Will welfare reform put more people to work? Skeptics have their doubts, arguing that the U.S. economy has little need for unskilled workers.
But a new study by Macroeconomic Advisers LLC, a St. Louis economic consulting firm, gives grounds for optimism. The firm looked at Illinois, Michigan, Oregon, and Wisconsin, which have had aggressive welfare-to-work programs starting as far back as 1992. In that year, the percentage of adults with jobs--the so-called employment ratio--in the four states was roughly the same as the national average.
By the end of 1996, the employment ratio in the welfare-reform states had jumped to 66.2%, a big step above the national average of 63.4% (chart).
The added workers provided by welfare reform also enabled these four states--which in 1996 had an average unemployment rate of 4.9%, lower than the 5.4% national average--to maintain their strong growth without igniting inflation. The implication is that national welfare reform may help suppress inflation, even at low unemployment rates.