An Unconvincing Case Against Smoking Bans
Published by Hanno Kaiser August 19th, 2006 in Law and EconomicsIn The Case Against Smoking Bans, Thom Lambert argues - among other things - that smoking bans, for example in restaurants and office buildings, are unnecessary and, on the whole, utility-reducing. In particular, the internalizing externalities argument, well known from regulating the quality of outdoor air, fails, because “indoor air” is owned by the building owner and no tragedy of the commons problem arise.
[C]ustomers who do not like the air policy a space-owner has selected will patronize the space only if they are being otherwise compensated by some other positive attribute of the space at issue say, cheap drinks or a particularly attractive clientele. They are, in other words, compensated for any “rights” violation. The de facto property rights that exist in indoor air, then, prevent the inefficiencies and injustices that accompany outdoor air pollution. But what about workers at businesses that permit smoking? Isn’t there an externality in that they are forced to bear costs (and assume risks) over which they have no control? Again, the answer is no. Workers exercise control by demanding higher pay to compensate them for the risks and unpleasantries they experience because of the smoke in their workplaces.
Here’s a perfectly sound economic argument that somehow doesn’t ring true. I have to admit that I’m on the fence with respect to bars and restaurants. Personally, I enjoy the smoking ban in NYC a lot, even though my level of tolerance is probably pretty high (undoubtedly a result of having spent a great deal of time in smoky European bars for 20 years or so). But that’s just my set of preferences, and I can’t deny that when it comes to restaurants I do have a broad array of choices.
In the workplace setting, however, we can’t just ignore the real-world power dynamics. It is borderline comical to assume that “[w]orkers exercise control by demanding higher pay to compensate them for the risks and unpleasantries they experience because of the smoke in their workplaces.” I bet you dollars to donuts that there’s no income difference between smoke and no-smoke corporate environments, after controlling for all other variables. What are the chances of an employee successfully demanding higher pay because his or her co-workers or, worse, bosses are smokers? And is it realistic to assume that employees would give up their jobs and the goodwill accumulated over years just for the chance of a smoke-free environment someplace else? I doubt it. Most people would stay and suffer quietly. Absent legislation, revealing a no-smoke preference carries too heavy a penalty in most corporate environments. Because real-world office power dynamics interfere with the functioning of the market, workplace smoking bans are justified and likely increase overall utility. It is much less of an imposition on smokers to expend the marginal cost of stepping outside for a cigarette than for a non-smoker to suffer through years of discomfort.
[tags]economics, smoking ban[/tags]
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I agree that, once hired, it seems a bit idealistic to imagine workers demanding compensation for such marginal risks. But workers may exercise some market power over wages ex ante. Faced with a choice of working in otherwise equivalent establishments, one of which permits smoking, the other of which doesn’t, it seems reasonable that a job applicant will pursue employment with the latter (assuming a preference for smoke-free environments). The aggregate effect of such individual choices should decrease the size of the labor market for smoke-filled (vs. smoke-free) establishments, producing a supply-effect that may increase the wages offered to new hires. My only reservation about this line of reasoning arises if all smoke-free jobs are taken, and applicants are faced with only smoke-filled ones. But it seems that applicants could undercut the already-hired in smoke-free establishments by accepting lower wages - a kind of compensation for the *decreased* risk of working in a smoke-free environment. In some such manner, I can imagine wages diverging across a smoking line.
I agree with Matt’s point that the “smoke elasticity of demand” of new hires is likely to be greater than that of employees who would have to incur significant job switching costs. And it may well be that for some businesses — startups, for example — the marginal disadavantage in hiring new personnel is sufficient to push them to adopt a no-smoking policy. But with respect to existing large corporations that at any point in time only hire a small fraction of new employees, I would still expect such a significant degree of inertia that regulation seems justified on utility grounds.
Hanno - I’m not sure I agree, simply because all presently hired employees were once new hires, and their current wages likely reflect compensation for the increased risk they took / are taking.
It seems like the question of utility can be sliced as follows: what effect will regulation have on the utility function of those entering the job market post-regulation? And what effect will regulation have on the utility function of those already hired pre-regulation?
For those who have not entered the job market at the time the regulation goes into effect, the regulation could lower their overall utility function, depending on the job they would have taken, if not for the regulation. For example, in a non-regulated world, we can expect some businesses to enforce smoking bans, and others not to. Those job-seekers who are smoke-averse will seek employment at smoke-free establishments, and if we expect that the proportion of smoke-averse job-seekers is higher than the proportion of smoke-indifferent job-seekers, greater competition for and supply of jobs at smoke-free establishments will ilkely depress the corresponding wages. We can expect this effect to stabilize at the point at which the decrease in wages begins to exceed the health and health care costs of working in a smoke-permissive establishment. After regulation, all jobs are equivalently smoke-free. Those making their way into the job market in the post-regulation world will now be indifferent to choice between businesses formerly banning smoking and those formerly permitting it. Thus, competition for new jobs will decrease at formerly-smoke-free establishments and increase at formerly-smoke-permitting establishments, leading to an equalization in wages (for *new hires*). Those new hires who would have chosen decreased wages in exchange for smoke-avoidance may now enjoy a wage-surplus, and those who would have elected to risk the perils of smoke in exchange for increased wages are now deprived of a wage-surplus. Thus the overall utility effect of regulation seems like a wash for the yet-to-be-hired.
As for those already hired pre-regulation, a reverse distribution may result, depending on how the business responds to the cost-impact of the regulation. Let’s assume that, at the time the already-employed were hired, they had their choice of smoke-free or smoke-permitting establishment, and labor-market forces had therefore caused the wages available at smoke-free and smoke-permitting establishments to diverge due to differential supply - as described above. Let’s also assume that wages remain constant for the already-hired both immediately pre- and post-regulation. After the regulation goes into effect, those working in formerly smoke-permitting establishments will enjoy higher wages without bearing the corresponding risks, while those working in smoke-free establishments will suffer from lower wages without the benefit of the risk-avoidance they enjoyed at the time they accepted a smoke-free job. Of course, these assumptions can be attacked, but in this case regulation seems to operate more like a redistribution of wealth from the risk-averse to the risk-taking.
And now that I think of it, the labor population of the already-hired can be sliced one additional way: an assumption underlying my analysis so far has been that each business enforces a consistent policy towards smoking in the pre-regulation time period. Those employees who have chosen a job based (at least in part) on its smoke-free policy suffer when that policy is changed to a smoke-permitting one on the business’s own initiative. They are probably stuck with their job (due to transition costs) and their prior low wages (due to bargaining constraints), and now forced to bear the additional risk of second-hand smoke. In contrast, the employee who works in an establishment with a smoke-permitting policy that voluntarily switches to smoke-free is in the same boat as the already-hired employee in a smoke-permitting establisthment post-regulation: high wages without the former risk that was responsible for the increase in the first place… ie, a windfall. Regulation at least relieves the former of the imposed risk, and leaves the latter untouched.
So, of the 8 segments of the labor population whose utility function has been analyzed, the one which benefits the most from regulation is the employee whose establishment changed from a smoke-free to a smoke-permitting policy after she was hired but before regulation. As for all others, the regulation’s effects on their utility functions appears to cancel themselves out. If the endangered group is small in number (ie, if most employees have worked under a consistent smoking-policy during their work-time), the benefits of regulation may be small in comparison to the costs imposed on the smoking segment of the customer population.