The results show that the increase in social assistance benefits has been a major factor behind the decline in employment rates of lone mothers in Ontario. It is stimated that each $1,000 increase in benefit rates is associated with a 1.9 percentage points reduction in the employment rate of lone mothers. As a result, 95 per cent of the 5.9 percentage point increase in the Quebec-Ontario employment rate gap of lone mothers over the period 1988-90 can be attributed to the increase in Ontario benefits relative to Quebec by $2,962. Labour market conditions do not appear to have had a major impact on employment rates in Ontario over the period 1988-90. This is not very urprising given that the significant deterioration of the Ontario labour market took place after 1990. In particular, the unemployment rate of lone mothers in Ontario increased from 9.2 to 12.0 per cent in 1988-90, while it doubled by the year 1995 (21.7 per cent).