March 13 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said allowing more skilled immigrants to work in the U.S. would help keep the income gap from widening.

Inequality of incomes is the ``critical area where capitalist systems are most vulnerable,'' Greenspan said today in Washington at a conference on maintaining the competitiveness of U.S. capital markets convened by Treasury Secretary Henry Paulson. ``You cannot have a system that we have unless the people who participate in it believe it is just.''

Allowing more skilled workers into the country would bring down the salaries of top earners in the U.S., easing tensions over the mounting wage gap, Greenspan said.

``Our skilled wages are higher than anywhere in the world,'' he said. ``If we open up a significant window for skilled workers, that would suppress the skilled-wage level and end the concentration of income.''

Income inequality has risen in the past three decades.

In 1976, the lowest fifth of wage earners commanded 4.4 percent of U.S. earnings, while the top fifth received 43.3 percent. By 2005, the last year of data available at the Census Bureau, the share going to the lowest fifth had fallen to 3.4 percent, while the share of the top group had risen to 50.4 percent.

Kathleen Newland, director and board member of the Migration Policy Institute, a Washington-based think tank that is partly funded by the Ford Foundation, said she was skeptical of Greenspan's proposal.

``In theory, increased skilled immigration should help contain wage rises at higher levels, but there is little empirical evidence,'' she said. ``If you want to reduce political concern, it would be better to deal with the problem by helping to raise the wages of the lowest earners, by helping to improve productivity and raising the minimum wage.''

Faults Schools

Greenspan did say that an inadequate education system in the U.S. had exacerbated income inequality.

``By the time they get to high school, they are at the bottom of the international heap,'' he said. ``Our education system takes a big hit'' as responsible for the income gap, he said.

To contact the reporter on this story: Christopher Swann in Washington at cswann1@bloomberg.net

Last Updated: March 13, 2007 16:19 EDT