There are several reasons to believe that higher minimum wages will affect alcohol consumption. First, higher incomes for those on the minimum wage gives them greater purchasing power. If alcohol is a normal good (which it is), then as their incomes increase people will consume more alcohol. On the other hand, higher minimum wages may lead to disemployment, especially among young people and those in the food and beverage industries. In that case, those workers without jobs have lower incomes and would consume less alcohol. However, losing a job (or not having a job) can be a stressful experience, and increase the incentives to drink alcohol as a coping strategy. And having a job that pays more due to a higher minimum wage may reduce financial stress and reduce the incentives to drink. Overall, there is a lot going on, and it isn't clear at all whether, overall, a higher minimum wage should lead to more alcohol consumption, or less alcohol consumption.
That's where this new article by Yihong Bai (Western University in Ontario) and Michael Veall (McMaster University), published in the journal Economics and Human Biology (open access), comes in. Bai and Veall use longitudinal data from the Canadian National Population Health Survey (NPHS) from 1994/95 to 2010/11, and look at how alcohol consumption is related to the province-level minimum wage (adjusted for inflation). Their full sample includes over 18,000 observations for a little over 4000 individuals in Canada. They measure alcohol consumption in six different ways: (1) whether each person is a drinker or not; (2) whether they binge drink at least once per month on average; (3) whether they are a 'heavy drinker' (defined by binge drinking at least once per week on average, or having average daily alcohol consumption [ADAC] of two drinks for men, or one drink for women; (4) average number of drinks over the last month; (5) number of binge drinking events over the last month; and (6) ADAC.
Bai and Veall apply a two-way fixed effects approach to identify the effects of the minimum wage on alcohol consumption, and find that:
...almost all the estimated coefficients are very small with reasonably tight confidence intervals that cover zero.
In other words, there is very little evidence that higher minimum wages increase alcohol consumption. However, that is based on the whole population, and minimum wages are more likely to affect low-income workers. Rather than looking at low-income workers directly, Bai and Veall look at low-education workers (being those with high school education or less), who are also more likely to be affected by minimum wage changes. For that group, they also find that almost all of the coefficients are not statistically significant. Another group that tends to be more affected by minimum wage changes is young people, and Bai and Veall report that:
We also estimate using samples for a sample of ages 21–25 and ages 15–20 and find no evidence of minimum wages increasing drinking. However, our confidence intervals are wide and this finding must be treated with caution.
One of the key issues with this paper is that they perform a large number of regressions (with six dependent variables), but don't adjust for multiple comparisons. This is important because the more comparisons they make, the more likely it is that some will turn out to be statistically significant just by chance. That's why I discount their finding that the ADAC decreases when the minimum wage increases. I doubt that it would be robust to an adjustment for multiple comparisons, and the ADAC results are inconsistent with the effects in the other models.
On the other hand, the two-way fixed effects approach is problematic and has attracted a lot of criticism recently (which is nicely outlined in two posts on the Development Impact blog, here and here, as well as this post). The short version is that the two-way fixed effects approach is likely to lead to biased estimates of the treatment effect - in this case, it would lead to a biased estimate of the effect of minimum wages on alcohol consumption. It isn't clear what direction the bias would lead.
So, by itself this paper doesn't give an answer to the question of whether minimum wages affect alcohol consumption or not, and if they do affect alcohol consumption whether minimum wages lead to an increase, or a decrease, in alcohol consumption. This research question is far from settled and is an area where future research would be useful.
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