prepared for a May 12, 2017 talk at the New Economic School by Philip Greenspun
What you'll learn:
Why you should care: Tough to build a career by publishing a paper on supply and demand. There is probably a more interesting paper from the 1950s, from the Italian Renaissance, or from the Roman Republic. U.S. family law, however, changed dramatically in the 1970s with no-fault divorce and then in the 1990s with child support guidelines that made the revenue from an out-of-wedlock sexual encounter certain and easy to calculate. David Autor (MIT), et al., wrote a 2016 paper on the education and labor market outcomes of children of single parents. This has been referenced in the New York Times, for example. There is no classic paper from the 1950s to compete with because there weren't enough children back then whose parents had split up (or never been together for more than one night).
1980s: My cousin, halfway through a PhD in clinical psychology, asserted that women didn't care about a man's income. Her exciting boyfriend at the time? An associate in corporate law. The man she ultimately married? A stockbroker. She has worked an average of about 15 hours per week since getting married.
Today: One of your esteemed professors said that "it's not all about the money." Her belief in romance was strong. Asked "Which of your female friends has said 'I don't care if a man has a job, as long as he has a good heart?'" It turned out that her data was weak!
When we're talking about important life decisions such as (1) whether to marry, (2) whom to marry, (3) whether to have children, etc., is it even worth looking at the economics? Maybe the psychologist and economics professor are right and we should only be looking at the human heart.
"Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data" (Rossin-Slater and Wust) followed a massive data set instead of the authors' hearts. They found that $141 in annual child support was enough to generate the following effects among Danes:
That's in a country where child support is limited to between roughly $2,000/year and $8000/year and where essentially only women can collect child support (since women are automatically assigned primary custody of children). The U.S. offers $20,000 to $100,000 per year, tax-free, in child support in middle-class and upper-middle-class situations (depending on state, number of children, defendant's income, etc.). As a practical matter, child support revenue can be collected by men in an increasing number of states. Let's see what can happen!
Homo sapiens has been polygamous for most of history. Genetics scholars have concluded that while most human females had babies, the typical human male never reproduced. We are descended from a minority of human males.
Humans went through a brief period of monogamy starting in Greek and Roman times. A woman who wanted to reproduce would have to pick the best male that she could find and then be stuck with him for decades.
1960s: American Welfare State pays women to become "single mothers": free house, free food, free health care, cash stipend conditioned on (a) having a kid, (b) not working, and (c) not being married. Result: higher spending power being unmarried than marrying a low-income man.
1970s: No-fault ("unilateral") divorce plus 50/50 property division plus child support plus alimony conditioned on not remarrying. States set up winner/loser parent system in which one parent gets primary custody of children. Result: same spending power for winner parent with or without continuing marriage. Brinig and Allen: Parent who expects to win custody will be the one who files the divorce lawsuit; the more child support cash that is available, the more likely is a divorce. Litigation framework retained despite the fact that divorce lawsuits now had a certain outcome, i.e., a divorce.
As Americans divorced in record numbers, social stigma was removed. Alimony plaintiffs collected for decades rather than remarry. Acceptance and celebration of "single moms." Result of removing the economic and social incentives to stay married: serial polygamy. Someone who earns an above-average wage ends up being partnered with at least two different spouses in sequence and, if male, have two sets of kids.
1980s: Voter backlash against welfare expenditures. Politically unacceptable to blame women for having babies and cashing checks, therefore go after the fathers with DNA testing, court system, prisons. Federal government orders each state to develop child support guidelines, formulas establishing the cash yield per child as a function of the biological father's income. Feds also fund enforcement by the states.
Goal of substantially reducing welfare state expenditures was not achieved. The biological fathers of welfare kids turned out not to yield much cash net of prosecution, bureaucracy, imprisonment, and other expenses. Also, fathers tapped for child support tended to withdraw from the workforce or go on disability (see "Parental Responses to Child Support Obligations: Causal Evidence from Administrative Data" (Rossin-Slater and Wust) for quantitative measures of this phenomenon).
What happened instead was that the 1960s welfare incentives for low-income Americans were replicated for medium- and high-income segments of society. The child of a one-night encounter with an already-married high-income partner could yield 33 percent of the partner's after-tax income. It became economically irrational to be in a long-term marriage with a medium-income partner, assuming that a high-income sex partner could be found. Just as in the 1960s ghetto, for many Americans it also became economically irrational to work. For example, an American can realize a higher spending power by having sex with a dermatologist than by going to medical school and working as a primary care doctor. An American can realize a higher spending power by having sex with a primary care doctor than by going to college and working at the median wage for a college graduate.
Child support revenue on three children with three different co-parents is typically roughly double the child support available for having three children with a single co-parent.
American economic incentives are now toward traditional (simultaneous) polygamy, both polygyny and polyandry. Staying married to a single spouse is almost always economically irrational for at least one spouse. (A minority of Americans do this, however, presumably for sentimental reasons. Proves that it is not always about money!)
[Note that U.S. family law applies to non-residents as well. A tourist who gets pregnant in New York and returns home to have the baby is entitled to 17 percent of her acquaintance's pre-tax income for the next 21 years, e.g., $1.3 million if the biological father earns $360,000 per year (lower middle-class for Wall Street!). U.S. taxpayers will pay to hunt down the father, get the money wired to the former tourist, and imprison the man if he doesn't pay.]
Americans responded energetically to these changes in incentives. Compared to Europe, roughly double the percentage of children living without both parents. From 2014: "Fewer than half (46%) of U.S. kids younger than 18 years of age are living in a home with two married heterosexual parents in their first marriage. This is a marked change from 1960, when 73% of children fit this description, and 1980, when 61% did…"
We interviewed litigators in every state and they told us that their plaintiff clients make decisions almost exclusively based on expected cashflow. The desire to make an extra dollar through family court litigation explains positions taken on custody, for example, and it is not necessary to look at any other factors.
Women seem to be smarter than men. Courts are increasingly gender-neutral so women steer well clear of marriage to a lower-income partner who could sue them for alimony (thus creating a vast underclass of men who will never be able to find a female partner). States that mandate 50/50 shared parenting expose women to child support lawsuits. (Sarah Palin's daughter tapped by U.S. military hero in Alaska after an out-of-wedlock pregnancy.)
Are you sentimental about kids? Americans say that they are, but an increasing number are selling abortions at a discount to the net present value of the expected child support cashflow, with lawyers on both sides.
See http://www.realworlddivorce.com/InOurEconomy for an attempt to look at aggregate responses.
The great news for your career is that Americans have built you a massive laboratory. The law is often completely different across state lines. Wisconsin offers unlimited child support; neighboring and culturally similar Minnesota caps it. California offers unlimited child support by formula and sets up a winner-take-all war for "primary parent" status; neighboring Nevada mandates 50/50 shared parenting (but only recently) and caps child support at $13,000 per year. Arizona shifted from primary/secondary parent to 50/50 shared parenting in 2012, thus creating a clean before/after situation.
Even better, custody and child support are little-studied. Although the bulk of the cases in family court concern children whose parents were never married, Americans still think of themselves as living in a married-behind-white-picket-fence society. Hollywood sometimes includes a character who marries in order to make money via a divorce and alimony lawsuit, but it is extremely rare to find a character who has an out-of-wedlock baby with an eye to collecting child support. The blindspot is shared by academics. There are interesting questions that nobody in American econ departments would ask, for example, the following:
What is the labor market participation of people involved in alimony or child support litigation? (both plaintiff and defendants, but especially plaintiffs, have incentives to reduce work)
What is the long-term labor market participation of people who were previously involved in alimony or child support litigation? Effect on lifetime earnings?
An increasing number of states are mandating 50/50 shared parenting. Does this encourage or discourage parents from separating? (i.e., is the result more children in two-parent homes?)
Do women in states that mandate 50/50 shared parenting have fewer children (without a 50/50 system, women win more than 90 percent of custody lawsuits)? Is the effect stronger for women who out-earn their partners? (Look at women specifically because, due to abortion availability in the U.S., women control fertility decisions.)
Are higher-income women more likely to marry lower-income men in states that don't offer alimony (e.g., Texas)?
To what extent do plaintiffs time divorce lawsuits? For example, how much more likely are lawsuits in California after 10 years compared to 9 (alimony unlikely) or in Florida shortly after the 14-year mark (when "permanent alimony" becomes available)?
How many child support defendants end up becoming officially disabled (one of the few ways to get a court to lower payments)? We have the data for Denmark (the higher the child support order, the more likely the defendant is to become disabled), but their cashflows are a tiny fraction of what gets ordered in the U.S.
Are residents of states where child support is more profitable more likely to have children with multiple partners (enhances the profits compared to all children with same co-parent)
Why don't more foreigners come to Boston to get pregnant and return home to collect USD$40,000 per year, tax-free, for 23 years? (that's about 2.3 million rubles per year or 52 million rubles total) Is it ignorance of the law? Fear of bureaucracy or non-payment? Sentimental or moral concerns?
See http://www.realworlddivorce.com/ for references to some good academic studies. Notice that these are often widely cited despite not using comprehensive data sets. The field is so under-researched that people are interested in even the simplest work.