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Cigarette smokers earn significantly less than nonsmokers, but the magnitude of the smoking wage gap and the pathways by which it originates are unclear. While most research focuses on contemporaneous reasons for the wage differential, the research described in this Policy Hub article finds that decisions made early in life—about education, labor force participation, and occupation—contribute significantly to the wage penalty smokers face later, especially for men. Women are found to be judged more harshly by their current employers for their smoking behavior, and since quitting smoking doesn't entirely erase the impact of early decisions, early intervention is imperative to avoid the negative wage impacts.

Key findings:

  1. Almost 90 percent of the smoking wage gap for men is determined by the impact of smoking on early in life decisions about education, work, and occupation, suggesting that programs designed to prevent youth smoking will be especially beneficial for men.
  2. Almost two-thirds of the smoking wage gap for women is determined by their current smoking behavior, suggesting that quitting smoking will have significant labor market benefits.

Center Affiliation: Center for Human Capital Studies

JEL classification: I10, I12

Key words: wages, smoking, dynamic system of equations, NLSY

https://doi.org/10.29338/ph2020-11Off-site link

The Federal Reserve Bank of Atlanta's Policy Hub leverages the expertise of Atlanta Fed economists and researchers to address issues of broad policy interest. Our research centers coordinate this work and seek to influence policy discussions. Areas of interest include: forecasting, fiscal policy, and macroeconomics (Center for Quantitative Economic Research); financial stability, innovation, and regulation (Center for Financial Innovation and Stability); human capital, labor markets, health, and education (Center for Human Capital Studies); and government-sponsored entity reform, mortgage markets, and affordable housing (Center for Housing and Policy). Sign up for email updates. Under "Publications" select "Policy Hub."