The Effect of Smoking on Kentucky’s Workforce

Smoking has been estimated to increase health care costs in the United States by $167.5 billion annually (Xu et al. 2015). In Kentucky, smoking adds $2.5 billion in health care expenditures each year. Most of these costs were paid by public programs such as Medicaid and Medicare. While these costs are significant, they represent only a portion of the costs that smoking imposes on society. Smoking also leads to poorer labor market outcomes. Smokers are more likely to be unemployed, earn lower wages, and die prematurely than non-smokers. These negative labor market effects reduce economic activity and lower tax revenues, adding to the social costs and fiscal impact that smoking imposes. Past research shows that smokers generally earn four to eleven percent less than similar nonsmokers. Some of this wage penalty is due to the negative health consequences of smoking. Smoking can reduce workers’ health, causing them to be less productive, have higher health insurance costs, and incur greater rates of absenteeism. As a result, smokers tend to earn lower wages. However, the wage penalty might also reflect differences between those who decide to smoke and those who do not rather than being caused directly by smoking. In Kentucky, there are over 386,000 smokers who work. Smoking is estimated to reduce their annual earnings by $1,268 to $3,488 per worker. This amounts to lost earnings of $489.7 million to $1,346.6 million per year for the state. Assuming a six percent combined effective state sales and income tax rate indicates that Kentucky loses $29.4 million to $80.8 million in tax revenue annually from lower wages among smokers. Smoking was also estimated to reduce employment in Kentucky by 28,500 workers. This represents an annual loss of $968.2 million to $1,088 million in lost earnings for Kentucky and $58.1 million to $65.3 million in lost tax revenue. Finally, smoking was estimated to contribute to 3,023 deaths per year among Kentucky residents between the ages of 35 and 64. In the absence of smoking, many of those who died prematurely from smoking-related conditions might have continued to earn an income for many more years. Had these individuals not died prematurely from the diseases associated with smoking, they could have earned between $61.1 million and $77.2 million during the first year after their death. This amounts to lost state tax revenue of $3.7 million to $4.6 million. Smoking-related deaths occurring over the past 10 years reduce Kentucky’s earnings by $388.6 million to $492.1 million and its tax revenues by $23.3 million to $29.5 million each year. Combined, these three effects—reduced wages for smokers who work, reduced employment among smokers, and increased premature deaths for smokers—reduce Kentucky’s total earnings by $1.8 billion to $2.9 billion annually and its state tax revenues by $111 million to $176 million annually. Cessation programs have been shown to be a cost-effective way to help people successfully quit smoking. However, the improvement in quit rates varies substantially across programs, ranging from 2.5 to 22.2 percentage points. While cessation programs might improve employment, the effect is likely to be small. For example, a program serving 1,000 participants is expected to result in fewer than seven additional workers. This suggests that the main benefit from cessation programs would be improvements in health and reductions in health care expenditures rather than increased employment. Anti-smoking campaigns have also been shown to discourage smoking. Research has found that these campaigns increase awareness of the health consequences of smoking, reduce the number of people who take up smoking, and motivate current smokers to quit. They generate benefits for society including reduced health care expenditures and improved quality of life. Several studies have found anti-smoking campaigns to be cost-effective ways to achieve these benefits and, in some cases, reduce total costs.