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The Myth of the Drinker's Bonus

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Author Info
Philip J. Cook
Bethany Peters

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Abstract

Drinkers earn more than non-drinkers, even after controlling for human capital and local labor market conditions. Several mechanisms by which drinking could increase productivity have been proposed but are unconfirmed; the more obvious mechanisms predict the opposite, that drinking can impair productivity. In this paper we reproduce the positive association between drinking and earnings, using data for adults age 27-34 from the National Longitudinal Survey of Youth (1979). Since drinking is endogenous in this relationship, we then estimate a reduced-form equation, with alcohol prices (proxied by a new index of excise taxes) replacing the drinking variables. We find strong evidence that the prevalence of full-time work increases with alcohol prices %u2013 suggesting that a reduction in drinking increases the labor supply. We also demonstrate some evidence of a positive association between alcohol prices and the earnings of full-time workers. We conclude that most likely the positive association between drinking and earnings is the result of the fact that ethanol is a normal commodity, the consumption of which increases with income, rather than an elixer that enhances productivity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11902.

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Date of creation: Dec 2005
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Handle: RePEc:nbr:nberwo:11902

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Find related papers by JEL classification:
I12 - Health, Education, and Welfare - - Health - - - Health Production
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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