Does Decreasing the Generosity of Payments to Single Parents Have Employment and Earnings Effects? Evidence from Australian Administrative Data*

Abstract

We examine the impact of two changes to Australia's Parenting Payment Single (PPS) program, a welfare payment for low-income single mothers. One change lowered the age of the youngest child cut off for program eligibility, forcing new welfare entrants onto the less generous Newstart (unemployment) payment. A second change increased job search requirements for those on PPS. We use a difference-in-difference strategy which exploits the rule changes combined with an unannounced end to grandfathering provisions to disentangle the two effects. We find little effect of the increased job search requirements. The decreased generosity of the program has a small negative impact on single mothers' employment rate and it produces a large decrease in the share of single mothers who rely on welfare. Around 35 per cent of single mothers who ever received PPS between 2011 and 2016 eliminated their use of welfare. Due to the decreased generosity of the welfare payments received by the majority of single mothers who remained on income support, single mothers had lower incomes, on average, after the policy changes.