The labour supply effect of Education Maintenance Allowance and its implications for parental altruism

Summary

Education Maintenance Allowance (EMA) was a UK government cash transfer paid directly to children aged
16–18, in the first 2 years of post-compulsory full-time education. This
paper uses the labour supply effect of EMA to infer the magnitude of
the transfer response made by the parent, and so test for the presence
of an ‘effectively altruistic’ head-of-household, who redistributes
resources among household members so as to maximise overall welfare.
Using data from the Longitudinal Study of Young People in England, an EMA payment of £30 per week is found to
reduce teenagers’ labour supply by 3 h per week and probability of
employment by 13 % points from a base of 43 %. We conclude that parents
withdraw cash and in-kind transfers from their children to a value of
between 22 and 86 % of what the child receives in EMA. This means we
reject the hypothesis of an effectively altruistic head-of-household,
and argue that making this cash transfer directly to the child produces
higher child welfare than if the equivalent transfer were made to
parents.