Does Reducing Unemployment Benefits during a Recession Reduce Youth Unemployment? Evidence from a 50% cut in Unemployment Assistance

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 20-21, 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.