Compulsory activation of young welfare recipients: revisiting the trade-off between workfare and welfare generosity

Previous cross-country studies on the introduction of compulsory activation have suggested the existence of a negative relationship between active labor market policies and welfare generosity, challenging the capacity of social assistance schemes to alleviate poverty. Focusing on the Norwegian labor market, we document a trend of deepening poverty for young individuals on social assistance, and investigate whether activation policies are the driving force behind this development. In other words, this article revisits the trade-off between workfare and welfare through a quasi-natural experiment, exploiting municipal variation from a recent reform introducing compulsory activation for young (under 30 years) social assistance recipients. The results show a significant negative effect on social assistance benefit levels from the introduction of compulsory activation. However, we also show that the reception of other benefits increased correspondingly, compensating for the reduction in social assistance and resulting in no or limited overall change. Additionally, we find no effect of compulsory activation on overall income adequacy. Our results for Norway convey that the trade-off between workfare and welfare does not bind: the degree of efficacy of activation policies does not necessarily challenge poverty alleviation.