Illegal drugs, education, and labor market outcomes

In this paper we investigate the causal effects of consuming illegal drugs on educational attainment, employment, and wages. To identify these effects we develop and estimate a dynamic structural model to jointly consider decisions of whether to consume drugs, attend school, participate in the labor force, and save. Using data from the National Longitudinal Survey of Youth 1997 (NLSY97), we focus our analysis on males; the period of analysis begins at age 13, when they are young enough to have had no experience with drugs. Contrary to findings in the literature, non-drug users have higher wages than marijuana and/or hard drug users. This effect is small for individuals who consume marijuana in low doses but increases with the frequency of drug use. Results from a counterfactual experiment suggest that a 30 percent increase in the price of marijuana each period would reduce the number of marijuana consumers among the 13- to 30-year-olds by 16 percent. Individuals who are dissuaded from consuming marijuana due to the higher price would increase their level of education, their annual income, and work more. (C) 2020 Elsevier B.V. All rights reserved.