Does Reducing Child Benefits Mean Parents Work More? A Mixed-Methods Study of the Labor Market Effects of the United Kingdom’s “Two-Child Limit”

Abstract

Child benefits can play an important role in supporting families during a life stage of increased household needs. However, they may also have negative effects on parental work incentives, potentially limiting any mitigation of child poverty. We examine the employment effects of a substantial benefit cut affecting larger families in the United Kingdom. The “two-child limit” restricted means-tested child benefits to two children only, affecting new births from April 2017. Using difference-in-differences models, we find no effect on employment at the extensive margin. Among coupled mothers already working, but not lone parents, we find small increases in working hours. Qualitative research with affected families helps make sense of these limited effects, indicating inelastic labor market responses resulting from a strong commitment to unpaid care, the challenges of caregiving responsibilities, and gaps in suitable child care. We further find that hardship linked to the policy may make labor market engagement harder for some parents.