The Myth of the Drinker's Bonus

44 Pages Posted: 20 Jul 2006 Last revised: 11 Jul 2010

See all articles by Philip J. Cook

Philip J. Cook

Duke University - Sanford School of Public Policy; Duke University, Dept. of Economics; National Bureau of Economic Research (NBER)

Bethany L. Peters

Rhodes College

Date Written: December 2005

Abstract

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.

Suggested Citation

Cook, Philip J. and Peters, Bethany L., The Myth of the Drinker's Bonus (December 2005). NBER Working Paper No. w11902. Available at SSRN: https://ssrn.com/abstract=872738

Philip J. Cook (Contact Author)

Duke University - Sanford School of Public Policy ( email )

201 Science Drive
Box 90312
Durham, NC 27708-0239
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919-613-7360 (Phone)
919-681-8288 (Fax)

Duke University, Dept. of Economics

213 Social Sciences Building
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Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Bethany L. Peters

Rhodes College ( email )

2000 N. Parkway
Memphis, TN 38112
United States

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