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

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  • Mogstad, Magne

    ()
    (University of Chicago)

  • Pronzato, Chiara D.

    ()
    (University of Turin)

Abstract

There is a heated debate in many European countries about a move towards a welfare system that increases the incentives for lone mothers to move off welfare and into work. We analyze the consequences of a major Norwegian workfare reform of the generous welfare system for lone mothers. Our difference-in-differences estimates show that the policy changes were successful in improving labor market attachment and increasing disposable income of new lone mothers. By contrast, the reform led to a substantial decrease in disposable income and a significant increase in poverty among persistent lone mothers, because a sizeable group was unable to offset the loss of out-of-work welfare benefits with gains in earnings. This suggests that the desired effects of the workfare reform were associated with the side-effects of income loss and increased poverty among a substantial number of lone mothers with insurmountable employment barriers. This finding stands in stark contrast to evidence from similar policy changes in Canada, the UK, and the US, and underscores that policymakers from other developed countries should be cautious when drawing lessons from the successful welfare reforms implemented in Anglo-Saxon countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4489.

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Length: 30 pages
Date of creation: Oct 2009
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2012, 114 (4), 1129–1159
Handle: RePEc:iza:izadps:dp4489

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Keywords: lone mothers; workfare reform; difference-in-differences; heterogeneity; earnings; labor force participation; poverty; disposable income;

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References

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  1. Christopher A. Swann, 2005. "Welfare Reform When Recipients Are Forward-Looking," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
  2. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  3. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 605-37, May.
  4. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, The Earned Income Tax Credit, And The Labor Supply Of Single Mothers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(3), pages 1063-1114, August.
  5. Richard Burkhauser & Greg Duncan & Richard Hauser & Roland Berntsen, 1991. "Wife or frau, women do worse: A comparison of men and women in the United States and Germany after marital dissolution," Demography, Springer, Springer, vol. 28(3), pages 353-360, August.
  6. Robert Moffitt, 2002. "The Temporary Assistance for Needy Families Program," NBER Working Papers 8749, National Bureau of Economic Research, Inc.
  7. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, Elsevier, vol. 28(1), pages 85-101, April.
  8. John F. Ermisch & Robert E. Wright, 1991. "Welfare Benefits and Lone Parents' Employment in Great Britain," Journal of Human Resources, University of Wisconsin Press, vol. 26(3), pages 424-456.
  9. Randi Kjeldstad & Marit R�nsen, 2004. "Welfare Rules, Business Cycles, And Employment Dynamics Among Lone Parents In Norway," Feminist Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(2), pages 61-89.
  10. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 604-20, September.
  11. V. Joseph Hotz & Charles H. Mullin & John Karl Scholz, 2002. "Welfare, Employment, and Income: Evidence on the Effects of Benefit Reductions from California," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 380-384, May.
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Cited by:
  1. Reiso, Katrine Holm, 2014. "The Effect of Welfare Reforms on Benefit Substitution," Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics 22/2014, Department of Economics, Norwegian School of Economics.
  2. Nina Drange & Mari Rege, 2012. "Trapped at Home: The Effect of Mothers' Temporary Labor Market Exits on their Subsequent Work Career," CESifo Working Paper Series 3833, CESifo Group Munich.
  3. Pronzato, Chiara D., 2012. "Comparing Quasi-Experimental Designs and Structural Models for Policy Evaluation: The Case of a Reform of Lone Parental Welfare," IZA Discussion Papers 6803, Institute for the Study of Labor (IZA).
  4. Chiara Pronzato, 2013. "Fighting Lone Mothers' Poverty through in-Work Benefits - Methodological Issues and Policy Suggestions," CESifo Working Paper Series 4375, CESifo Group Munich.
  5. Løken, Katrine V. & Lommerud, Kjell Erik & Reiso, Katrine Holm, 2014. "Single Mothers and their children: Evaluating a work-encouraging welfare reform," Working Papers in Economics, University of Bergen, Department of Economics 04/14, University of Bergen, Department of Economics.
  6. Drange, Nina & Rege, Mari, 2013. "Trapped at home: The effect of mothers' temporary labor market exits on their subsequent work career," Labour Economics, Elsevier, Elsevier, vol. 24(C), pages 125-136.

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