Research That Matters (January 17 - 20, 2008)

Cabinet Room (Omni Shoreham)

The Effect of Child Support Arrears on Non-Custodial Fathers' Work Avoidance Patterns: Evidence from a Natural Experiment

Maria Cancian, PhD, University of Wisconsin-Madison, Carolyn J. Heinrich, PhD, University of Wisconsin-Madison, and Yiyoon Chung, MA, University of Wisconsin-Madison.

Purpose and Research Questions: Child support enforcement compels non-custodial fathers, in particular non-custodial fathers of children receiving welfare, to pay child support. The major income source for non-custodial fathers of children receiving welfare is earnings, and child support is automatically deducted from earnings. Low income non-custodial fathers often avoid this regulation by disappearing from the formal labor market in order to prevent their earnings from being discovered and withheld by the government. In this way, child support enforcement may unintentionally discourage formal employment. Previous analyses of child support enforcement have often ignored the negative effect of child support enforcement on non-custodial fathers' work, or have struggled to identify the causal effect of child support burdens—i.e. to identify whether high child support debt discouraged work, or whether low earnings led to non-payment and higher debt. Cancian, Heinrich, and Chung (2006) find that an additional $1000 of child support arrears (which result in more enforcement to collect arrears) reduces fathers' earnings by between $538 and $1205 per year. In this previous research, we successfully sort out the effects of arrears on fathers' earnings by developing and using an exogenous measure of debt, the typical birthing costs charged for Medicaid births by county and month, as a proxy for arrears. The proposed paper builds on the previous study, expanding the time period considered and estimating the timing of withdrawal from the formal labor market. The paper sheds light on two questions. First, what is the distribution of time between fathers being charged birthing costs and their withdrawal from the formal labor market? Second, whether the exogenous economic burdens affect fathers' withdrawal from the formal labor market? Withdrawal from the labor market is defined as fathers' dropping their earnings by at least half of their previous earnings, and continuing to have such reduced earnings for at least four quarters. (Sensitivity to alternative definitions is also discussed).

Methods: This study employs two methods: life table and discrete-time multivariate hazard models. We use a measure of the typical birthing costs charged for Medicaid births by county and month, as a proxy for exogenous economic burdens on non-custodial fathers. Our base sample is 12,249 fathers from the state administrative records for paternities established in Wisconsin between October of 1997 and March of 2005. All cases meet the following selection criteria: the mother is the custodial parent and the child is the first born to the father. We have a maximum observation period of 31 quarters following the fathers' assumption of birthing costs.

Results: We find that 50 percent of fathers withdraw, at least temporarily, from the labor market within 6 quarters after the fathers' assumption of birthing costs. In the multivariate hazard analysis, we find that birthing costs appear to be positively associated with fathers' withdrawal from the labor market.

Conclusions and Implications: The study shows that severe economic burdens actively discourage non-custodial fathers from working. Beyond current child support enforcement such as income withholding, alternatives are needed in order to encourage non-custodial fathers to work.