The authors thank Brian Armour, Erik Nessom, and participants at the Federal Reserve Micro System Conference for helpfulcomments. The authors also thank Andrew Balthrop and Fernando Rios-Avila for excellent research assistance. The viewsexpressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal ReserveSystem. Any remaining errors are the authors’ responsibility.Please address questions regarding content to Julie L. Hotchkiss, Georgia State University and the Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8198, firstname.lastname@example.org,or Melinda Pitts (contact author), Federal Reserve Bank of Atlanta, Research Department, 1000 Peachtree Street, N.E., Atlanta,GA 30309-4470, 404-498-7009, email@example.com.Federal Reserve Bank of Atlanta working papers, including revised versions, are available on the Atlanta Fed’s website at www.frbatlanta.org. Click “Publications” and then “Working Papers.” Use the WebScriber Service (at www.frbatlanta.org) toreceive e-mail notifications about new papers.
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Even One Is Too Much: The EconomicConsequences of Being a Smoker
Julie L. Hotchkiss and M. Melinda Pitts Working Paper 2013-3July 2013
It is well known that smoking leads to lower wages. However, the mechanism of this negativerelationship is not well understood. This analysis includes a decomposition of the wage gap betweensmokers and nonsmokers, with a variety of definitions of smoking status designed to reflect differences insmoking intensity. This paper finds that nearly two-thirds of the 24 percent selectivity-correctedsmoking/nonsmoking wage differential derives from differences in characteristics between smokers andnonsmokers. These results suggest that it is not differences in productivity that drive the smoking wagegap. Rather, it is differences in the endowments smokers bring to the market along with unmeasuredfactors, such as baseline employer tolerance. In addition, we also determine that even one cigarette perday is enough to trigger the smoking wage gap and that this gap does not vary by smoking intensity.JEL classification: J31, I19, C31Key words: smoking wage penalty, wage decomposition, wage differentials