(FORTUNE Magazine) – Picture it: sparkling lakes, majestic mountains, horse trails, a beautiful lodge, and 120 or so dismal economists. Okay, so it's not everyone's idea of fun, but the annual gathering of leading economic thinkers and policymakers at Jackson Hole, Wyoming, is credited with producing some groundbreaking ideas over the years. So what new insights did this year's get-together, held in the last week of August, produce? Stanford University economist Paul Krugman told the attendees, including Fed chairman Alan Greenspan, that efforts to reduce sharp wage disparities in the U.S. labor force aren't working. Americans who have raised their productivity by riding the rapid technological advances of the past two decades have been well rewarded, Krugman said, while those left behind are suffering. To remedy the problem, the Clinton administration touts retraining. But Krugman argued that such programs have done little to increase trainees' productivity -- hence no pay raises. Improving the educational system might work over the long run, he said, but much income inequality is not linked to formal education; the wage gap between people with similar backgrounds has also been growing. For proof that welfare is no answer, Krugman pointed to Europe, where a strong social safety net supports the incomes of low-productivity workers. But the required heavy payroll taxes there have created large disincentives to hire. Hence, the unemployment rate -- currently 11% -- not only is far higher than in the U.S., but has also been trending up since the 1970s while the average U.S. rate has been flat. Neither Europe's vaunted educational system in general nor Sweden's massive retraining program in particular has prevented high unemployment, Krugman noted. Instead of training, Krugman's research suggests that cutting unemployment insurance might help. Employers facing a lower tax would then hire more low- productivity workers at higher wages. Another Jackson Hole speaker, Northwestern University economist Dale Mortensen, generally concurred, adding that by reducing unemployment benefits to three months from six in the U.S., the unemployment rate would be sliced by more than half a point and most workers' incomes would rise, along with national output. Lawrence Katz, the departing chief economist at the Labor Department, not surprisingly was more upbeat about the success of current job training efforts. He cited several projects that demonstrated a close connection between training and better wages, such as tightly focused, work-oriented programs for the disadvantaged, especially those employing "tough love" tactics. Still, the overall record on job training is checkered. And even though economists believe radical change could correct some major deficiencies, they readily admit that major revisions in the current system won't be politically doable until the widening income gap becomes a crisis. Says Krugman: "It will take rioting in the streets."