Welfare benefits are a double-edged sword. On the one hand, the poor need them to survive, on the other hand they provide an incentive to withdraw from the labor market and live off the government transfers – especially if these transfers are generous. The situation is especially difficult for single mothers who have to combine work and childcare and therefore often have even lower incentives to work. The Netherlands have a quite generous social security system, with low work incentives for single mothers: Before 2009, when a mother started working in a part-time job, her labor income reduced welfare benefits one-for-one.
In a new IZA Discussion Paper, Marike Knoef and Jan C. van Ours investigate ways to encourage single mothers to work again. They use a natural experiment that took place in the Netherlands between 2009 and 2010, when 14 Dutch municipalities set up a program to improve the work incentives for single mothers with at least one child younger than 12. First, an earnings disregard allowed mothers to earn up to 120 euros per month in labor income without a reduction in welfare benefits. Second, the municipalities started a job creation initiative that sought to provide single mothers with work for at least 12 hours per week.
The authors find positive labor supply effects for both parts of the program. The earnings disregard increased participation and earnings, especially for immigrant single mothers. The job creation initiative reduced welfare benefits and increased earnings for immigrants with the youngest child between the age of 5 and 11 and for native single mothers with the youngest child aged 4 or younger.
Overall, the treatment effect is higher for immigrants than for natives. According to the authors, this may be explained by the fact that native single mothers were already more strictly monitored and engaged in labor market policies. Furthermore, natives are more likely to receive financial support from their parents or families, which makes them less responsive to monetary incentives.