Why Do Dancers Smoke? Smoking, Time Preference, and Wage Dynamics

Lalith Munasinghe () and Nachum Sicherman

Eastern Economic Journal, 2006, vol. 32, issue 4, 595-616

Abstract: Time preference is a key determinant of investments in human capital and occupational choice. Individuals with higher discount rates are less likely to invest in human capital and hence more likely to select into careers with lower and flatter earnings profiles. Since discount rates are unobservable, we use smoking behavior as a proxy to study the effect of discounting on wage dynamics. We find that smokers, compared to non-smokers, earn lower wages at the time they enter the labor market and experience substantially lower rates of wage growth. These differences are consistent with the discounting hypothesis, and highly robust to an extensive array of control variables.

Date: 2006
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