IZA DP No. 10727: Does Reducing Unemployment Benefits During a Recession Reduce Youth Unemployment? Evidence from a 50% Cut in Unemployment Assistance
published in: Journal of Human Resources, 2020, 55 (3), 902-925.
We use administrative data to examine the effect of a 50% benefit cut for young unemployed workers in Ireland during the Great Recession. Because the cut applied only to new benefit claims, claimants whose unemployment start dates differed by a matter of days received very different benefits; we exploit this fact in our Regression Discontinuity and Difference-in-Difference analyses. While we find no impact on unemployment duration for those aged 20ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“21, the benefit cut significantly reduced duration for 18 year olds, with an estimated elasticity close to one. We consider possible explanations for our findings and also examine long-run effects.