CONCEPTUAL ISSUES IN COST/BENEFIT ANALYSIS OF WELFARE-TO-WORK PROGRAMS

During the 1980s, a number of states operated welfare-to-work programs on a demonstration basis and subjected these demonstrations to formal cost/benefit evaluations. This paper examines the evaluators' methods and summarizes and interprets their findings. Cost/benefit analysis of welfare-to-work programs can provide a rough but useful assessment of a program's efficiency in reducing welfare caseloads. But the evaluation results are more difficult to interpret than they may appear to be. For example, the results typically imply that such programs produce small net gains to society when gains and losses are measured in terms of net income. However, a sensitivity analysis measuring net gains and losses to welfare recipients in terms of changes in net utility suggests that an important modification to the evaluators' methodology might well reverse this finding in many instances. Copyright 1992 Western Economic Association International.