Do drinkers earn less?

• Author: Heien, Dale M.

1. Introduction

   Theoretical work by Becker and others on human capital led initially to empirical research on the determinates of earnings. Interest in human capital has now spread to other areas, especially health. This movement is in conjunction with societal concerns regarding the role of diet and environmental factors on human well-being and performance. Following Becker [1] and Grossman [9], economists expect to find a significant relationship between health and earnings. Health aspects of human capital have been extensively explored since the early work of Grossman [9; 10]. Good health is both beyond the control of the individual (exogenous) as a result of genetic factors and random events, and controllable (endogenous) through the regulation of activities such as smoking, drinking, eating, exercise and other informed choices. This study examines the relation between earnings and drinking.

   Curiously, little rigorous empirical work has been done on the relation between earnings and drinking. Irving Fisher's claim to the contrary,(1) there is little evidence that prohibition led to substantial, if any, productivity increases. Although it is established that excessive drinking leads to poor health, the empirical evidence regarding earnings and drinking is mixed and inconclusive. According to the U.S. Government, abusive drinkers earn less. In their biennial reports to Congress, the National Institute on Alcohol Abuse and Alcoholism (NIAAA) estimates the "economic cost to society" of alcohol abuse. Approximately half of this cost arises from the estimated loss in earnings (productivity) due to abusive drinking.(2) Their approach consists of estimating a wage equation which includes human capital variables as well as a dichotomous abusive drinking variable and quantity of alcohol consumed.(3)

   Berger and Leigh [3] used a sample selection model to test whether drinkers earned more or less than nondrinkers. They divided their sample (from the 1972-73 Quality of Employment Survey) into two categories: drinkers and nondrinkers. Using a sample selection correction estimator, hedonic wage regressions for each category (and by sex) were estimated. They found that drinkers (moderate and abusive combined) earned more than nondrinkers. Comparisons were then made between wages from each regression with demographic and human capital variables set at the same levels. The drinkers earned more in all cases. Model [21] found positive and significant effects on income and wages for both moderate and heavy alcohol use. Model used the National Household Survey on Alcohol and Drug Abuse: 1984. Heien and Pittman [13] using the same data and specification as the 1984 NIAAA study, but a different econometric procedure found a positive, but not significant, effect of alcohol on earnings. Manning et al. [20] found that alcohol consumption had no effect on days lost from work or on visits to the doctor. Work by Kenkel and Ribar [16] on alcohol use by young adults shows mixed effects for men versus women. Recent work by French and Zarkin [8] and Heien [12] develop and test models along the lines discussed below.

   An alternative approach is to examine the effect of psychiatric diagnoses on earnings, since alcoholism is defined in those terms. Using data containing information on DSM (Diagnostic and Statistical Manual) criterion, Benham and Benham [2] found that alcoholism was not a statistically significant factor in either earnings or employment. The effects were mixed in sign. The most recent NIAAA study(4) uses the Epidemiologic Catchment Area data base and employs the DSMALC criterion for alcoholism. By this definition, alcoholics were found to have lower earnings.(5) Mullahy and Sindelar [23] used the DSMALC criterion and found similar results. Excellent reviews of the work in this area can be found in Cook [6] and Mullahy [22].

   These previous studies have either used hedonic regressions and/or sample partitioning methods to test for the effect of alcohol on earnings. As noted above, these efforts have yielded conflicting results. While there is considerable reference to the well known negative effects of alcohol abuse,(6) there is little consideration given to medical findings on the effects of moderate drinking or abstinence. Interestingly, the medical literature also has a good deal to say concerning the effects of moderate drinking and abstinence.

   The medical research, discussed in more detail below, indicates that both abusive drinkers and abstainers are at significantly greater risk for heart attack than moderate drinkers. Some of the problems of the previous economic analysis can perhaps be understood in the light of this research. Assuming that heart disease is related to income (also discussed below), then both abstainers and abusers will have lower incomes than moderate drinkers. The results obtained by researchers when attempting to use sample partition methods or linear regression will depend on the sample "mix." If there are large numbers of abusers, or abstainers, or both, income will be negatively related to alcohol consumption, as some studies have shown. If there are large numbers of moderate consumers, alcohol consumption will be positively related to income, as some studies have shown. If the sample is fairly balanced between abusers and abstainers and moderates, then alcohol will have no effect on income, as some studies have shown.

   This paper attempts to demonstrate that the medical literature has been largely disregarded in specifying the human capital models of the relation between alcohol consumption and earnings. Furthermore, when this literature is considered in the specification, the empirical results are in line with the medical findings.

2. Alcohol and Health: A Look at the Medical Literature

   Although it is well known that excessive drinkers have health problems, what is less well known is that moderate drinkers apparently have above average health - above the average of both abusers and nondrinkers alike. In the past decade the evidence for this effect has been further refined and its basis better understood.

   One of the main points of this refinement relates to the type of heart disease under consideration. Drinkers have less coronary artery disease (CAD)(7) and fewer strokes due to blocked blood vessels. Heavy drinkers suffer from cardiomyopathy (heart muscle disease), hypertension (high blood pressure), hemorrhagic stroke and rhythm disturbances. Lastly, it should be noted that CAD is by far the largest heart disease problem in terms of cause of death. The second point which recent studies have clarified is the role of other...