published under revised title in: Empirical Economics, 2009, 37 (1), 201-218
In many industrialised countries, teenagers have a significant spending power, and they are
important customers for specialised industries. The income of teenagers still in full time
education comes from two major sources: parental pocket money, and earnings from part
time jobs. Little is known about the way these sources interact, and how they depend on
parental, school and family characteristics. In this paper, we analyse labour supply of 16 year
old British teenagers together with the cash transfers made to them by their parents. We
develop a theoretical model, which serves as a basis for the empirical specification in which
labour supply and transfers are jointly determined. We estimate this model using unique data
on labour supply of teenagers, the wages they receive, and transfers made to them by their
parents. We show how these two processes depend on each other, and how transfers and
labour supply react to changes in wages.
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