Cigarettes a Drag on Wages, Fed Researchers Say

Image of a money cigaretteThe negative effects of smoking cigarettes are well documented. We know about the resulting poor health and higher health-related expenses. We also know that smokers earn lower wages, on average, than nonsmokers. However, even though the negative relationship between smoking and wages is well established, researchers have not entirely figured out how it works. For instance, are smokers paid less because they are less productive? Or are they stigmatized by employers because they smoke?

New research by Atlanta Fed economists Julie Hotchkiss and Melinda Pitts seeks to better understand the mechanics of the relationship. Their working paper, "Even One Is Too Much: The Economic Consequences of Being a Smoker," examines the various mechanisms through which smoking can impact earnings.

One cigarette is all it takes
Hotchkiss and Pitts found that the wage gap is not driven by differences in productivity. Instead, about 60 percent of the smoking penalty stems from differences in the characteristics those workers bring to the labor market, especially educational attainment. The authors also found that other, unmeasured factors such as baseline employer tolerance play a role.

Perhaps their most surprising finding is that the wage gap doesn't vary by smoking intensity. "A person who smokes one cigarette per day faces a similar penalty as a person who smokes a pack a day," explained Pitts, who directs the Atlanta Fed's Center for Human Capital Studies. "Since smoking more cigarettes is known to result in greater health problems and work absences, the fact that the penalty doesn't increase as smoking intensity increases suggests that the wage penalty is more related to a bias in the workplace against smokers than it is related to lower productivity among smokers," she continued.

Helping workers kick the habit benefits employers too
Hotchkiss and Pitts's research contains important takeaways for employers and policymakers, especially with respect to providing incentives related to smoking behavior. "Quite often the focus of human capital development revolves solely around education and training," Pitts noted. "However, as studies such as this one show, the value of human capital in the labor market can also be influenced by health-related behavior."

To learn more, read the full working paper or visit the Center for Human Capital Studies web page.