretary Robert B. Reich warned Wednesday.

Addressing the changing nature of the workplace on the eve of the Clinton Administration’s second Labor Day in office, Reich said that Americans who are not computer literate and do not possess other advanced skills have been walled off from the benefits of the economic recovery. In fact, he offered a decidedly mixed assessment of the status of the American work force, one far less upbeat than most economic pronouncements by the Administration.

Over the last few months, the White House has sought to focus public attention on the nation’s overall employment and economic gains that have come since January, 1993, and senior officials repeatedly have complained that the President has not received enough credit for his handling of the economy.

While Reich did note that the Administration deserves praise for the 4.1 million jobs generated since Clinton took office, the emphasis in his speech was still on the deep-seated structural problems in the American work force, which Clinton hopes to address with new training and educational initiatives.

Reich, in a speech to the Center for National Policy here, warned that the growing ranks of poorly educated workers is creating a new, “anxious class” of Americans whose traditional status as full-fledged members of the middle class has been eroded, perhaps permanently. High school dropouts no longer can expect to move easily into suburban lives on paychecks from high-paying assembly line jobs and often find themselves thrown back down the economic ladder.

“The fundamental fault line running through today’s work force is based on education and skills,” Reich said. “Well-educated and skilled workers are prospering. Those whose skills are out of date or out of sync with industrial change anxiously contemplate their prospects.”

Reich also noted that the “computer revolution” has deepened existing divisions within the work force. Two-thirds of college graduates use computers at work, compared with only one-third of high school graduates and fewer than 1 in 10 high-school dropouts.

As a result, the educational and technological demands of the new American workplace are driving a wedge between the haves and the have-nots in the economy. In 1979, a male college graduate earned 49% more than a male with only a high school degree. By 1992, that gap had grown to 83%.

“More recent data are not available, but there is no reason to believe this trend toward inequality has been reversed,” Reich said. “At every level of education and training, the pattern holds: The higher the skill level, the higher the earnings, and the gap has been growing.”

In a thinly veiled criticism of the Federal Reserve, Reich also complained that it is wrong for policy-makers to worry that the rapid pace of job creation over the last year is generating inflationary pressures in the economy. “In a seeming paradox of today’s economic news, financial markets fret that unemployment is too low to contain inflation, even while 8 million American workers remain jobless,” Reich said.

Federal Reserve officials privately have argued that the unemployment rate is now so low that it has forced them to raise interest rates to avoid an inflationary flare-up. The nation’s central bank has hiked interest rates five times this year in its controversial, preemptive strike on inflation.

Officials of the central bank now believe, in fact, that the unemployment rate cannot go much below 6% without resulting in a threat from rising prices.

The nation’s jobless rate in July was 6.1%, and so Fed officials believe the rate has just about fallen to the level at which further reductions will lead to rising inflation--what economists call the “natural rate of unemployment.”

But Reich said that the Fed’s inflation-fighting strategy ignores the fact that a “wasted work force is walled off by skill barriers from the leading edges of the economy where capacity constraints loom.”

In a rebuke to the Fed’s concept of a “natural rate of unemployment,” Reich added: “There is no fixed number of good jobs to be parceled out, nor any natural limit to the ingenuity of the human mind and the new products and services it can concoct.”

Reich’s indirect attacks on the Federal Reserve seemed to put him sharply at odds with the White House, which has tried to avoid publicly criticizing the nation’s central bank for fear of losing credibility on Wall Street.

What’s more, Administration economists, led by Laura D’Andrea Tyson, who chairs the White House Council of Economic Advisers, generally agree with the Fed that there is a “natural rate of unemployment.”

Tyson argues that the rate may be slightly lower--around 5.7%--but has refused to complain about the Fed’s increasing reliance on that barometer.