Are Lone Mothers Responsive to Policy Changes? Evidence from a Workfare Reform in a Generous Welfare State

Abstract

There is a heated debate in many developed countries about how to design a welfare system that moves lone mothers off welfare and into work. We analyze the consequences of a major Norwegian workfare reform of the generous welfare system for lone mothers. The reform imposed work requirements and time limits on welfare receipt, while raising in-work benefits. Our difference-in-differences estimates show that the reform was successful in improving labor-market participation and in increasing the earnings of lone mothers. However, the reform was associated with income loss and increased poverty among a sizeable subgroup of lone mothers, who were unable to offset the loss of out-of-work benefits with gains in earnings. © The editors of The Scandinavian Journal of Economics 2012.