Empirical studies on the earnings effects of tobacco use have found significant wage penalties attached to smoking. We produce evidence that suggests that these estimates are significantly upward biased. The bias arises from a general failure in the literature to control for the past smoking behavior of individuals. 2SLS earnings estimates show that the smoking wage penalty is reduced by as much as a third, if past smoking of individuals is controlled for. Our results also point to significant wage gains for individuals that quit smoking, a finding that is of substantial interest, given the lack of evidence on the earnings effects of smoking cessation.
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number
654.
Find related papers by JEL classification: J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials I19 - Health, Education, and Welfare - - Health - - - Other C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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