Hi William. We all know what mulch is but we don't all know what all it does. Remember ValerieRU from that other organic forum where you used to moderate? He recently linked to a study done by a Russian scientist back in the late 1800s. Too bad the research was essentially lost to the East-West tension of the last century, but here's the deal in the short form.
Mulch absorbs ammonia gas. We know that because your compost pile stops smelling like horse dung when you cover it with leaves or finished compost. The leaves are absorbing the ammonia smell from urine and decomposing protein. That is really good news because you are capturing the nitrogen from the decomposition process. We also know that mulch absorbs moisture. The moisture from humidity is the unsung hero of this day. Ammonia gas has a strong affinity for water so the moisture in the mulch becomes the home for the ammonia. Then, and this is the cool part, when the air temperature drops to the dew point, the ammonia laden moisture in the mulch condenses out into the soil below.
Compost is applied at a very low rate to lawns, so the effect is a little smaller; however, I believe the effect is the same. I think this, in addition to the mass of microbes brought in, is the reason compost is so important. If you'll recall, I went cool on compost several years ago. Well I'm back on the compost bandwagon now.
And the effects described above are the reason(s) why.