Economic Impacts of Workfare Reforms for Single Mothers: Benefit Substitution and Labour supply responses

We analyse the economic impacts of Norwegian nationwide reforms on the state benefit programme targeting single mothers and derive the net fiscal impacts of the reforms on both the affected single mothers and public expenses. Our analysis accounts for behavioural reform responses by single mothers in terms of benefit substitution and labour supply. We find that for each 100-NOK reduction in benefit payments from the programme, single mothers replace approximately 60 NOK through benefit substitution. In the short term, we find a sizeable positive reform effect on single mothers’ labour supply and earnings. However, the positive labour supply response diminishes drastically in the long term. The reforms increase single mothers’ disposable income in the short term, but in the long term, we find no or even negative effects on disposable income. In terms of the net fiscal impact on public expenses, the reforms are successful. We estimate a total net gain of 3.56 billion NOK (37 million EUR) in public expenditures covering the 1998–2008 period.