Advancements in technology and an increasingly globalised workplace mean there is more demand for higher-skilled jobs that require advanced degrees, Yellen said at a University of Baltimore commencement ceremony where she was set to receive an honorary degree.
Low-skilled jobs have been replaced by automation, and jobs requiring less education can be easily shifted overseas, Yellen said.
Yellen said: "While globalisation will likely continue and technology will continue to advance, we don't know how fast the economy will grow, what new technologies will be developed, or how quickly and consistently employment will expand."
Although the unemployment rate is at 4.6 per cent – near where it was before the recession – and job creation is continuing steadily, Yellen noted the economy is growing at a slower rate than it has in past recoveries.
While indications show wage growth is picking up, productivity growth, which influences wages, has been "disappointing", she said.
Yellen and other policymakers have said policy changes to improving education, training and workforce development are needed to raise productivity in the long-term, and this belief was evident in her speech to graduates.
"Economists are not certain about many things. But we are quite certain that a college diploma or an advanced degree is a key to economic success," Yellen said.
The dollar increased a few notches after Yellen's hawkish speech, rising 0.12 per cent to 103.07.