Employment, wages, and alcohol consumption in Russia.

• Author: Tekin, Erdal

1. Introduction

   Concerns regarding the relationship between alcohol consumption and labor market productivity are well grounded. If problem drinking or alcoholism is considered a disease, then it may have depressant effects on labor market productivity, causing reductions in employment, earnings, and other labor market outcomes (Mullahy and Sindelar 1993, 1996; Kenkel and Ribar 1994). However, there is a medical literature that documents a U-shaped relationship between alcohol consumption and the risk of cardiovascular disease. According to this literature, moderate drinkers have a lower risk of cardiovascular disease than do either abstainers or heavy drinkers (Beagtehole and Jackson 1992; Doll et al. 1994). Consistent with this evidence, several economists have found a positive association between moderate drinking and earnings (Berger and Leigh 1988; French and Zarkin 1995; Heien 1996; Hamilton and Hamilton 1997; Zarkin et al. 1998; MacDonald and Shields 2001).

   This article investigates the impact of alcohol consumption on employment and wages in Russia. The primary contributions of the article are twofold. First, it enhances the economic literature on the relationship between alcohol consumption and labor market behavior by using data from a longitudinal survey. The use of a longitudinal data set enables the estimation of a fixed effects model, which helps avoid the potential bias caused by unobserved individual factors not captured in cross-sectional models. The use of a fixed effects model is an important extension to the literature because the data sets used in previous studies are cross-sectional and usually lack adequate variables that could serve as identifying instruments to control for the endogeneity of alcohol consumption. (1) Furthermore, the richness of the data set used in this article allows for the application of three alternative measures of alcohol consumption in the empirical analysis. This is important because the relationship between alcohol consumption and labor market outcomes may be sensitive to the alcohol measure that is used.

   The second notable contribution of this article is that it provides the first empirical evidence on the association between alcohol consumption and labor market outcomes in Russia. Excessive alcohol consumption is a widespread problem in Russia, where per capita alcohol consumption is around 14 liters per year. The World Health Organization (WHO) considers 8 liters to be a sign that a country has a critical consumption level for health problems (Quinn-Judge 1997). Furthermore, the dramatic fluctuations in mortality rates experienced in Russia over the past 15 years have generated considerable attention to the potential effect of alcohol consumption on the overall health of the Russian population. It is important to investigate how labor market outcomes would be affected by alcohol consumption in a country which demonstrates such dramatic fluctuations in alcohol consumption and mortality.

   Consistent with the previous studies, cross-sectional results generally support the hypothesis of an inverse U-shaped relationship between alcohol consumption and wages and employment. Results from the fixed-effect models are found to be quite different from those of cross-sectional models. The positive effect of alcohol consumption on employment disappears for both males and females once the individual fixed effects are controlled for. The results of the wage model lend support to a small and linear return to alcohol consumption, but the effects are significant only at the 10% level. The fixed effects estimates are smaller in magnitude and estimated with less precision compared with cross-sectional estimates.

   Section 2 reviews the previous literature. Section 3 discusses the conceptual issues and empirical strategy. Section 4 introduces the data set. Section 5 provides a discussion of the results and sensitivity analyses. Section 6 concludes the article.

2. Previous Literature

   There is a considerable literature on the impact of alcohol consumption and alcoholism on labor market behavior. However, the vast majority of this literature concentrates on the United States, mainly due to data limitations (e.g., Berger and Leigh 1988; Mullahy and Sindelar 1993, 1996; Kenkel and Ribar 1994; French and Zarkin 1995; Heien 1996; Zarkin et al. 1998; Terza 2002). (2) Only two studies examine alcohol consumption and labor market behavior outside the United States. Hamilton and Hamilton (1997) look at the relationship between alcohol consumption and earnings for males in Canada. MacDonald and Shields (2001) estimate the impact of alcohol consumption on occupational attainment in England.

   Previous research typically recognizes the potential endogeneity of alcohol consumption and accounts for it via instrumental variables. The instrumental variables approach usually generates larger estimates than the ordinary least squares (OLS). However, the coefficients are often estimated with little precision, mainly due to weak identification. Previous researchers also recognize that women and men differ systematically in their labor market behavior and alcohol consumption as well as their reaction to ethanol (Roman 1988; Wilsnack and Wilsnack 1992; Caetano 1994; Lex 1994), and therefore, conduct their analyses separately for men and women.

   Previous studies vary in both the labor market outcomes analyzed and the alcohol consumption measures used. Labor market outcomes are typically measured as employment, wage rate, unemployment, and earnings. Alcohol consumption measures include a binary yes/no indicator of alcohol consumption, multiple binary indicators of alcohol consumption at different levels, frequency of consumption over a specified period (e.g., the number of drinks consumed, the amount of ethanol consumed, etc.), and intensity of consumption such as clinical measures of alcoholism and problem drinking. With the exception of Kenkel and Ribar (1994), all studies rely on cross-sectional data to estimate the impact of alcohol consumption on labor market outcomes. Limitations caused by cross-sectional data have been usually acknowledged as a shortcoming of the previous research (French and Zarkin 1995; Hamilton and Hamilton 1997; French, Roebuck, and Kebreau 2001).

   The researchers have considered several mechanisms through which alcohol consumption may influence labor market outcomes. One of these mechanisms rests on the medical findings of a U-shaped association between alcohol consumption and the risk of cardiovascular disease, which suggests that alcohol consumption at moderate levels may be beneficial for health for relieving stress and reducing the incidence of heart disease. Another mechanism is based on the potentially positive effect of alcohol consumption on the sociability of individuals (Skog 1980; Montgomery 1991; Brodsky and Peele 1999; Putnam 2000). This mechanism suggests that alcohol may play a networking role if consumed during the time spent with colleagues from work by serving as a signal of the individual's commitment to the firm. Also, time spent with colleagues could help the individual derive additional information about the promotion opportunities of the workplace (MacDonald and Shields 2001). Researchers motivated by these mechanisms usually find a positive or inverse U-shaped relationship between drinking and labor market outcomes (Berger and Leigh 1988; French and Zarkin 1995; Heien 1996; Hamilton and Hamilton 1997; Zarkin et al. 1998; MacDonald and Shields 2001).

   Researchers using alcoholism or problem drinking as the appropriate measure of alcohol consumption are primarily motivated by the medical literature linking alcoholism and heavy drinking to physical, psychological, and cognitive impairments, which would be detrimental to individuals' labor market productivity (Cruze et al. 1981; Farrell 1985; Fingarette 1988a, b). These researchers usually document deterrent effects of alcohol consumption on employment and earnings (Mullahy and Sindelar 1993, 1996; Kenkel and Ribar 1994). (3)

   Motivated by an alarming trend in alcohol consumption and a rising death rate, researchers have concentrated exclusively on the potential link between alcohol consumption and mortality in Russia (Ryan 1995; Leon et al. 1997). (4) However, the evidence concerning the relationship between alcohol consumption and labor market behavior is limited and based primarily on descriptive evidence. For example, Bobak et al. (1999) use odds ratios calculated by unconditional logistic regression to analyze the levels and distribution of alcohol consumption in Russia. They find that factors related to reaction to economic changes and the rating of family economic situation are not strongly related to alcohol consumption. Several other studies document a link between the decline in health status and economic hardship and suggest that alcohol is largely responsible for it (Cornia 1997; Bobak et al. 1998; Walberg et at. 1998).

3. Conceptual Issues and Empirical Strategy

   Employment-Alcohol Consumption

   The relationship between alcohol consumption and employment can be obtained using a neoclassical framework of utility maximization in which individuals allocate their time and money among consumption of leisure, alcohol, and a composite good. The solution to this optimization would yield labor supply and alcohol demand equations as functions of all prices, wage rate, and all other observable and unobservable factors. Thus, the alcohol demand and labor supply equations can be expressed as follows:

   (1) [A.sub.it] = A([P.sub.Ait], [W.sub.it], [X.sub.it], [U.sub.it])

   (2) [H.sub.it] = H([P.sub.Ait], [W.sub.it], [X.sub.it], [U.sub.it]),

   where [A.sub.it] is the alcohol consumption for individual i at time t, [H.sub.it] is the time spent working, [P.sub.Ait] is the price of alcohol, [W.sub.it] is the wage rate, [X.sub.it], is a vector of all observable factors, including nonwage income, and [U.sub.it] is...