Greenspan Hits Both Extremes of Wages
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Fed Chairman Takes Poke
At 'Golden Parachutes,'
Minimum-Wage Plans
By Michael M. Phillips
02/25/1999
The Wall Street Journal
Page A2
(Copyright (c) 1999, Dow Jones & Company, Inc.)

WASHINGTON -- Federal Reserve Chairman Alan Greenspan took a swipe at both ends of the wage spectrum yesterday: He poked overpaid corporate executives and dismissed proposals to raise the minimum wage.

Mr. Greenspan said shareholders are "wasting their money, in many respects" by providing "golden parachutes" that allow unsuccessful executives to leave with their pockets full.

"I find a lot of what is being paid to individual CEOs not directed to the value that they are producing for their shareholders, who are paying the bill," Mr. Greenspan told the House Banking and Financial Institutions Committee. He didn't specify whom, if anyone, he had in mind.

At the same time, Mr. Greenspan warned that raising the minimum wage would result in a wave of teenage unemployment. "I still think it's a bad idea," he said. The federal minimum wage rose during 1996-1997 to $5.15 from $4.25, and President Clinton has proposed a $1 increase. With the jobless rate at a low 4.3%, employers might be willing to pay more, Mr. Greenspan said. But he predicted that as soon as the red-hot U.S. economy cools, they will cut their least productive minimum-wage workers.

Mr. Greenspan's comments, in the second day of his semiannual Capitol Hill testimony on the state of monetary policy, came in response to thrusts from Vermont Rep. Bernie Sanders, the House's only Independent and one of its most outspoken liberal voices.

"What we're seeing is CEOs now make 200 times what workers make," Mr. Sanders lectured the Fed chairman. "You're expressing your concern about raising the minimum wage over $5.15 an hour, but I would hope we would see that same concern about CEOs . . . getting golden handshakes worth tens and tens of millions of dollars."

Mr. Greenspan's response: "Well, in both cases, I'm arguing that the government should not be involved. . . . I'm being consistent in that respect."

Lawmakers questioned Mr. Greenspan about a range of economic issues, including Levi Strauss & Co.'s announcement this week that it would lay off 5,900 workers as it ships more of its production abroad.

Mr. Greenspan blamed the bad news on long-term economic trends-low-tech jobs are heading to poor countries while U.S. workers take on more-skilled positions. He advised against using trade restrictions to preserve doomed industries, and said the government should instead help those who lose their jobs to qualify for more durable employment.

"How does one address the hardship that is created in these circumstances in a manner which does not distort the desirable moving of assets from one area to another?" he said.

Mr. Greenspan also discussed the languishing farm economy, which has been hit hard by low prices for wheat, soybeans and other commodities. He said U.S. farmers have been squeezed by crumbling demand from troubled Asian economies and the dollar's strength compared with the currencies of its biggest agricultural competitors, Canada and Australia. A strong dollar makes U.S. exports relatively expensive.

"My own judgment is that, short of a significant building back of exports, it's going to be difficult to work through this particular problem," Mr. Greenspan testified.

The chairman reiterated his opposition to French and German proposals to limit the movement of the world's major currencies -- the euro, dollar and yen. At a meeting of officials from the Group of Seven major industrialized nations in Germany last weekend, Mr. Greenspan and Treasury Secretary Robert Rubin quashed that idea, arguing that making exchange rates the top policy priority would put dangerous constraints on the Fed's ability to use interest rates to stimulate economic growth or stem inflation.

More-stable exchange rates are desirable, Mr. Greenspan said, but they're best achieved by pursuing sound economic policies. "There is nothing more relevant to maintaining stable exchange rates than maintaining stable prices," he said.

Journal Link: For a video report of Alan Greenspan's comments to the House Banking Committee, see The Wall Street Journal Interactive Edition at http://wsj.com