(FORTUNE Magazine) – IN THE COMPASSION-PACKED Sixties and Seventies, welfare became a right, checks became grants, and social workers turned into ''human services technicians.'' But now the buzzword in the welfare bureaucracy is workfare -- the array of programs that make people work or accept training in return for checks. With the federal and state governments looking to cut the $31 billion they are expected to spend on welfare programs this year, welfare reform is nearing the top of the national agenda. Five years of trial have turned up problems in workfare. But it is still a good idea -- and can be made better. To many people workfare means requiring welfare recipients to work for welfare payments in government-assigned jobs. In reality it is much more elaborate. Most states give welfare recipients a choice: Look for a job, go to school, or attend job-hunting classes in return for checks. This flexibility has led many administrators to prefer the term ''welfare employment.'' Though workfare programs are still experimental, they are widespread. Like welfare, they are administered by states and counties. Thirty-nine states run workfare programs for recipients of Aid to Families With Dependent Children (AFDC), the $9-billion-a-year federal program for poor single parents, overwhelmingly mothers. In most states, food stamp recipients must also hunt for jobs, and the federal government, which provides the stamps, will require all 50 states to set up education and training programs for food stamp beneficiaries by next spring. President Reagan wants to make some form of workfare mandatory for all able- bodied participants in AFDC and a related program for poor families in which at least one parent is unemployed; the law would exempt parents with very young children. But experience makes it clear that Reagan is wrong: It is too early to mandate workfare at the federal level. While the states' experiments are encouraging, legislators don't yet know enough about how workfare programs should be run. The Administration estimates that its proposal would save $52 million of federal money in the first year, but most states oppose the plan. They think they would have a hard time getting 75% of AFDC recipients on workfare, as the plan requires, and grouse that the federal savings will come at the states' expense. When Congress authorized the states to try workfare programs for AFDC recipients in 1981, it agreed to pass 90% of the administrative costs to the federal government. Under the Reagan plan, Washington will pay only half the bill for setting up workfare programs. But it will enjoy as much as 75% of the savings because most welfare recipients who get jobs stop receiving federal food stamps, Medicaid, and housing benefits. So far workfare programs do appear to save the government money and help welfare recipients find jobs. But most AFDC workfare programs involve only a small part of states' welfare caseloads. Full-scale programs will be more complicated and expensive. It is also too soon to tell whether workfare program alumni who find jobs will keep them. The Manpower Demonstration Research Corp., a New York-based independent nonprofit organization that evaluates poverty and employment programs, is studying welfare employment in 11 states. It has found that the states can reduce spending by propelling welfare recipients into the work force. The MDRC's studies compare the employment rates -- the percent of people who find jobs -- for workfare program graduates with those of a control group of welfare recipients. Results: Employment rates for workfare graduates were three to eight percentage points higher than for other welfare recipients. In addition, by finding jobs workfare alumni increased their incomes -- in one group by 36% over the control group's. Eighteen months after the studies began, the MDRC found that about a third of the workfare group were employed. WHEN THE MDRC weighed the costs of running workfare programs against the savings in AFDC outlays, it found that most states came out ahead. The reductions in AFDC outlays ranged from almost none in Maryland to 11% in Arkansas; in most cases they were 5% to 8%. These calculations do not include the drop in payroll costs when welfare recipients are assigned to useful public work, a common practice. Says Judith M. Gueron, president of MDRC: ''Workfare is not a shortcut to balancing the budget. But the savings can be significant.'' If workfare's achievements seem modest, consider the difficulties. Research in 1983 by professors Mary Jo Bane and David T. Ellwood of Harvard University concluded that about half the women on welfare were unmarried mothers, high school dropouts, or others without recent work experience. They may be the daughters and granddaughters of women who spent much of their lives on welfare. They may not know anyone who has held a steady job. They may be housewives whose lives are turned topsy-turvy by divorce. Bane and Ellwood found that these women tend to stay on welfare the longest -- an average of eight years -- and account for most government welfare spending. The world of work is alien to many of them; they have little reason to believe they can compete for jobs, and they are paralyzed by fright. A good example is Julie A. Williams, 32, of Little Rock, Arkansas. She dropped out of high school at 16 and has two daughters and an unemployed husband. Although she received a high school equivalency certificate in 1972, she has been on and off the welfare rolls for years. She was, she says, ''a hopeless case. I got drunk by day. I just didn't give a damn.'' She received $370 a month in food stamps and AFDC benefits and sold her blood at the North Little Rock Plasma Center to help make ends meet. She had not worked for four years when, in 1985, she registered for Arkansas's workfare program in order to continue receiving benefits. After being trained as a phlebotomist, Williams got a job in May at the North Little Rock Plasma Center -- now she draws donors' blood. The starting pay was about $400 a month, but Williams has already received a $234 raise. ''I get up at 4:30 A.M., catch the bus at 5:40, and am in here by 6:50,'' she says. She believes she is setting a better example for her daughters than she did as a welfare mother. ''My children love it. They say, 'I want to do that when I grow up.' '' Getting off welfare also improved Williams's relationship with her mother. ''We hadn't spoken in 15 years because she thought I'd be a tramp all my life,'' she says. ''Now we're talking. I have never felt so well about myself.'' Arkansas's programs and others suggest that workfare works best when participants can choose what they will do in return for their checks. Welfare recipients, like most people, want to feel some control over their lives. They participate more willingly when given a choice than when, as Norma Hill, a welfare mother from San Diego, puts it, government agencies are ''pulling your strings.'' Many choose education, and as a practical matter they need a high school diploma or other training before looking for jobs. MOST WORKFARE programs require AFDC recipients whose youngest child is 6 or older to participate, paying them additional stipends for child care and transportation. Women who do not go back to school start off job hunting; many states' welfare offices provide phones and Yellow Pages to help locate potential employers. Thelma McDaris, 24, recently spent a week calling from a welfare office in San Diego; now she calls from home. She has not found a job but lauds the program, which she says gave her self-confidence -- ''and it comes over on the phone.'' Poor states such as Arkansas and West Virginia cannot afford to give job hunters much help, but in richer states the search phases of workfare programs are quite elaborate. Some offer one- or two-week job-hunting workshops that teach welfare recipients how to fill out applications, write resumes, and answer such questions as, ''Why have you been out of work so long?'' A recommended answer: ''I was married and taking care of my family and my home.'' In San Diego and elsewhere, students in job-search workshops hone their interview skills by watching themselves in mock interviews on videotape. Often a state puts job-hunting welfare recipients into a job club, a sort of therapy group in which peers offer motivation and moral support. In San Diego when a job club member tells the group she has found employment, the group leader, a social worker, rings a cowbell.

Some job club members find that a little hokey. But for Barbara Norris, 44, a mother of five who went on welfare after her husband of eight years walked out, the ringing of the bell signified a giant achievement. Until she took a short-term workfare assignment as a junior clerk in the county welfare office, Norris had never been anything other than a housewife. The welfare office was impressed with her performance and gave her a permanent job, and the three- month-old memory of that ringing cowbell still brings tears to her eyes. ''It meant,'' says Norris, ''that I did it. I did it.'' Norris's workfare job in the county welfare office is typical. These jobs are not menial or make-work: Welfare mothers toil as file clerks and receptionists in community outreach centers; as teachers' assistants in government-funded day-care centers and schools for the mentally retarded; as billing clerks in public hospitals. Participants continue to receive welfare checks but are not paid. In states that offer AFDC for couples, many workfare jobs go to men, who work as mechanics or maintenance men in housing projects and state parks. A few states go further. In Chicago the Illinois Department of Public Aid and a local nonprofit organization recently collaborated to launch a window shade and screen manufacturing company staffed by welfare mothers, who can eventually earn equity in the for-profit enterprise. Massachusetts welfare administrators believe their employment program, ET Choices (ET stands for employment and training), may be one of the most successful in the country, though it is not really a workfare program. Reason: It does not require welfare recipients to accept training or take workfare jobs but merely offers them training as word processors, electronic technicians, medical secretaries, and more. The state contracts with private training organizations and the local employment office to rustle up real jobs for ET graduates. That has not been too hard, since Massachusetts has experienced a high-tech miniboom in recent years, and unemployment is only 3.9%, vs. 6.8% nationally. Since ET's inauguration in October 1983, 30,000 graduates have found jobs, and state officials hope to nearly double the figure by 1988. Dorothy Hayman, for example, is a mother who was on and off welfare for many years before enrolling in ET and being trained as a surgical technician. She now works full time at Beth Israel Hospital in Boston. The Massachusetts Department of Public Welfare estimates that by getting welfare mothers off the dole it will reduce federal and state expenditures for AFDC benefits by $188 million, outlays for food stamps by $31 million, and spending on Medicaid by $24 million between 1983 and 1988. It also believes that the graduates who go to work will add $43 million to state and federal coffers in income and sales taxes. Massachusetts spent $71 million on ET during its first two years but figures it racked up gross savings of $223 million during that time. Though the figures seem impressive, they are more than a trifle inflated. Massachusetts has not compared the ET graduates with a control group and is claiming savings from thousands of employed welfare recipients who probably ; would have found jobs anyway. The numbers that state officials like to toss around also tend to distort the program's success, since only 31% of welfare recipients participated in ET. But the income levels of ET graduates really are impressive. Those who found full-time jobs during the first half of the year received an average annual starting salary of $12,000 vs. an average annual AFDC grant of about $5,000. Canny bureaucratic incentives help push up the starting salaries. Until recently the welfare department paid the employment department a bounty of $1,100 for each job it found for a welfare recipient, plus a $100 bonus if the job paid $5 per hour or more. Now it has upped the ante: It will fork over the $1,100 only for jobs that pay $5 an hour or more and only if the person is still on the job after 30 days. Why is the Massachusetts welfare department in the bounty business? Because a welfare recipient might turn down a minimum-wage job or soon give it up. Since states may augment federal funds for AFDC benefits, choosing welfare over a low-paying job may be a rational economic decision. In California, one of the most generous states, Norma Hill could net $533 a month for a minimum- wage job, but as a mother of three she can collect at least $860 a month in AFDC benefits and food stamps and perhaps bolster that with a federal housing subsidy. MASSACHUSETTS officials estimate that when administrative, training, and bounty costs are taken into account, it spends an average of $3,800 to place ET graduates in jobs. Charles M. Atkins, the state welfare commissioner, says these placement costs will probably increase. Like most workfare programs, ET has placed the most easily employable in jobs first. The test of ET and other programs will be whether they can put long-term welfare recipients, who account for most government welfare spending, into jobs at a reasonable cost. State welfare administrators worry that they will lose federal funding for workfare programs before they can determine workfare's long-term potential. WIN (for Work Incentive), the federal program that helps fund most state workfare projects, is a perennial target for budget cutters. In August the Senate Appropriations Committee voted to kill funding for the WIN program (1986 budget: $210 million), and states are worried that Congress may not restore funding before it recesses for the fall elections. Since the Reagan Administration's workfare proposal would mandate nationwide workfare, it would eliminate WIN. Congress should give states a few more years to continue the workfare experiments and should come up with the money to let them. The states have been sloppy and inconsistent in their attempts to measure workfare programs' performance; Congress should set data standards so it can compare results in different states to determine which workfare programs work best. Until then it is hard to be sure of much about workfare, except that it's an idea worth pursuing.