The Effect of Welfare Reforms on Benefit Substitution

Policy-makers have confronted welfare dependence and poverty among single mothers by imposing work requirements and time limits on the receipt of welfare benefits. Reforms with such features have generally reduced programme case-loads and increased the employment and earnings of single mothers. There is little evidence, however, on the amount of benefit substitution associated with such reforms. In this paper, we test whether reductions in welfare dependence may be offset by increased participation in other benefit programmes. Evaluating the restrictive reforms of the welfare programme for single mothers in Norway, we find evidence of considerable benefit substitution. Hence, decreases in programme case-loads do not reflect equal reductions in welfare dependence.