Child Support Award Amounts and Fathers’ Participation in the Underground Economy

Researchers have long noted that child support policy for low-income parents may discourage formal child support payments and increase fathers’ participation in the underground economy. Among other factors, low-income fathers may have an incentive to avoid the formal child support system through underground work, since child support order amounts for low-income fathers can be quite high relative to paternal income. Low disregards, which amount to a tax on formal child support, may also decrease fathers’ incentives to pay formal child support, increasing under-the-table child support and paternal participation in the underground economy. While qualitative research has documented these effects, there has been little empirical research about the effects of child support order amounts on father’s participation in the underground economy. This paper uses Fragile Families data merged with a state-level measure of order amounts among low-income parents to estimate a simple bivariate probit of fathers’ employment in the regular and underground economy, including measures of broader ’offthe-books’ work and measures of illegal activity. Initial estimates indicate that high order amounts for low-income fathers are associated with greater underground work and but may also increase employment in regular work. Moreover, this effect appears to be driven by increased illegal activity; high order amounts show a strong association with increased illegal activity. Initial estimates show little effects of the disregard on off-the-books employment.