Abstract

This paper estimates a simultaneous model of moderate and heavy drinking, smoking, and wages using a random sample of employed Canadian men. With all else in the system held constant, abstention from drinking and heavy drinking are associated with, respectively, large and small wage penalties relative to moderate drinking. Smoking is associated with a large wage penalty. If wages are excluded from the substance use equations, drinking abstention and heavy drinking are associated with large and almost identical wage penalties relative to moderate drinking, and the penalty to smoking is diminished. JEL Classification: I12 Keywords: alcohol, tobacco, simultaneous equations, maximum simulated likelihood 1 I thank Cam Donaldson, Herb Emery, David Feeny, Mingshan Lu, Ken McKenzie, and Whipple Smith for helpful discussions. Address correspondence to Chris Auld, Department of Economics, University of Calgary, 2500 University Dr NW, Calgary, Alberta T2N 1N4. Phone: (403)220-4098. Fax: (403)28...

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