EFFECT OF FINANCIAL INCENTIVES ON REPARTNERING: evidence from Australia

21 Oct 2019

Australian welfare reforms in 2006 were meant to promote work among lone mothers. But they may have had an unintentional side effect.

A new study by Hayley Fisher and Anna Zhu published in the October 2019 issue of The Economic Journal suggests the reforms led to low-income mothers repartnering more quickly after a relationship breakdown. This was especially pronounced for Australian-born mothers and those with a history of receiving Income Support.

The reforms made newly separated parents with a dependent child aged 8-15 ineligible for welfare payments aimed at single mothers, offering a lower unemployment payment instead. This reduced lone mothers’ household income by up to 17%.

For mothers who had recently separated, the reforms increased the chance that they repartnered within six months by six percentage points. This represents a 64% increase.

Due to the way the reform was implemented, the researchers can definitively link changes in the repartnering rate to changes in the welfare policy, and to exclude the influence of other factors. This is because mothers separating before 1 July 2006 were exempt from the policy change, with only mothers separating after this date affected.

This means that the authors can compare repartnering behaviour between two groups of lone mothers with similarly aged children and who had comparable levels of education, income and wealth. Though the policy also introduced participation requirements, the authors attribute the changes in the repartnering behaviour to changes in the amount of government cash support.

This increase in the rate of repartnering does not necessarily imply that the policy was bad for affected mothers. For example, the researchers find no evidence of lower life satisfaction or poorer health for mothers, and mothers’ new partners were more likely to have high incomes and were in better health.

But policymakers intending to increase work among single mothers may not have anticipated how their welfare reforms would also alter the family dynamic. When low-income lone mothers have less financial support from the government, they may be more likely to turn to alternative sources of income including that of a new partner. This may be especially true for Australian mothers who have weaker attachment to the workforce compared to mothers from other OECD countries, according to OECD statistics.

For the analysis, the authors relied on administrative welfare records from 2001-2013. These data include information on the number and ages of all household members as well as the mother’s relationship status. The authors also used a nationally representative longitudinal survey, the Household, Income Labour Dynamics Australia survey, for the years 2001-2015. The survey includes rich information on economic wellbeing, labour and family dynamics.

The authors’ findings reinforce evidence from previous research: increasing employment is not the only way low-income families respond to these type of Welfare-to-Work policies. Yet the increase in repartnering is a new and somewhat surprising result as we often think of finding a new partner as an organic process – not one motivated by a change in a welfare program.

The Effect of Changing Financial Incentives on Repartnering’ by Hayley Fisher and Anna Zhu is published in the October 2019 issue of The Economic Journal

Dr Hayley Fisher

Senior Lecturer in Economics | University of Sydney | +61 2 9036 9196

Dr Anna Zhu

Lecturer of economics | School of Economics, Finance and Marketing at RMIT University, Australia | +61 3 9925 8997 | anna.zhu@rmit.edu.au