Are Lone Mothers Responsive to Policy Changes? The Effects of a Norwegian Workfare Reform on Earnings, Education and Poverty

The generous Nordic model of welfare is commonly viewed as an exceptional success, in terms of both equality and economic growth. However, it recently became evident that subgroups of the population with weak labour market attachment and high welfare dependency, such as lone mothers, were vastly overrepresented among the poor. This prompted a workfare reform of the Norwegian welfare system for lone mothers: activity requirements were brought in, time limits imposed and benefit levels raised. To evaluate the reform we introduce an estimator that, unlike the much used difference-in-difference approach, accounts for the fact that policy changes are typically phased in gradually rather than coming into full effect immediately. The results were striking: the workfare reform has not only led to increased earnings and educational attainment – in the process lowering welfare caseloads and therefore easing the government’s financial burden – but also reduced poverty.