Child Support Enforcement and Unmmarried Fathers’ Participation in the Underground Economy

Lauren Rich, University of Chicago
Qin Gao, Columbia University

Over the past three decades, the federal and state governments in the U.S. have become increasingly aggressive about collecting child support payments from non-custodial fathers. Relative to the late 1970’s, there is some evidence that these efforts have resulted in higher proportions of families with child support orders in place and more families actually receiving payments. Despite these positive developments, there is some evidence that aggressive enforcement and collection may have some unintended negative consequences. For example, qualitative studies of low-income fathers suggest that such enforcement may encourage some fathers to enter, or increase their level of involvement in, the underground economy. In addition, it is possible to view the imposition of a child support order as analogous to the imposition of taxes on wage income. These taxes affect not only labor-leisure choices, but may also stimulate labor market activities in the underground. Determination of the effect of taxes on labor market behavior is complicated by the fact that tax rates faced by individuals are determined, in part, by their income, and are therefore endogenous. However, in the case of child support enforcement, individuals may be more or less likely to face high tax rates arising from the imposition of orders depending on where they happen to reside. For example, some states and/or locales may be more aggressive than others when attempting to impose and collect child support orders. This natural variation presents an opportunity to examine the effect of child support enforcement on fathers’ underground activity. This approach will be employed using data from the first and second waves of the Fragile Families and Child Well-Being Study, which is collecting data on unmarried fathers and mothers in 20 U.S. cities. In this survey, fathers are asked about formal and informal support of nonresident children, and about their participation in both regular and irregular employment. Respondents who indicate they engage in any underground activity are also asked to report the number of weeks and hours they spent on the activity, and the amount they earned form each activity. This information will be used to construct a dichotomous variable for participation in the underground, and continuous variables measuring earnings and hours of work in the underground. These variables will be used as dependent variables in the analysis. The primary independent variables will be measures of the aggressiveness and/or effectiveness of child support enforcement at the state level. These measures will include data on expenditures per case, collections per case, and the proportion of collections obtained through payroll withholding. Additional independent variables will include measures commonly found in analyses of labor supply, as well as measures that have been found in previous research to be related to underground participation and/or earnings. These variables include the regular sector wage, race/ethnicity, level of education, age, number of children, immigrant status, health, and alcohol and drug use.