This document explores selected issues related to connecting welfare reform initiatives and the literacy movement and provides basic information about literacy education and its economic impact. Literacy is defined, and similarities and differences between adult basic education, adult secondary education, and English-as-a-Second-Language programs are explained. Literacy levels among various segments of the U.S. population and the relationship of literacy to labor market success are discussed. Examined in an overview of federal literacy policy are eight major literacy, welfare, and job training programs and the legislation authorizing them. Discussed next are client characteristics, funding/costs, sponsors, instructors, instructor training, and effectiveness. The functional context approach to literacy education and programs integrating literacy and job skills are highlighted. Seven two-generation and family literacy programs are described, and lessons learned from eight field demonstrations are summarized. The challenges of connecting the adult education and welfare systems and promising programs in three states are identified. Appended are the following: descriptions of efforts to integrate literacy education into welfare reform programs in California, New Jersey, and Ohio; descriptions of major national literacy organizations; and data on funding and earnings impacts of literacy education. Contains 77 references. (MN)