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Does smoking really harm your earnings so much? Biases in current 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. This article produces evidence that suggests that these estimates are significantly upward biased. The bias arises from a general failure in the literature to control for past smoking behaviour of individuals. Two-Stage Least Squares (2SLS) regressions show that the smoking wage penalty is reduced by as much as a third, if past smoking of individuals is controlled for.

Suggested Citation

  • Silke Anger & Michael Kvasnicka, 2010. "Does smoking really harm your earnings so much? Biases in current estimates of the smoking wage penalty," Applied Economics Letters, Taylor & Francis Journals, vol. 17(6), pages 561-564.
  • Handle: RePEc:taf:apeclt:v:17:y:2010:i:6:p:561-564 DOI: 10.1080/13504850802260846
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    References listed on IDEAS

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    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    2. Clark, Andrew E. & Etile, Fabrice, 2006. "Don't give up on me baby: Spousal correlation in smoking behaviour," Journal of Health Economics, Elsevier, pages 958-978.
    3. van Ours, Jan C, 2002. "A Pint a Day Raises a Man's Pay; But Smoking Blows that Gain Away," CEPR Discussion Papers 3308, C.E.P.R. Discussion Papers.
    4. Christian Bantle & John P. Haisken-DeNew, 2002. "Smoke Signals: The Intergenerational Transmission of Smoking Behavior," Discussion Papers of DIW Berlin 277, DIW Berlin, German Institute for Economic Research.
    5. Phillip B. Levine & Tara A. Gustafson & Ann D. Velenchik, 1995. "More Bad News for Smokers? The Effects of Cigarette Smoking on Labor Market Outcomes," NBER Working Papers 5270, National Bureau of Economic Research, Inc.
    6. 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.
    7. Heineck, Guido & Schwarze, Johannes, 2003. "Substance Use and Earnings: The Case of Smokers in Germany," IZA Discussion Papers 743, Institute for the Study of Labor (IZA).
    8. M. Christopher Auld, 2005. "Smoking, Drinking, and Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
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    Cited by:

    1. Pierre Pestieau & Gregory Ponthiere, 2012. "Myopia, regrets, and risky behaviors," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 288-317.
    2. Eric A. BONDZIE, 2016. "Effect of Smoking and other Economic Variables on Wages in the Euro Area," Journal of Economics Bibliography, KSP Journals, vol. 3(1), pages 38-52, March.

    More about this item

    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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