##ties by inhibiting these competitive forces. however, over the longer run such actions would slow innovation and impede the rise in living standards. they could not alter the eventual shifts in production that owe to enormous changes in relative prices across the economy. protectionism might enable a worker in a declining industry to hold onto his job longer. but would it not be better for that worker to seek a new career in a more viable industry at age 35 than to hang on until age 50, when alternative job opportunities would be far scarcer and when the lifetime benefits of additional education and training would be necessarily smaller? to be sure, assisting those who are already close to retirement in failing industries is an imperative. but that can be readily accomplished without distorting necessary capital flows to newer technologies through protectionist measures. more generally, we must ensure that our whole population receives an education that will allow full participation in this dynamic period of american economic history. no doubt, in your communities many workers may view the changing needs of their employers as a threat to the security of their job ; and perhaps students preparing to enter the workforce see the demand for rising skills as a hurdle too high to overcome with the limited resources available to them. you, as community leaders, can continue to explore ways of developing creative linkages between businesses and educational institutions to better prepare students for the rising demands of the workplace and to help workers, who must keep up with those changing demands and who must cope with the consequences of global competition, renew and upgrade their skills. as i indicated earlier, one notable aspect of the remarkable performance of our economy in recent years has been the substantial, and relatively broadly based, rise in real income. during the past several years, workers, including those at the low end of wage distribution, have seen noticeable increases in the inflation - adjusted value of their wages ; more comprehensive census bureau figures on the real money income of families also show gains in each quintile between 1996 and 1998, and presumably when the 1999 data become available further improvement will be evident. these recent increases for low - income workers, however, have not reversed the rise in wage inequality that occurred during the 1980s and early - 1990s when the gap in wages between those at the top and the bottom of the distribution was widening considerably. nonetheless, the leveling off in that disturbing trend is an encouraging sign of what can be achieved if we can maintain strong and dynamic labor markets accompanied by low inflation. of course, we need also to consider trends in wealth

decades. this development also should work to restrain price inflation. the shape of the recovery often in the past, very steep recessions, such as the one we have been through, are followed by sharp recoveries. as i noted at the beginning of my talk, i don ’ t expect that outcome this time ; instead, i think the most likely scenario is a gradual pickup in economic activity as the forces that got us into this difficult situation slowly fade away. first, although financial conditions are improving and capital markets are open for larger firms, credit remains unusually tight for many borrowers, especially consumers and smaller businesses that are dependent on banks. banks are still rebuilding their capital, and their lending will be held back as they work through the embedded losses in their portfolios, particularly for consumer and commercial real estate loans. beyond this challenge, some securitization markets are still impaired. as the economy improves and credit losses become easier to estimate, banks should be able to build capital from earnings and outside investors, and they will have greater confidence in the prospective profitability of lending. they will become more able and willing to compete for new business – in effect, allowing low market interest rates to pass through to more borrowers. these developments will induce more borrowing and spending, further improving the economy, but this process will take time. second, i do not expect that the recovery in housing construction will boost growth substantially this year, in contrast to its usual pattern early in economic recoveries. a large overhang of vacant homes is likely to weigh on new construction for some time, even though residential construction activity has declined dramatically since its peak in 2005 and inventories of unsold new homes have fallen to very low levels. in addition, the pace of foreclosures is likely to remain elevated for a while, adding to the stock of homes for sale. on the positive side, housing affordability is quite favorable, in part reflecting low mortgage rates, and house prices appear to be stabilizing. still, problems persist in housing, and i anticipate a relatively subdued pickup in housing starts over the coming year. third, households need to continue rebuilding wealth. they became too indebted and too dependent on housing wealth to finance current purchases and provide for future events like the education of their children and their retirement. now they need to repay debt and save more out of current income. in addition, restraints on consumer credit continue to hold down spending, and high unemployment and uncertainty have weighed on