His controversial view, expressed in a television programme to be shown on Thursday, comes in the wake of official figures showing that more than six in 10 black men in London between the ages of 16 and 25 are out of work.
At the launch of a report by the CRE last week, Mr Ouseley, its first black chairman, attacked the top "decision-makers" in government and the private sector for making it far more difficult for members of ethnic minorities to find work.
But his own critics contend that by introducing a workfare system he would be punishing blacks disproportionately for a situation largely beyond their control.
The figure of 62 per cent of young black men out of work in London came from a Labour Force Survey conducted last summer and disclosed in a parliamentary answer last week.
Mr Ouseley reveals his support for workfare in a "fantasy politics" programme on Channel 4, The Number 10 Show, in which he says what he would do if he were Prime Minister.
To test his opinions on unemployed people he went to the Tabernacle youth centre in Notting Hill, west London, where he was involved in an animated exchange with a young black man.
He asked the young man: "If you're not working for someone, do you think you should have benefit?"
"Yeah, course we should," said the young man.
Mr Ouseley: "Why?"
Young man: "Well, what do you do if you don't? They're only going to breed criminals. . . ."
Mr Ouseley: ". . . so should you be having to do something useful in a community to get that benefit?"
Young man: "No."
Later the CRE chairman told the young man: "We've all got to contribute to society. You expect something for nothing."
After failing to convince the man of his arguments, Mr Ouseley left the centre to shouts of: "Don't come here again, mate!"
One of the programme makers said that the CRE chairman felt chastened after the visit and in an interview with Brian Walden at the end of the programme he softened his "no work, no benefits" stance.
After the confrontation at the youth centre and advice from Rodney Bickerstaffe, of Unison, the public services union, he says in the interview that perhaps all basic social security payments should be automatic, but, as an incentive, young people could qualify for additional benefits by acquiring credits for community work.
Mr Ouseley told the Independent on Sunday he believed some form of compulsion might be necessary to get disaffected young blacks to perform useful community work and to feel valued. Such a system could only be introduced in circumstances where equality laws were tightened and companies were obliged to be fair to ethnic minorities through contract compliance - his other priorities as "Prime Minister".
His espousal of workfare, however, angered black activists who believe the emphasis should be on the creation of "decent jobs for decent wages".
John Noblemunn, a community worker in south London, said the commission chairman should get out and meet more young black people.
Mr Noblemunn said his 17-year-old daughter was happy to receive £35 a week on the Youth Training Scheme, but what she really needed was a proper job with training and prospects.
He said: "People don't want to work for their benefits. They want to work for a meaningful cause for a decent wage, not for benefits. People need a meaningful career."
Gloria Mills, equal opportunities officer at Unison, said one of the effects of the scheme favoured by Mr Ouseley was that more young people would be taken off the unemployment register. "The only people to benefit from that would be ministers," she sai d .
Paul Convery, of the research organisation the Unemployment Unit, said that wherever workfare had been tried it had failed.
Mr Convery said that some young people in the inner city, both black and white, did not want to get involved in the "legitimate" labour market. However, the solution was in long-term policy decisions to give them confidence to enter the world of work, not in superficially attractive measures to "mop up" the problem.Reuse content