smoking drinking and income in an effort to increase understanding of the alcohol income puzzle the finding that drinking appears to lead to higher income this paper presents maximum simulated likelihood estimates of a system of limited dependent variables governing smoking and drinking patterns and income with all else held constant moderate drinking is associated with 10 percent higher income and heavy drinking associated with 12 percent higher income than drinking abstention smoking is associated with larger effects on income than drinking single equation estimates suggest smokers earn 8 percent less than nonsmokers and the smoking penalty rises to 24 percent after correcting for endogeneity

optimal inflation tax under precommitment theory and evidence the authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax a distinguishing feature of the analysis is that the welfare loss from inflation the money demand function and the time path of inflation are jointly derived from first principles of government and private sector intertemporal optimization quarterly data for argentina brazil and israel are used in implementing the model although the overidentifying restrictions of the model are not rejected in most cases there are several data points characterized by higher rates of inflation than the optimal rates under precommitment copyright 1992 by american economic association

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

what s legal and what s not the regulation of opiates in 1912 this paper develops a model to explain state level opiate regulation in 1912 the personal choice of whether to engage in mainstream or deviant activity is determined by consumption technology and market prices and voting determines the legality of deviant behavior voting outcomes depend on population characteristics including diversity tolerance visiblilty of deviance and the distribution of consumption efficiencies a logit equation whose dependent variable is the presence of a state opiate prescription law is estimated results broadly support the collective choice model and disconfirm the role of interest groups particularly physicians in determining prescription regulation i introduction alcohol and nicotine may be the most dangerous drugs sold today considering their effects on health and accidents legal restrictions on the sale and private use of tobacco and alcohol are minor some currently illegal substances including marijuana and opiates might in fact be less harmful than alcohol and tobacco ff used in moderation why are some commodities legal and others not economists should be interested in the question for two reasons the first is that the work of non economists often uses economic metaphors a number of historians have described the prohibition of alcohol and opiates in america in terms of interest group politics 1 economists however have yet to explain these episodes using their own models of regulation and collective choice the second reason is that the historical facts are dramatic enough to tax the explanatory power of economics between 1890 and 1920 private transactions in alcohol and opiates went from being virtually unregulated by the federal government to complete illegality 2 this change in legal status was not a response to new scientific knowledge about the substances becker s model of household production 1981 chs 1 and 2 formalizes the questions at issue lannaccone 1988 has recently used becker s model to analyze the sociological distinction between mainstream churches and religious sects assuming individuals have differing consumption technologies he derives propositions about the characteristics of religious sects and their members iannaccone 1988 242 45 notes that churches are characterized by inclusivity and sects by exclusivity church members have more heterogeneous beliefs socialize mainly with people from outside their church and place few demands on their church for non religious support services churches are more tolerant of diverse behavior and place fewer restrictions on the conduct of members church members span a wider range of demographics than do sect members they are on average economically better off than sect members but sect members contribute more funds to their institutions the distinction between churches and sects is analogous to that between licit and illicit drug use drug users are demographically more homogeneous than nonusers more poorly socialized and more likely to spend a major portion of their time in drug related activity 3 they have lower productivity than alcohol or tobacco users both at work and in household consumption 4 and are more likely to restrict themselves to companions with similar consumption patterns kandel and maloff 1983 suggest that learning to use drugs in the subculture resembles an initiation into the rites and beliefs of a deviant sect according to winick 1974 the exit from drug taking like that from a sect is often a total burnout to zero use which occurs at a predictable time the church sect model yields such predictions about drug use and generalizes individualistic models of that activity 5 in the next section i model an individual who receives utility from consumption itself and from the attitude or state of mind in which consumption takes place consumption and attitude are the outputs of household production functions after deriving the optimum in a two activity model i analyze the choice between mainstream and deviant attitudinal activities

the demand for beer wine and spirits a survey of the literature the demand for alcohol literature is vast and much conflicting information about the nature of the demand for alcoholic beverages has been published this paper presents a survey of the literature and then uses the technique of meta regression analysis to establish insights into the nature of the demand for beer wine and spirits unlike previous meta studies of the demand for alcoholic beverages this study adjusts for the precision of each elasticity estimate the analysis presented suggests reported elasticity estimates will be influenced by such factors as estimation technique data frequency and time period under consideration with respect to time the findings suggest that the demand for alcoholic beverages has become less inelastic since the mid 1950s and that the income elasticity has been falling since the mid 1960s the analysis also found support for the idea that alcohol as a commodity group is a necessity and that consumers respond to price discounting with inventory behaviour rather than true substitution behaviour little support is found for the idea that the demand for alcoholic beverages varies fundamentally across most countries although wine may be an exception language en

exploring the intergenerational persistence of mental health evidence from three generations this paper uses data from the 1970 british cohort study to quantify the intergenerational persistence of mental health and the long run economic costs associated with poor parental mental health we find a strong and significant intergenerational correlation that is robust to different covariate sets sample restrictions model specifications and potential endogeneity importantly the intergenerational persistence is economically relevant with maternal mental health associated with lasting effects on the child s educational attainment future household income and the probability of having criminal convictions these results do not disappear after controlling for children s own childhood and adulthood mental health

state alcohol policies teen drinking and traffic fatalities this empirical study evaluates the policy responsiveness of teen drinking in models that can condition on the unobserved state specific attributes that may have biased conventional evaluations the results demonstrate that cross state heterogeneity can be important and that beer taxes have relatively small and statistically insignificant effects on teen drinking models of youth traffic fatalities also indicate that the conventional beer tax elasticities are not robust to additional controls for omitted variables the importance of these omitted variables is illustrated by a counterfactual which compares models of nighttime fatalities to those that occur in the daytime when the rate of alcohol involvement is substantially lower

fair management of social risk we provide a general method for extending social preferences defined for riskless economic environments to the context of risk and uncertainty we apply the method to the problems of managing unemployment allowances in the context of macroeconomic fluctuations and catastrophic risks in the context of climate change the method guarantees ex post fairness and pays attention to individuals risk attitudes while ensuring rationality properties for social preferences revisiting basic ideas from harsanyi s celebrated aggregation theorem harsanyi 1955 the social preferences that we obtain do not always take the form of an expected utility criterion but they always satisfy statewise dominance when we require social preferences to be expected utilities we obtain a variant of harsanyi s result under a weak version of the pareto principle and a maximin criterion under a stronger pareto requirement whenever the ex post social ordering does not depend on people s risk attitudes we also show how non expected utility individual preferences can be accommodated in the approach

alcohol consumption and human capital a retrospective study of the literature grossman proposed an individual s health can be viewed as one aspect of their human capital following this line of thought a number of recent papers have reported a positive impact of alcohol consumption on earnings the rationale for the existence of such a relationship is the positive impact of alcohol on physical and mental health we conduct a meta analysis to determine whether such factors as the estimation technique the presence of ex drinkers in the sample possible sample selection bias and publication bias may all contribute to these findings an additional suggestion for the positive relationship between alcohol and wages is the presence of a common set of personality traits that determines drinking behaviour and also leads to higher earnings we examine this relationship by reviewing the literature that investigates if the personality influencing aspects of alcohol consumption influences measures of human capital we also survey the significant body of research that has examined how alcohol consumption has been found to influence educational outcomes and the work force participation of problem drinkers

who pays the bar tab beer consumption and economic growth in the united states what drug provides americans with the greatest pleasure and the greatest pain the answer hands down is alcohol the pain comes not only from drunk driving and lost lives but also addiction family strife crime violence poor health and squandered human potential young and old drinkers and abstainers alike all are affected every american is paying for alcohol abuse phillip j cook paying the tab the costs and benefits of alcohol control 2007 i introduction alcohol consumption has severe social and economic consequences lost productivity disability early death crime family neglect personality deterioration to name a few cook 2007 at the individual level the effects of alcohol consumption have been explored considerably by researchers in different fields including economics medicine public health criminology and sociology however few studies have examined the economic impact of alcohol use at the aggregate level probably due to the research deficiency regarding its aggregate effects some disagreement exists about the overall net benefits of alcohol use on the one hand scholars who have done extensive research on individual outcomes claim that the overall costs of alcohol use outweigh its benefits for example cook and moore 2002 120 state in their review article the production and sale of alcoholic beverages account for a small share of national product in the united states and in other advanced economies however the deleterious effects of alcohol consumption on health and safety constitute a substantial economic burden reducing our overall standard of living on the other hand organizations formed by the producers and distributors of alcoholic beverages claim that the alcoholic beverage industry contributes significantly to the u s economy through job creation and tax revenues according to beer serves america 2011 an organization sponsored by the beer institute and the national beer wholesalers association nbwa directly and indirectly the beer industry employs approximately 1 8 million americans paying them over 71 billion in wages and benefits the industry pays over 44 billion in business personal and consumption taxes including 5 3 billion in excise taxes and 5 8 billion in sales gross receipts and other taxes 1 similarly the distilled spirits council of the united states discus 1999 the national trade association representing america s leading distillers and about 70 of all distilled spirits brands sold in the united states states that the alcohol beverage industry is a major contributor to the u s economy through job creation wages and taxes 2 room and jernigan 2000 point out that the benefits reaped from the alcohol industry in terms of economic development should be weighed against the negative impacts on economic development in addition to public health they go on to say that alcohol s contribution to total production can vary tremendously from country to country generating 3 of total manufacturing value added in argentina or the netherlands but as little as 0 07 in iran aside from the aforementioned contributions of the alcohol industry to the economy often cited by the industry itself supply side efforts also play a role in the consumption of alcohol this can be done through influencing government regulation of the market for alcohol and selling cheap alcohol in bulk which has a devastating public health impact stockwell and crosbie 2001 indeed the economic burden of excessive alcohol consumption has been found to be substantial recently estimated at 223 5 billion bouchery et al 2011 although a few studies have examined the impact of macroeconomic conditions on drinking prevalence and patterns such as those by ruhm and black 2002 and ruhm 1995 we are not aware of any studies exploring the impact of alcohol consumption on economic growth

international financial contagion in currency crises abstract this paper examines the role of financial linkages especially through a common creditor in the propagation of emerging market crises during the 1990s using panel probit regressions on 41 emerging market countries it finds that financial linkages played a significant role in the spread of the mexican asian and russian crises the significance of financial linkages emerges after controlling for the role of domestic and external fundamentals trade spillovers and financial weaknesses in the affected countries a strong financial linkage to the crisis country of origin not only substantially raises the probability of contagion but also helps to explain the observed regional concentration of currency crises

using selection on observed variables to assess bias from unobservables when evaluating swan ganz catheterization distinguishing causal effects from correlations is a key objective of research regardless of field even in medicine controlled experiments are not always practical or ethical in economics and we suspect in most other fields identification strategies based upon observational data are rarely bulletproof in their landmark study a f connors et al 1996 use propensity score matching methods with an extremely rich set of demographic characteristics and health status measures to assess whether swan ganz catheterization 1c 2 a widely used device for monitoring intensive care unit icu patients raises or lowers mortality in their sample of icu patients they find that receiving c within the first 24 hours raises mortality rates casting serious doubt on the value of this procedure for critically ill patients jay bhattacharya azeem m shaikh and edward vytlacil 2007 2008 hereafter bsv observe that since c recipients are sicker on many observed dimensions propensity score matching which ignores selection on unobservables might overstate the negative consequences of c they apply a set of bounds estimators including an extension of shaikh and vytlacil 2004 that incorporates prior information that weekend applications of recent methodology in project evaluation

a model of contagious currency crises with application to argentina abstract this paper proposes a model of contagious currency crises where crises are transmitted across countries through a risk premium effect on government bonds three types of equilibria can occur in the model a no collapse equilibrium in which a crisis is never transmitted from abroad a collapse equilibrium in which a crisis is inevitably contagious and a fundamentals equilibrium in which a crisis is contagious when domestic fundamentals are weak enough the model is calibrated to the march 1995 argentine crisis that followed on the heels of the december 1994 mexican peso crisis the results imply that the occurrence of the 1995 argentine crisis reveals a combination of risk aversion of investors and weak credibility in the currency board arrangement the argentine crisis however could only be attributed to a tequila effect alone contagion from the mexican crisis without any role for weak domestic fundamentals if investors were excessively risk averse

economic policy in germany was there a turnaround germany under kohl martin hellwig and manfred neumann chancellor kohl came to power when germany was suffering its greatest post war confidence crisis output was stagnant the trade balance deteriorating unemployment rising and inflation uncomfortably high immediate priority was given to fiscal consolidation to bring the growing budget deficit under control the authors argue that in this instance fiscal contraction sufficiently boosted private sector confidence that overall demand was actually stimulated together fiscal rectitude by the federal government and monetary austerity by the bundesbank made possible sustained output growth against a background of falling inflation lower deficits also crowd in private investment in the longer run thus the authors judge kohl s macroeconomic policy a considerable success however unemployment has remained stubbornly high the authors attribute this to supply side failures the german labour market remains subject to many distortions which the kohl government has done little to remove nor has it seriously pursued deregulation of product markets german unemployment is likely to remain high at least until favourable demographic changes take effect in the 1990s

the effect of drinking and smoking on the labour market outcomes of low income young adults among adults the causal drinking bonus and smoking penalty have been estimated to be as large as 12 and 24 respectively the magnitudes of these effects compare in size with many active labour market programs targeted at low income young adults this article extends the literature by examining these relationships in such a group somewhat surprisingly the data indicate that just as in the greater population young drinkers have more favourable labour market outcomes than nondrinkers however when a fixed effects approach is used to identify causal impacts there is no evidence that drinking has a positive impact on labour market outcomes and some evidence for negative returns to drinking the smoking penalty is estimated to be much smaller among this group and not statistically significant finally estimates suggest that the observed correlations between consumption and labour market outcomes are biased by unobserved characteristics of the individual as well as unobservables that change over time t

risk sharing on the labour market and second best wage rigidities the starting point of the analysis is that a significant proportion of the labour force is not covered by efficient labour contracts in particular the non existence of forward labour contracts limits the opportunity of efficient risk sharing through private arrangements among young labour suppliers and capital owners in such a context state dependent labour taxes and employment subsidies would be required to achieve ex ante pareto efficiency in the absence of employment subsidies a certain limited degree of downward wage rigidity is in general pareto superior to full wage flexibility at the second best optimum so defined productive efficiency is sacrificed in some states in order to achieve greater efficiency in risk sharing thus the unemployment associated with wage rigidity is inefficient though voluntary due to the levels of benefits and second best efficient a limited degree of wage discrimination by hiring date is typically part of the second best policy

when borch s theorem does not apply some key implications of market incompleteness with policy relevance today markets are incomplete when the assets available to the agents do not span the space of future contingencies efficiency is then assessed by the weak criterion of constrained efficiency efficiency relative to the set of allocations compatible with the asset structure that criterion requires firms to optimise relative to shadow prices reflecting shareholders preferences yet even when firms do so competitive equilibria on the markets for assets and commodities fail generically to be constrained efficient section 3 pareto superior allocations can be implemented through price wage rigidities and quantity constraints section 4 but nominal rigidities are conducive to multiple equilibria implying endogenous macroeconomic uncertainties that compound the primitive exogenous uncertainties section 5 various policy implications can be drawn which are of some relevance to the current crisis

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

psychiatric disorders and labor market outcomes evidence from the national comorbidity survey replication this paper uses the national comorbidity survey replication to estimate effects of recent psychiatric disorder on employment hours worked and earnings we employ methods proposed in altonji et al 2005a which use selection on observable traits to provide information regarding selection along unobservable factors among males disorder is associated with reductions in labor force participation and employment when selection on observed characteristics is set equal to selection on unobserved characteristics the magnitudes of these effects for males are 9 and 14 percentage point reductions for participation and employment respectively among females we find negative associations between disorder and labor force participation and employment but these estimates are more sensitive to assumptions about selection there are no effects of disorder on earnings or hours worked among employed individuals

decreasing absolute prudence characterization and applications to second best risk sharing abstract in this paper we provide two basic properties of utility functions u which exhibit decreasing absolute prudence i e u u 0 these properties are used to examine the allocation of risks in an economy when some agents bear non transferable risks we show that it is fair pareto efficient to let those with a non transferable risk bear relatively less of the transferable risk in the economy if and only if absolute prudence is decreasing in another model there is a complete set of contingent markets but some agents have no direct access to them we examine the fair efficient allocation of risk in a pool gathering a trader and a non trader decreasing absolute prudence provides an upper bound to the share of the pool s risk that should be borne by the trader

is there a wage bonus from drinking unobserved heterogeneity examined while the result that drinkers earn more than abstainers has been remarkably persistent only one paper in the literature on drinking and earnings has been written where individual fixed effects are included this study improves the current literature by utilizing a much longer panel and focuses on the low end of drinking while controlling for unobserved heterogeneity with the inclusion of individual specific effects it is found that while ols specifications yield a positive significant coefficient on current drinking even when a rich set of covariates is controlled for including individual fixed effects renders the coefficient statistically insignificant

labour market rigidities and international risk sharing across oecd countries abstract in this paper we examine the role of labour market rigidities in the context of international consumption risk sharing stronger labour market regulation may make it easier to borrow against future income thus allowing shocks to be smoothed to a greater extent in addition rigid labour markets may help to enforce implicit contracts that shift risk from employees to owners of firms who in turn may diversify risk internationally using data for 19 oecd countries we show that labour market rigidities significantly increase consumption correlations and reduce the exposure to country specific shocks these results suggest that labour market rigidities improve the international sharing of consumption risks by fostering a more efficient intra national allocation of risk

on the optimality of a minimum wage new insights from optimal tax theory we build a theoretical model to study whether a minimum wage can be welfare improving if it is implemented in conjunction with an optimized nonlinear income tax we consider this issue in a framework where search frictions on the labor market generate unemployment workers differ in productivity the government does not observe workers productivity but only their wages hence the redistributive policy solves an adverse selection problem we show that a minimum wage is optimal if the bargaining power of the workers is relatively low however if the government controls the bargaining power then it is preferable to set a sufficiently high bargaining power

the drinkers bonus in the military officers versus enlisted personnel applied economics published the first article reporting the findings of drinkers earning more than nondrinkers in 1988 the positive correlation between drinking and higher wages has existed in the economics literature on alcohol consumption for almost two decades however a clear explanation for this finding is only beginning to emerge i use data on male military personnel from the 1985 worldwide survey of alcohol and nonmedical drug use among military personnel to explore a theory of social capital specifically one way individuals can invest in social capital is through drinking in certain settings abstainers miss out on opportunities to increase their social capital stock because they forego social interaction that could result in promotion some evidence comes from exploring the wage bonus for officers versus enlisted i find the effect of different drinking levels on wages varies with station in the military officers who drink between two and 38 drinks per week earn between 2 and 8 more than o

the effect of illicit drug use on the wages of young adults this article examines the effects of cocaine and marijuana use on the wages of young adults the endogeneity of drug use in a wage equation is considered and a two stage least squares procedure is implemented the results suggest that increased use of marijuana or cocaine is associated with higher wages the positive relationship between drug use and the wage does not diminish with age i also investigate whether systematic differences in the return to measures of human capital investments can explain the positive relationship between drug use and wages

the wage effects of personal smoking history why do we observe a wage differential between smokers and non smokers pooling reports of current and prior smoking activity across 15 years from the panel study of income dynamics psid allows the reconstruction of individual smoking histories dividing the sample into smoking history groups the four largest of which are persistent smokers never smokers former smokers and future quitters reveals that there is no observed wage gap between former smokers and those who have never smoked there is however a wage gap between those smokers who will continue smoking and three other groups of individuals 1 those smokers who will quit smoking in the future 2 those smokers who have quit smoking already and 3 those who never smoked the wage gap between smokers and non smokers observed in the 1986 cross section is largely driven by those who persist as smokers 1986 2001 these results support the hypothesis that the cross sectional wage differential is not driven by smoking per se but may be driven by a non causal explanation one plausible interpretation is that a common factor such as myopia leads to reduced investment in both health capital or firm specific or other human capital

walras keynes equilibria coordination and macroeconomics in decentralised market economies supply constrained equilibria may persist as coordination failures sustained but not caused by price rigidities this feature may be arbitrarily severe even at prices compatible with competitive equilibrium the supply constraints may originate in rational expectations some implications for macroeconomics are drawn the possibility of coordination failures explains why organised labour may resist wage flexibility these features are illustrated in elementary macroeconomic prototypes like rbc or barro grossman malinvaud prototypes

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

tobacco taxes and starting and quitting smoking does the effect differ by education this article uses duration analysis to investigate the role of tobacco taxes in starting and quitting smoking applying a variety of parametric duration models to a sample of irish women it finds that in general tobacco taxes do influence starting and quitting smoking in the expected direction it also finds that the effect for starting differs by education but in a nonmonotonic way with the greatest effect for women with intermediate levels of education the results for quitting suggest the greatest effect for women with the lowest level of education these results are unchanged when account is taken of unobserved heterogeneity

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

illegal drug use and employment this article investigates the relationship between employment and the use of marijuana and cocaine for males in national longitudinal survey of youth data from 1984 and 1988 previous studies yielding mixed evidence may have inadequately accounted for the simultaneity between drug consumption and employment i implement an instrumental variable procedure that identifies drug use with variables that are empirically unrelated to employment including the regional cocaine price and a state marijuana decriminalization indicator results indicate that the use of each drug substantially reduces the likelihood of employment exogeneity tests reveal that standard probit estimates are severely biased toward zero

health time allocation and work empirical evidence from turkey abstractthis article investigates the relationship between health status and time allocation decisions of individuals although many studies address impacts of health on labour supply few studies

optimal wage bargains recent attempts to provide a theoretical framework for macroeconomics have focused on the nature of wage employment agreements between firms and workers workers are in general unable to purchase insurance against future income fluctuations on grounds of for example moral hazard and consequently firms may find it profitable to offer workers a contract that provides them with partial insurance as well as employment compensation the seminal papers are those of azariadis 1975 and baily 1974 henceforth a b and a useful survey is provided by azariadis 1981 in their model hiring decisions must be made before uncertainty about product market conditions is resolved if firms are risk neutral and severance payments to the unemployed are disallowed then the optimal contract entails a state invariant real wage and the possibility of ex post involuntary unemployment while this model provides important insights it has been criticized on a number of grounds first akerlof and miyazaki 1980 and pissarides 1981 have pointed out that unemployment can occur in the simple a b model only when the marginal revenue product of labour falls below the reservation wage so that unemployment would also occur in a walrasian model and that in general the level of unemployment will be less than would be experienced in spot markets although it does provide a clue to the involuntary nature of that unemployment second the ad hoc exclusion of payments by the firm to the unemployed can be criticized if these are allowed then the optimal contract involves a topping up of the reservation wage to provide complete income rather than wage stabilization and the ex post efficient level of employment will be sustained these criticisms have prompted a number of authors to examine the implications of assuming asymmetric information about the state of nature an early example of this literature is provided by calvo and phelps 1977 who note that under an a b contract because there is a tendency to overemployment in bad states there will be an incentive for firms to misrepresent the state of nature and lay off more workers than previously agreed but that this incentive may be attenuated by making the wage schedule contingent on the level of employment that is assumed to be observed by workers the properties of these contracts usually depend on the precise assumptions of the model however in some versions unemployment may be greater than would occur in the walrasian model hart 1983 for instance considers a model in which severance payments are allowed but firms as well as workers are risk averse then the optimal contract will involve lower wages in bad states of nature in order to spread risk but the only way this information can be conveyed to workers is by lowering the level of employment the papers by grossman and hart 1981 and by azariadis chari green and kahn and grossman and hart in the symposium in the quarterly journal of economics

the effect of alcohol use on wages 1988 the effect of alcohol use on wages applied economics vol 20 no 10 pp 1343 1351

youth depression and future criminal behavior while the contemporaneous association between mental health problems and criminal behavior has been explored in the literature the long term consequences of such problems depression in particular have received much less attention using data from the national longitudinal study of adolescent health add health we examine the effect of depression during adolescence on the probability of engaging in a number of criminal behaviors later in life in our analysis we control for a rich set of individual family and neighborhood level factors to account for conditions that may be correlated with both childhood depression and adult criminality one novelty in our approach is the estimation of school and sibling fixed effects models to account for unobserved heterogeneity at the neighborhood and family levels furthermore we exploit the longitudinal nature of our data set to account for baseline differences in criminal behavior the empirical estimates show that adolescents who suffer from depression face a substantially increased probability of engaging in property crime we find little evidence that adolescent depression predicts the likelihood of engaging in violent crime or the selling of illicit drugs our estimates imply that the lower bound economic cost of property crime associated with adolescent depression is approximately 227 million dollars per year jel i10 k42

how large are the effects from changes in family environment a study of korean american adoptees i analyze a new set of data on korean american adoptees who were quasi randomly assigned to adoptive families i find large effects on adoptees education income and health from assignment to parents with more education and from assignment to smaller families parental education and family size are significantly more correlated with adoptee outcomes than are parental income or neighborhood characteristics outcomes such as drinking smoking and the selectivity of college attended are more determined by nurture than is educational attainment using the standard behavioral genetics variance decomposition i find that shared family environment explains 14 percent of the variation in educational attainment 35 percent ofthe variation in college selectivity and 33 percent of the variation in drinking behavior

economic and social security in the twenty first century with attention to europe a partly heuristic attempt at exploring long run policies aimed at a second best compromise between ex ante risk sharing efficiency and ex post productive efficiency wage subsidies for low skilled workers financed by taxes on high wages are advocated together with improved risk sharing between capital and labour between generations and between the countries belonging to emu the scope of the advocated policies is limited by considerations of moral hazard time consistency and fiscal competition also estimates of some key economic parameters remain very imprecise several avenues of further research are identified

further evidence on the economic effects of poor health this paper examines variations in current economic welfare attributable to different profiles or histories of health status over the preceding ten year period a two equation model estimated with national longitudinal survey data for four sex race groups provides convincing evidence that health problems incurred in the past adversely affect current earnings this legacy is difficult to overcome it remains even for individuals in improving health willing to devote relatively greater effort to market work a history of poor health is also shown to exact substantially different economic tolls from men and women as well as from whites and blacks

the longitudinal structure of earnings losses among work limited disabled workers this paper asks what are the dynamic effects of disability on earnings unlike most of the previous literature it uses panel data and fixed effects methods are used to assess how the earnings of disabled workers depart from expected levels over many years before and after the date of onset of their disability the paper also examines how worker characteristics affect earnings losses from disability with particular attention paid to the age at which the person suffers onset disabled men are found to experience sharp drops in earnings that predate the measured date of onset earnings recover rapidly soon after onset with much of the immediate reduction made up in the first two post onset years a modest downward trendfollows resulting in significant long term losses in expected annual earnings of about 12 percent per year being older at onset nonwhite more chronically disabled and less educated cause the losses from disability to be larger and the recovery smaller a large portion of these differences across groups appear to derive from industry affiliation after onset the paper argues the facts are all consistent with a simple human capital explanation of the disability process

work and the accommodation of chronic illness a re examination of the health labour supply relationship this study uses a data set of over 14000 households from the state of new jersey in the usa to estimate the impact of specific chronic health conditions on the probability of employment and finds wide variation of employment impacts across chronic conditions additionally the elasticity of the employment response is generally greater for women and lower skilled workers most notable is the role of comorbidity individuals with multiple conditions have markedly lower probability of employment and chronic illness explains virtually all of the large gap in employment probability for those who have multiple conditions this is shown using a summary index of disease status that correlates closely with employment rates across age groups in the aggregate chronic disease striking in adulthood explains about 10 of the total non employment in the new jersey among those aged 35 74 finally cross sectional evidence gives little support for health as a primary determinant of the aggregate age employment profile

gender differences in labor market effects of alcoholism little is known about the role of specific health problems in affecting labor market productivity even less is known about gender differences in the labor market effects of such health problems current knowledge of health effects is based largely on samples composed exclusively of men a common practice in both economics and health research in the latter case even a congressional mandate to incorporate females in study samples is reputed to have had little effect patricia schroeder 1990 in this study we attempt to determine the structure of gender differences in labor market responses to alcoholism we use a relatively new data source that allows such comparisons by gender in a large community based sample previous studies have established that there are significant gender differences in labor market behavior differences in prevalence rates of alcoholism by gender are also well established it is estimated that 3 percent of females are currently suffering from alcoholism and twice that many have exhibited symptoms at some time for males the numbers are 10 and 20 percent respectively there is some medical evidence to indicate that physiologically women and men respond differently to alcohol for example a recent study suggests that women have greater vulnerability to the acute and chronic health conditions associated with alcoholism mario frezza et al 1990

blowing up money the earnings penalty of smoking in the 1970s and the 21st century abstract we analyze the earnings penalty of smoking among swedish twins in two social contexts the 1970s when smoking was common and widely accepted and when there were relatively few tobacco laws aiming to reduce smoking and the 2000s when smoking had become more expensive stigmatizing and less common and when tobacco laws and regulations had intensified the results show that the short term earnings penalty of smoking was much higher in the 21st century than in the 1970s for men for women smokers had on average higher annual earnings compared to nonsmokers in the 1970s but lower annual earnings in the 2000s in the long run there was an earnings gap for men between never smokers and continuous smokers whereas there was a pronounced earnings bonus of smoking cessation for women the results emphasize the importance of social context and the long term horizon when evaluating the consequences of smoking for earnings

a pint a day raises a man s pay but smoking blows that gain away this paper studies the wage effects of the use of alcohol and tobacco the analysis based on a recent survey in the netherlands shows that for males the use of tobacco has a negative wage effect of about 10 while the use of alcohol has a positive wage effect of about the same size the wages of females are not affected by smoking and drinking

heterogeneity and the effect of mental health parity mandates on the labor market health insurance benefit mandates are believed to have adverse effects on the labor market but efforts to document such effects for mental health parity mandates have had limited success i show that one reason for this failure is that the association between parity mandates and labor market outcomes vary with mental distress accounting for this heterogeneity i find adverse labor market effects for non distressed individuals but favorable effects for moderately distressed individuals and individuals with a moderately distressed family member on net i conclude that the mandates are welfare increasing for moderately distressed workers and their families but may be welfare decreasing for non distressed individuals

alcohol consumption smoking and wages the good health of an individual is a combination of uncontrollable factors that includes genetics and random events and controllable factors through the regulation of activities such as smoking and drinking since the work of grossman in the 1970s a significant relationship between health and earnings has been predicted in this present paper the 1995 australian national health survey is used to examine simultaneously the effects of drinking and smoking on wages to model the interaction of smoking with alcohol consumption separate models are fitted for smokers and nonsmokers these models account for potential selectivity bias resulting from the decision to smoke and endogeneity arising from a potential causal relationship between earnings and alcohol consumption

unemployment and labor market reform a contract theoretic approach why do many democracies fail to reform their labor market institutions to answer this question we study the feasibility of reforms that include compensation to insiders for the removal of labor market regulations under asymmetric information a reformer who wants to buy the approval of voters has to pay them an informational rent in addition to the pure costs of compensation that would arise under symmetric information in this setting unemployment may be constrained pareto efficient labor market reforms may fail politically because none of the reform packages proposed wins the approval of a majority of voters we also discuss the role of capital taxation in a reform program jel classification d70 e61 j68

the trade off between real wages and employment in an open economy belgium abstract the purpose of this paper is twofold first we discuss the nature and quantitative order of magnitude of the trade off between real wages and employment in the small open economy belgium second we draw policy conclusions from our positive analysis and compare income policies with alternative approaches to employment stimulation including shorter working hours and currency depreciation to study the trade off between real wages and employment we treat external balance as a binding constraint on demand management an exogenous increase in real wages affecting adversely the competitiveness of domestic producers on the export and import markets impairs external balance the impact of the wage increase on output and employment is evaluated through the reduction in domestic demand required to restore external balance at the empirical level we endeavour to evaluate separately the influence on exports and imports of domestic costs at unchanged capacity levels and of capacity levels themselves and we endeavour to evaluate the influence of real wages on capacity levels through scrapping and investment all evaluations rely on the foreign trade equations of econometric models of the belgian economy the conclusions from our empirical investigation are first that estimates of the trade off between real wages and employment in belgium are subject to considerable imprecision second that the short run elasticity of employment with respect to real wages keeping capacity constant is probably quite small like 0 2 and definitely less than unity in absolute value third that the corresponding medium run elasticity taking into account capacity adjustments is probably sizeable like 2 and definitely larger than unity in absolute value and fourth that exchange rate adjustments might not make too much difference in either the short run or the medium run turning to a discussion of policy we shall argue that these conclusions give support to a policy of constant real labour incomes of comprehensive efforts to redistribute work through shorter working hours or related schemes and of selective efforts to slow down capacity scrapping

the pot calling the kettle black a comparison of measures of current tobacco use researchers often use the discrepancy between self reported and biochemically assessed active smoking status to argue that self reported smoking status is not reliable ignoring the limitations of biochemically assessed measures and treating it as the gold standard in their comparisons here we employ econometric techniques to compare the accuracy of self reported and biochemically assessed current tobacco use taking into account measurement errors with both methods our approach allows estimating and comparing the sensitivity and specificity of each measure without directly observing true smoking status the results robust to several alternative specifications suggest that there is no clear reason to think that one measure dominates the other in accuracy

alcoholism work and income this article reports on an empirical analysis of the relationships between alcoholism and income and working we show that the relationships between alcoholism and labor market success have important age or life cycle dimensions we present evidence that alcoholism may affect income more by restricting labor market participation than by affecting the wages of workers finally we demonstrate that the effects of alcoholism on earnings depend on the extent to which one controls for other covariates associated with alcoholism as such we suggest that there may be important indirect as well as direct effects of alcoholism on labor market success

arthritis and the earnings of men an analysis incorporating selection bias abstract arthritis is a chronic and crippling disease which affects the work effort and earnings of more than 14 million working age victims this paper examines the effects of arthritis on the earnings of men aged 18 to 64 arthritis has large and significant effects on earnings most models incorporating selection bias have examined groups with lower labor force participation rates than prime age males but significant selection bias is found here when selection bias is considered the estimated absolute effects of arthritis are increased and the percentage of the gap between arthritic and non arthritic males explained by arthritis as opposed to other factors increases this study is unusual in identifying the effects of a single disease on earnings

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

the impact of recent mental health changes on employment new evidence from longitudinal data abstractthis study uses longitudinal data and four different measures of mental health to tease out the impact of psychiatric disorder onsets and recoveries on employment outcomes results suggest that developing a mental health problem leads to a significant increase in the probability of transitioning to non employment while a recovery increases the probability of return to work among the not employed with a mental health problem no consistent effect was found on hours worked and earnings research and policy attention is needed with respect to early interventions such as job retention programmes to help workers with mental health problems remain employed as well as interventions that may lead to recovery and return to work more research is needed especially with data and models that can differentiate between the effects of mental health onsets and recoveries on employment exit and return to work transitions

adolescent alcohol use sociability and income as a young adult we use data from the national longitudinal survey of adolescent health add health to study how sociability and adolescent alcohol use impact personal income as a young adult we find that factors which enhance not only individual sociability but also social interaction at the community level are positively linked to future earnings of adolescents adolescents whose friends and friends of friends have greater sociability reap long term labour market rewards into adulthood after adjusting for individual and community sociability the effect of teenage alcohol consumption on labour market earnings as young adults is reduced our results suggest that earnings premiums associated with adolescent alcohol consumption may be partially explained by social network dynamics

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

employment wages and alcohol consumption in russia 1 introductionconcerns 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 beaglehole 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

european unemployment lessons from a multi country econometric study the paper summarizes the principal empirical findings of the european unemployment program it draws on 10 country studies which utilize the macroeconomic framework set out by sneessens and dreze 1986 the main conclusions are as follows i a major problem in europe is that productivity gains are quickly absorbed into wages and the effect of unemployment on wage settlements is generally weak ii a wage price productivity spiral means the european economies are inflation prone iii demand pressures spill over into the balance of payments rather than leading to price increases iv the major proximate determinant of employment in the 1 980s is the level of effective demand

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

how health insurance affects health care demand a structural analysis of behavioral moral hazard and adverse selection individuals with health insurance use more health care one reason is that health care is cheaper for the insured additionally having insurance can encourage unhealthy behavior via moral hazard previous work studying the efiect of health insurance on medical utilization has mostly ignored behavioral changes due to having health insurance and how that in turn afiects medical utilization this paper investigates the structural causal relationships among health insurance status health behavior and medical utilization theoretically and empirically and separates price efiects from behavioral moral hazard efiects also distinguished are the extensive vs intensive margins of insurance efiects on behavior

alcohol and earnings does drinking yield a wage premium this paper examines the relationship between alcohol consumption and earnings for prime age males wage differentials for non moderate and heavy drinkers are estimated using a polychotomous choice model which accounts for the endogenous relationship be tween drinking and earnings we find that moderate alcohol consumption leads to increased earnings relative to abstention however heavy drinking leads to reduced earnings relative to moderate drinking heavy drinkers possess flatter age earnings profiles and attain lower returns for higher education than non and moderate drinkers these results are in contrast to previous research on substance abuse which finds no earnings drop off for heavy users

the effect of health improvements due to tobacco control on earnings in the united states there is minimal evidence causally estimating the relationship between tobacco tax policy population health and earnings this article uses state tobacco taxes as an instrument for life expectancy to estimate the effect on earnings per capita in a panel of almost 3000 counties in the united states over the period 1970 to 2000 in the first stage of the model we find that a one dollar increase in state tobacco taxes significantly increases life expectancy between 1 9 and 2 1 despite showing that tobacco tax is correlated with higher life expectancy and that theoretically improvements in health from reductions in smoking should lead to increased earnings we find an insignificant impact of the induced gains in life expectancy from tobacco policy on county level earnings per capita over the period 1970 to 2000 the lack of significance is explained through local average treatment effects and the smaller economic impact of certain policies that impact health later in life these results provide further

health a source of bias in labor supply models the inconsistency of the labor supply estimates using nonexperimental data has led to the costly income maintenance experiments that have taken place in various parts of the country in addition to being costly the analyses of experimental data also have their share of econometric problems 1 both experimental and nonexperimental studies face the problems of sample selection model specification and variable measurement in order to determine what effects the variables of interest have on labor supply all relevant factors must be included one of these control variables namely health is often included in a form which results in biased estimates in this paper we hope to show that the analysis of experimental and nonexperimental labor supply data must carefully address the health variable problem before meaningful estimates can be obtained in general three treatments emerge in the literature no control for health is used a binary variable which we shall call a disability variable is included in the model as an exogenous variable or the disability variable is used as a partitioning criterion to obtain a sample of able bodied men or women the disability variable is often the response to the question does your health prevent you from working altogether or does your health limit the kind or amount of work you could do this study will examine the bias created by each of these approaches and will suggest a method of measurement for health which does not produce biased estimates 2 health and labor supply

risk sharing and group decision making in a decision making problem where a group will receive an uncertain payoff which must be divided among the members of the group the ultimate payoff of interest is the vector of individual payoffs received by the members of the group in this paper preferences are quantified in terms of cardinal utility functions for such vectors of payoffs these utility functions can represent preferences concerning equitable and inequitable vectors of payoffs as well as attitudes toward risk the individual utility functions are aggregated to form a group utility function for the vector of payoffs and this latter function is in turn used to generate a group utility function for the overall group payoff and a sharing rule for dividing the group payoff into individual payoffs the resulting group decisions are pareto optimal in utility space properties of the sharing rule and the group utility function are investigated for additive and multilinear group utility functions

employment unemployment and problem drinking the misuse of alcohol is estimated to result in enormous economic costs composed largely of reduced labor market productivity however there has been debate on this issue the purpose of this paper is to help to resolve this debate by presenting sound structural estimates of the relationship between measures of problem drinking and of employment and unemployment the analysis is based on the 1988 alcohol supplement of the national health interview survey we find that for both men and women problem drinking results in reduced employment and increased unemployment

does drug use lower wages this study using microdata from the 1980 and 1984 waves of the national longitudinal survey of youth examines the effects of drug use on wages and employment contrary to most previous researcher