This three-year longitudinal study investigated whether low-wage employment was associated with improved psychological and parenting outcomes in a sample of 178 single mothers who were employed and unemployed current and former welfare recipients both before and subsequent to the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Participation in employment predicted fewer depressive symptoms and less negative parenting style over time. Employment at time 1 was associated with a reduced likelihood of receiving welfare in the interim between times 1 and 2, less financial strain at time 2, and (through these) a decrease in mothers' depressive symptoms at time 2. Fewer depressive symptoms at time 2, in turn, predicted less negative parenting style, net of the mothers' earlier demographic, mental health, and parenting characteristics. Mothers with higher education attainment were more likely to be employed (and to earn more) at both time points. Implications of these findings for welfare policies are discussed.