Are Lone Mothers Responsive to Policy Changes? Evidence from a Workfare Reform in a Generous Welfare State*

There is a heated debate in many developed countries about how to design a welfare system that moves lone mothers off welfare and into work. We analyze the consequences of a major Norwegian workfare reform of the generous welfare system for lone mothers. The reform imposed work requirements and time limits on welfare receipt, while raising in‐work benefits. Our difference‐in‐differences estimates show that the reform was successful in improving labor‐market participation and in increasing the earnings of lone mothers. However, the reform was associated with income loss and increased poverty among a sizeable subgroup of lone mothers, who were unable to offset the loss of out‐of‐work benefits with gains in earnings.