Effects of alcohol on labor market success: income, earnings, labor supply, and occupation

Alcohol Health & Research World, Spring, 1992 by John Mullahy, Jody Sindelar

Income, Earnings, Labor Supply, and Occupation

Investigations into whether or not alcohol use affects a person's success in the labor market have shown both negative and positive effects. And although the debate is ongoing, careful comparison of the studies may help to explain these discrepancies.

Labor market economists are interested in how people are faring within the labor market and what factors contribute to success or failure. To determine this, these economists must find measures of labor market success. The most obvious, and most easily measured, indicators of labor market success are income, wages, earnings, and employment status, all of which correspond to a more general notion of "productivity." Because of alcohol's well-known physical and mental effects and the potential for a person to become dependent on alcohol, the question of how alcohol use(1) affects labor market success has been a point of interest for many economists.

This article provides a brief overview of what is currently known about the effects of alcohol use on the measures of labor market success. As may be expected, much of the literature finds that heavy, abusive, and dependent drinking impairs a person's success in the labor market by decreasing personal and household income in a variety of ways and by damaging or limiting employment opportunities. However, some conflicting evidence exists indicating that alcohol consumption may have positive effects on some measures of labor market success (i.e., increasing income, increasing likelihood of employment). There are some methodological problems comparing results of these labor market studies, and some aspects of these alcohol studies must be understood before the results themselves can be discussed.

BACKGROUND

Why Study Labor Market Success?

Much of the interest in the relationships between alcohol use and labor market success stems from a concern that problem drinking may be associated with reductions in productivity. Whether the effect of alcohol use is instantaneous (e.g., directly reducing physical and mental capabilities vital to proper functioning on the job) or cumulative (e.g., adversely affecting productive capacities, such as obtaining a certain level of schooling and maintaining family stability), it is nonetheless essential to determine how problem drinking affects labor market success in order to formulate sound prevention policies.

Enhancing the productivity of individuals is of interest on the grounds that increased productivity would also increase the well-being, or life satisfaction, of individuals and families. More productive people may be happier based on the intrinsic merits of productivity alone, and also because they may have a greater command over resources. It must be noted, however, that the assumption that increased income results in increased well-being is not perfect. Most people choose the amount of time that they work in the labor market, as well as their occupation,(2) and this choice may have little to do with income. This means that some individuals who are very productive may be productive in ways that do not yield greater monetary return, for example, raising children at home or choosing psychologically rewarding yet low paying jobs. Nonetheless, income, wages, and earnings are the easiest indicators of productivity to measure.

Limitations of Studying Labor Market Success

Despite the desire to understand and quantify alcohol's effects on labor market success, until recently there has been little research in this area. Research analyzing labor market effects typically relies on survey data that supply information on such things as alcohol use, occupation, and income. Part of the recent increase in research on alcohol use and the labor market is due, no doubt, to increased data availability. Several recently available data sets now allow better investigation of the issues surrounding alcohol and labor market success.(3) Prior to the collection of such data, analysis of these issues was severely hampered by data constraints.

Even with the new data, comparisons of studies in this area should be made with caution for a number of reasons. First, determination of cause is difficult--does alcohol use cause reduced productivity and well-being, or is it merely one of the symptoms of reduced productivity? For example, it is commonly held that alcoholism causes reductions in income by reducing productivity, worker reliability, hours worked, and the ability to obtain and retain a job, and by increasing absenteeism. However, this causal link has not been well established. It remains possible that low income creates stresses that increase the propensity to abuse alcohol, or that a third factor causes alcoholism and lower income (e.g., a painful health problem could cause lower income and also abuse of alcohol to relieve the pain). Ideally, any relevant third factor would be controlled for, but data are rarely available on all such confounding factors.