From Dole To Payroll

Welfare reforms boost employment

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.