Welfare Reform in a free market economy

As Alan Greenspan moves closer to retirement there are some lessons to be learned from his tenure at chief officer of our central bank.

In the late 90s Greenspan directly challenged economic orthodoxy by not raising interest rates when unemployment edged towards 4%. Orthodoxy stated that unemployment that low would cause inflation. But, Greenspan gambled that it wouldn't and he was right.

Of course unemployment figures too much below 4% - say, 1% - would most certainly cause inflation, which of course would pose a direct challenge to wealth accumulation. There is another economic risk with too low of an unemployment rate: the ability of employers to find and hire the most qualified applicant for any given job. If unemployment were at or near even 1% then employers would have to take whatever live body responded and hope the applicant would prove useful. By the same token the existance of at least a small unemployment rate is a benefit to prospective employees because it allows them to find and accept the job they feel best suits them and their needs.

Given the fact that to thrive a free market/capitalist economy requires at least some unemployment, what then should society's reaction to unemployment be?

Does the Conservative's advocacy of Welfare Reform equal "compassionate conservatism"?