Spatial heterogeneity in welfare reform success – local labour markets and single mothers’ earnings

We study spatial variation in the responses of single mothers to a welfare reform in Australia which reduced the generosity of parenting support payments and increased the taper rates. We estimate the reform’s effect on earned income, using a large administrative dataset and applying regression discontinuity models separately to 87 distinct local labour markets. We can link the local reform effects to local unemployment rates and local wages. In sharp contrast to its objectives, the reform reduced labour earnings for single mothers; the effects were most pronounced in disadvantaged areas with weak labour market conditions. We also find that the reform did not induce migration, despite these costs of staying in place. Welfare reform imposed an extra cost on those living in more disadvantaged areas, and single mothers who cannot relocate bear a disproportionate burden.