Do Parental Transfers Reduce Youths' Incentives to Work?

This paper uses data from the National Longitudinal Survey of Youth 1997 to examine the effects that parental transfers from a family have on a youth's labor supply. The results from a fixed-effects two-stage least squares estimator suggest that: (i) parental pocket money reduces youths' incentives to work; (ii) parental allowances have a non-linear effect on hours worked; (iii) the subsample of siblings shows similar patterns that parental transfers have a negative impact on hours worked, although the magnitudes are slightly weaker than the full sample; and (iv) the response to parental transfers varies by age.