Alcohol and labor supply: the case of Iceland

At a time when the government of Iceland is considering privatization of alcohol sales and a reduction of its governmental fees, it is timely to estimate the potential effects of this policy change. Given that the privatization of sales coupled with a tax reduction should lead to a decrease in the unit price of alcohol, one would expect the quantity consumed to increase. While it is of interest to project the impact of the proposed bill on the market for alcohol, another important consideration is the impact that increased alcohol consumption and, more specifically, probable alcohol misuse would have on other markets in Iceland. The only available study on this subject using Icelandic data yields surprising results. Tmasson et al. (Scand J Public Health 32:47-52, 2004) unexpectedly found no effect of probable alcohol abuse on sick leave. A logical next step would be to examine the effect of probable alcohol abuse on other important labor-market outcomes. Nationally representative survey data from 2002 allow for an analysis of probable misuse of alcohol and labor-supply choices. Labor-supply choices are considered with reference to possible effects of policies already in force, as well as proposed changes to current policies. Contrary to intuition, but in agreement with the previously mentioned Icelandic study, the adverse effects of probable misuse of alcohol on employment status or hours worked are not confirmed within this sample. The reasons for the results are unclear, although some suggestions are hypothesized. Currently, data to test those theories convincingly are not available.