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The Myth of the Drinker's Bonus

  • Philip J. Cook
  • Bethany Peters

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
Note: HE LS
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  1. Christopher Ruhm, 1994. "Economic Conditions and Alcohol Problems," NBER Working Papers 4914, National Bureau of Economic Research, Inc.
  2. Steven F. Koch & Kerry Anne McGeary, 2005. "The Effect of Youth Alcohol Initiation on High School Completion," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 750-765, October.
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  4. Marcel Fafchamps & Steven N. Durlauf, 2004. "Social Capital," Economics Series Working Papers WPS/2004-14, University of Oxford, Department of Economics.
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  11. Mullahy, John & Sindelar, Jody L, 1993. "Alcoholism, Work, and Income," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 494-520, July.
  12. Philip J. Cook & George Tauchen, 1982. "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 379-390, Autumn.
  13. Zarkin, Gary A. & French, Michael T. & Mroz, Thomas & Bray, Jeremy W., 1998. "Alcohol use and wages: New results from the national household survey on drug abuse," Journal of Health Economics, Elsevier, vol. 17(1), pages 53-68, January.
  14. Vivian Hamilton & Barton H. Hamilton, 1997. "Alcohol and Earnings: Does Drinking Yield a Wage Premium," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 135-51, February.
  15. Donald S. Kenkel & Ping Wang, 1999. "Are Alcoholics in Bad Jobs?," NBER Chapters, in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research, pages 251-278 National Bureau of Economic Research, Inc.
  16. Jeremy W. Bray, 2005. "Alcohol Use, Human Capital, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 279-312, April.
  17. Mullahy, John & Sindelar, Jody L, 1991. "Gender Differences in Labor Market Effects of Alcoholism," American Economic Review, American Economic Association, vol. 81(2), pages 161-65, May.
  18. Grossman, Michael, 2000. "The human capital model," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 7, pages 347-408 Elsevier.
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