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

Abstract

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.

The Labeling Effect of a Child Benefits System: Evidence from Russia 1994-2015

“…This might change leisure time, which could then affect demand for leisure-related goods and services (see, for example Browning and Meghir (1991), Schirle (2015)). Holford (2015) finds a negative impact of the UK Education Maintenance Allowance on parental labour supply. Labour supply changes may directly affect expenditure patterns.…”