Measures to curb outsourcing of American jobs to lower-wage countries like India and China may provide temporary relief, but it would backfire on the United States, Federal Reserve Chairman Alan Greenspan has said and warned that restrictions on free trade would also hurt US standards of living.

"A new round of protectionist steps is being proposed (against outsourcing). These alleged cures would make matters worse rather than better," Greenspan said testifying before the House of Education and Workforce Committee on Friday.

• India and Outsourcing: Complete Coverage

Greenspan acknowledged rising concerns 'about the possibility that an increasing number of our better-paying white-collar jobs will be lost to outsourcing, especially to India and China.'

But he repeated his warning against protectionism, saying restrictions on free trade would hurt US standards of living.

"As history clearly shows, our economy is best served by full and vigorous engagement in the global economy," Greenspan said.

"Consequently, we need to increase our efforts to ensure that as many of our citizens as possible have the opportunity to capture the benefits that flow from that engagement."

Greenspan said efforts to protect US jobs through legislation could end up backfiring.

"We do have a choice. We can erect walls to foreign trade and even discourage job-displacing innovation. The pace of competition would surely slow, and tensions might appear to ease. But only for a short while," he said.

"Our standard of living would soon begin to stagnate and perhaps even decline as a consequence. Time and again through our history, we have discovered that attempting merely to preserve the comfortable features of the present, rather than reaching for new levels of prosperity, is a sure path to stagnation."

Greenspan said he recognised a 'palpable unease that businesses and jobs are being drained from the United States' as a result of the globalisation and the accelerated pace of innovation in the economy. And he acknowledged a 'large gulf' between the arguments of economists pointing to the long-term benefits of free and open trade and the stress felt by displaced workers.

Greenspan urged renewed commitment to adapting the US educational system to the evolving needs of the economy. Education and training, he said, are a 'critical element' of any move in that direction.