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Biases in Estimates of the Smoking Wage Penalty

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  • Silke Anger
  • Michael Kvasnicka

Abstract

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.

Suggested Citation

  • Silke Anger & Michael Kvasnicka, 2006. "Biases in Estimates of the Smoking Wage Penalty," SFB 649 Discussion Papers SFB649DP2006-089, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    • Handle: RePEc:hum:wpaper:sfb649dp2006-089
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    References listed on IDEAS

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    4. van Ours, Jan C., 2004. "A pint a day raises a man's pay; but smoking blows that gain away," Journal of Health Economics, Elsevier, vol. 23(5), pages 863-886, September.
    5. Heineck, Guido & Schwarze, Johannes, 2003. "Substance Use and Earnings: The Case of Smokers in Germany," IZA Discussion Papers 743, Institute of Labor Economics (IZA).
    6. Y.L. Lee, 1999. "Wage Effects of Drinking and Smoking: An analysis using Australian twins data," Economics Discussion / Working Papers 99-22, The University of Western Australia, Department of Economics.
    7. Phillip B. Levine & Tara A. Gustafson & Ann D. Velenchik, 1997. "More Bad News for Smokers? The Effects of Cigarette Smoking on Wages," ILR Review, Cornell University, ILR School, vol. 50(3), pages 493-509, April.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Quit smoking!
      by chris dillow in Stumbling and Mumbling on 2007-01-15 21:33:21

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    Cited by:

    1. F. Brune, Lasse, 2007. "The smoker’s wage penalty puzzle: evidence from Britain," ISER Working Paper Series 2007-31, Institute for Social and Economic Research.
    2. Ermakov, Stepan, 2012. "The impact of smoking intensity on wages in Russia," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 25(1), pages 70-94.
    3. Andrew Sharpe & Alexander Murray, 2011. "State of the Evidence on Health as a Determinant of Productivity," CSLS Research Reports 2011-04, Centre for the Study of Living Standards.
    4. Nils Braakmann, 2008. "The smoking wage penality in the United Kingdom: Regression and matching evidence from the British Household Survey Panel," Working Paper Series in Economics 96, University of Lüneburg, Institute of Economics.

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    More about this item

    Keywords

    Smoking; Wages; Earnings Regressions;
    All these keywords.

    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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