High Today vs Lows Tomorrow: Substance Use, Education, and ...

High Today vs Lows Tomorrow: Substance Use, Education, and Employment Choices of Young Men

Catherine Elizabeth Alford Jacksonville, Florida

M.A. Economics, University of Virginia, 2010 B.A. Economics, University of Florida, 2008 B.S. Mathematics, University of Florida 2008

A Dissertation presented to the Graduate Faculty of the University of Virginia in Candidacy for the Degree of Doctor of Philosphy

Department of Economics

University of Virginia May, 2015

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Abstract

In this paper, I develop and estimate a dynamic structural model of education, employment, and substance use decisions of young men in order to determine the causal effects of substance use on educational attainment and career paths. Heavy substance use is correlated with lower school attainment and labor market outcomes; however, it is unclear if heavy substance use causes these worse outcomes. One concern is that those who are more likely to use marijuana or alcohol frequently are those for whom the labor market would offer lower wages regardless of their substance use. I utilize variation in the prices of substances, the price of college, local law enforcement characteristics, and unemployment rates to help identify the channels through which current substance use and school decisions affect future substance use, employment decisions, and wages. Current research generally treats the substance use decision as a binary choice, making it difficult to distinguish the effects of moderate versus heavy use. I allow individuals to make choices about their levels of alcohol, cigarette, and marijuana use in order to capture the full relationship between substance use and outcomes.

I estimate my model using restricted-access data from the 1997 National Longitudinal Survey of Youth and Bayesian Markov Chain Monte Carlo (MCMC) methods. My model includes extensive time-persistent unobserved heterogeneity, which helps me to estimate the causal effects of substance use on outcomes. I use a modified version of the estimator proposed in Imai, Jain, and Ching (2009) in order to make estimation feasible by easing the computational burden of evaluating my likelihood function and value functions.

I find that heterogeneity in preferences plays an important role in an individual's choice to use cigarettes and marijuana. That is, without heterogeneity, the proportion of individuals using cigarettes and marijuana would be much less. I find that cigarette and alcohol

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use have causal effects that decrease the wages of white and Hispanic males, but have no statistically significant effects on the wages of black males. I also find that past and present alcohol and cigarette use affect an individual's choice to use marijuana, with alcohol having a larger effect. Additionally, I find that marijuana use leads individuals into heavy cigarette use, supporting the reverse gateway theory.

Lastly, I find that white males have a lower probability of arrest than black and Hispanic males, conditional on age, previous arrests, and substance use. In addition, the use of heavy marijuana increases the probability of arrest more for black males than it does for white or Hispanic males. White males are also more likely to graduate from high school and to be working full-time at the age of 24, even though their substance use is comparable to that of black and Hispanic males. This suggests that arrests may be contributing to the education gap between white and minority males. I run two policy simulations to see if the outcomes of minority males can be improved by decreasing the probability of arrest. In the first, I set the coefficients in the probability of arrest equations of Hispanic and black males equal to those in the equation of white males. I find that high school graduation rates increase by 3.8 percent and 6.7 percent for Hispanic and black males, respectively. I also find that the proportion of black males using heavy amounts of substances decreases substantially. In the second policy simulation, I consider the effects of decreasing the marginal effect of marijuana use on the probability of arrest of black males, through, for example, legalizing marijuana. This policy change has no effect on high school graduation rates, but I similarly find that decreasing the probability of arrest decreases the proportion of black males using heavy amounts of cigarettes, alcohol, or marijuana.

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Acknowledgements

I have received support and encouragement from a great number of individuals. I am especially grateful for the time and support Steven Stern, Leora Friedberg, and Sarah Turner have given me as I developed this paper from an idea to a completed study. Their guidance and encouragement has made this a thoughtful and rewarding journey.

I would like to thank the University of Virginia's Bankard fund for financial support while writing this dissertation. I would also like to thank Andrew Ching, Victor Aguirregabiria, Aloysius Siow, and the participants of the SWEAT workshop at the University of Toronto for their helpful suggestions. My work has also benefited from valuable comments from Jennifer Doleac, Ed Olsen, John Pepper, William Johnson, Amalia Miller, and Matthew Harris.

I will forever be indebted to my friends and classmates who have supported me during this process. My work has benefited from countless conversations with many classmates including Ignacio Martinez, Charlie Murry, Patten Mahler, Kelli Bird, Dusan Curcic, and Chris Clapp. I am also grateful for Susan Clapp, Stephanie Demperio, and Becky Tippett for always being there to encourage me.

Finally, and most importantly, I would like to thank my mom and dad for reminding me that all I can do is my best and that I need to be proud of myself no matter the outcome (and maybe a little extra proud when it actually works out); my sister for always picking up the phone when I need to talk; and my husband for his unwavering love and support. I would not have been able to accomplish this without them.

iv This dissertation is dedicated to Nate.

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