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.
Highlights
Provided transfers targeted at children are usually made in-kind or as a hypothecated cash transfer paid to parents
Education Maintenance Allowance (EMA) was a meanstested cash transfer of up to £30 per week paid by the UK government to students undertaking the first 2 years of full time post-compulsory education
The survey question about receipt of EMA asks ‘‘Do you get Education Maintenance Allowance?’’ In the main results shown here we assumed that interviewees respond according to what they receive during term time
Summary
Provided transfers targeted at children are usually made in-kind or as a hypothecated cash transfer paid to parents. The highest weekly EMA payment of £30 per week during term times was larger than the mean weekly earnings of teenagers in employment during their final year of compulsory schooling in the LSYPE (£27.76), and corresponds to a tax free increase in the household’s full income of up to £1170 per year, or a minimum of 5.6 % of parent’s income for those in the lowest income eligibility bracket This means that the parent’s transfer response to EMA should provide a clean test of whether the parent’s behaviour is consistent with that of an effectively altruistic head-of-household. While the (non-) altruistic behaviour of parents has implications for the targeting of transfers—our results indicate that the child’s welfare benefit from EMA is higher than had an equivalent transfer been made to parents—the labour supply effect of EMA has implications for the efficacy of conditional cash transfers in raising educational performance. Part 3 discusses the data and estimation strategy, Part 4 presents the results and Part 5 sets out the conclusions and recommendations
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