The Myth of the Drinker&Apos;S Bonus
44 Pages Posted: 20 Jul 2006 Last revised: 11 Jul 2010
Date Written: December 2005
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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