Small Benefit Cuts and Earnings Responses: Evidence from Japan’s public assistance reform

This paper examines how a modest reduction in benefit generosity affects recorded earnings among public assistance recipients in Japan. I use the 2013–2015 revision of the livelihood assistance standard, which reduced benefit standards differently across grade-area categories. The main analysis compares Grade-2 Area-1, where the standard declined by about 2 %, with Grade-2 Area-2, where it remained largely unchanged. Using individual-level administrative data from “the Survey on Public Assistance Recipients”, I estimate an event-study difference-in-differences model for single male recipients in their forties and fifties classified as “other households.” The results provide limited evidence of a broad or persistent increase in recorded earnings in the main sample. However, among recipients with zero recorded earnings before the reform, earnings increased in some post-reform years, with the largest estimate around ¥4,000 per month. This amount is interpreted as a small adjustment through very short-term or occasional work rather than a transition into stable employment. In contrast, recipients who already had earnings before the reform show no clear increase. These findings suggest that small benefit reductions may induce limited compensatory earnings among non-working recipients, but they do not appear to generate substantial or sustained increases in labor supply.