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This paper attempts to uncover the effects of a UK welfare-to-work programme on individual wage growth by exploiting an expansion to this welfare programme. The conventional wisdom is that such programmes trap recipients into low-wage, low-quality work – this comes from the simple argument that the ‘poverty trap’, which a wage subsidy for low-income workers induces, reduces the benefits to investments, such as on-the-job training, and so reduces wage growth. In fact, a wage subsidy will also reduce the costs of, at least, general training because we would normally expect workers to pay for their own general training in the form of lower gross wages. So a wage subsidy is a way of sharing these costs with the taxpayer. Thus, the net effect on wage progression depends on whether it reduces costs by more or less than it reduces the benefits.

in the UK. Firstly, the labour force attachment of these women has declined considerably over the period which we analyse here, 1979-92, in contrast to the behaviour of married mothers (especially those with young children) over the same period who have exhibited a strong increase in participation. Secondly, the proportion of lone mothers who work part-time is substantially lower than is the case for married mothers.2 The corollary of the falling labour force participation rate is that lone parents are of policy interest that is out of proportion to their numbers because of their