Do Drinkers Earn Less?

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