The intergenerational impact of reduced generosity in the social safety net

This paper provides new causal evidence on how a reduction in welfare cash assistance to newly separated parents impacts the parents themselves and their young-adult children. Our paper differs from the rest of the literature evaluating the intergenerational impacts of welfare policy because it focuses on the role of welfare assistance specifically at the point of parental relationship separation. A priori, it is unclear if a policy that provides welfare assistance to newly separated mothers produces work-disincentive effects and/or whether, on balance, it helps or hinders recovery from the event of separation. We use a reform that withdrew welfare eligibility from mothers who separated from their partners on or after 1 July 2006, while mothers who separated before this date were exempt from the new rules. We exploit this discontinuity in a Regression Discontinuity framework using biweekly administrative social security records. We find that the loss of welfare eligibility at the time of relationship breakdown reduces mothers’ welfare benefits, but increases their personal and family income. The reform is found to decrease young adults’ reliance on unemployment benefits, but this result is weaker and less robust. The effects on young adults’ receipt of other types of welfare payments, fertility, homelessness or financial independence cannot be identified precisely.