Employment, Wages, and Alcohol Consumption in Russia

Abstract

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. …