Fighting Lone Mothers’ Poverty Through In-Work Benefits: Methodological Issues and Policy Suggestions

Lone mothers are overrepresented among the poor in many European countries, with detrimental consequences for them and their children. Even in Norway, which is known for its successful economic and welfare development, lone mothers were at least three times more likely to be poor than married mothers. To redress this issue, the Norwegian government instituted a welfare reform in 1998, increasing lone-parent benefit levels and introducing working requirements. Using a quasi-experimental model, Mogstad and Pronzato (2008) found that the reform had a positive effect on lone mothers’ labor supply and slightly reduced poverty. Yet given the extent of public resources invested, was this the most that policy makers could expect in terms of reducing poverty? To answer this question, I estimate a discrete choice model of work and welfare participation decisions, and use the behavioral estimates to derive the policy parameters that would have minimized poverty among lone mothers. To produce more robust results, a prerequisite for developing policy recommendations, the discrete choice model is validated by comparing its predictions with the estimated effects of the reform obtained from a quasi-experiment (Mogstad and Pronzato 2008). (JEL codes: I38, J22, C25)