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Why Do Dancers Smoke? Smoking, Time Preference, and Wage Dynamics

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Author Info

  • Lalith Munasinghe

    ()
    (Columbia University)

  • Nachum Sicherman

    (Columbia University)

Abstract

Time preference is a key determinant of investments in human capital and occupational choice. Individuals with higher discount rates are less likely to invest in human capital and hence more likely to select into careers with lower and flatter earnings profiles. Since discount rates are unobservable, we use smoking behavior as a proxy to study the effect of discounting on wage dynamics. We find that smokers, compared to non-smokers, earn lower wages at the time they enter the labor market and experience substantially lower rates of wage growth. These differences are consistent with the discounting hypothesis, and highly robust to an extensive array of control variables.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume32/V32N4P595_616.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 32 (2006)
Issue (Month): 4 (Fall)
Pages: 595-616

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Handle: RePEc:eej:eeconj:v:32:y:2006:i:4:p:595-616

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References

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  1. Haley, William J, 1973. "Human Capital: The Choice Between Investment and Income," American Economic Review, American Economic Association, vol. 63(5), pages 929-44, December.
  2. Jonathan Gruber & Jonathan Zinman, 2000. "Youth Smoking in the U.S.: Evidence and Implications," NBER Working Papers 7780, National Bureau of Economic Research, Inc.
  3. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  4. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  5. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  6. William N. Evans & Edward Montgomery, 1994. "Education and Health: Where There's Smoke There's an Instrument," NBER Working Papers 4949, National Bureau of Economic Research, Inc.
  7. Kenkel, D.S., 1988. "Health Behavior, Health Knowledge, And Schooling," Papers 10-88-3, Pennsylvania State - Department of Economics.
  8. Munasinghe, Lalith & Sicherman, Nachum, 2004. "Wage Dynamics and Unobserved Heterogeneity: Time Preference or Learning Ability?," IZA Discussion Papers 1436, Institute for the Study of Labor (IZA).
  9. Shaw, Kathryn L, 1996. "An Empirical Analysis of Risk Aversion and Income Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 626-53, October.
  10. Salop, Joanne & Salop, Steven, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 619-27, November.
  11. W. Kip Viscusi & Joni Hersch, 2001. "Cigarette Smokers As Job Risk Takers," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 269-280, May.
  12. Loewenstein, George & Thaler, Richard H, 1989. "Intertemporal Choice," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 181-93, Fall.
  13. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  14. Munasinghe, Lalith, 2000. "Wage Growth and the Theory of Turnover," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 204-20, April.
  15. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
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Cited by:
  1. Stephan Meier & Charles Sprenger, 2007. "Impatience and credit behavior: evidence from a field experiment," Working Papers 07-3, Federal Reserve Bank of Boston.
  2. Meier, Stephan & Sprenger, Charles D., 2013. "Discounting financial literacy: Time preferences and participation in financial education programs," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 159-174.
  3. Stephan Meier & Charles Sprenger, 2007. "Selection into financial literacy programs: evidence from a field study," Public Policy Discussion Paper 07-5, Federal Reserve Bank of Boston.
  4. Meier, Stephan & Sprenger, Charles, 2008. "Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs," IZA Discussion Papers 3507, Institute for the Study of Labor (IZA).
  5. Yamamura, Eiji, 2012. "Smokers’ Preference for Divorce and Extramarital Sex," MPRA Paper 40922, University Library of Munich, Germany.
  6. Munasinghe, Lalith & Sicherman, Nachum, 2004. "Wage Dynamics and Unobserved Heterogeneity: Time Preference or Learning Ability?," IZA Discussion Papers 1436, Institute for the Study of Labor (IZA).
  7. Dohmen Thomas & Falk Armin, 2010. "You get what you pay for: Incentives and Selection in the Education System," Research Memorandum 011, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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