Working Paper: NBER ID: w7542
Authors: Lalith Munasinghe; Nachum Sicherman
Abstract: Time preference is a key determinant of occupational choice and investments in human capital. Since careers are characterized by different wage growth prospects, individual discount rates play an important role in the relative valuation of jobs or occupations. We predict that individuals with lower discount rates are more likely to select into jobs or occupations with steeper wage profiles. To test this hypothesis we use smoking as an instrument for time preference. Panel data from the NLSY (1979-94) are ideal for our purposes since it contains information on smoking behavior in addition to detailed work histories and other socio-economic variables. We find that smokers have substantially flatter wage profiles, and a higher marginal rate of substitution of current wages for future wages. Incidentally, a survey of several hundred undergraduates at Barnard and Columbia College show that dance majors have the highest smoking rate.
Keywords: time preference; occupational choice; wage growth; smoking
JEL Codes: J2; J3; I1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Smoking (L66) | Time Preference (D11) |
| Time Preference (D11) | Wage Dynamics (J31) |
| Smoking (L66) | Wage Dynamics (J31) |
| Smoking (L66) | Human Capital Investment (J24) |
| Human Capital Investment (J24) | Wage Growth (J31) |
| Smoking (L66) | Wage Profiles (J31) |
| Time Preference (D11) | Career Choices (M59) |