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Biases in Estimates of the Smoking Wage Penalty

  • Silke Anger
  • Michael Kvasnicka

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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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2006-089.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-089.

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Length: 15 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-089
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  1. 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).
  2. 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.
  3. Phillip B. Levine & Tara Gustafson & Ann D. Velenchik, 1997. "More bad news for smokers? The effects of cigarette smoking on wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 50(3), pages 493-509, April.
  4. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," United Kingdom Stata Users' Group Meetings 2003 02, Stata Users Group.
  5. van Ours, J.C., 2004. "A pint a day raises a man's pay, but smoking blows that gain away," Other publications TiSEM 1447748f-5e9e-4064-84f2-1, Tilburg University, School of Economics and Management.
  6. M. Christopher Auld, 2005. "Smoking, Drinking, and Income," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
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