Generosity's double-edged sword: Unmasking the impact of raised social assistance rates in Norway

Abstract

As long as welfare arrangements have been in existence, there has been a strong belief that high-benefit generosity leads to welfare reliance. In this study, we investigate whether an increase in welfare generosity in Norway resulted in higher social assistance (SA) uptake and decreased engagement in paid work. By utilizing high-quality administrative data and employing a difference-in-difference design, we find no overall effects on SA or work activity. However, we do observe a significant reduction in work activity and an increase in SA for specific predefined high-risk groups, which are believed to be particularly responsive to financial incentives. Thus, we discover evidence of unfavorable effects for child families, non-Western immigrants, and the combined group of non-Western immigrant child families. These latter findings are interpreted in light of the particular socioeconomic circumstances of these groups.