Smoking and local unemployment: Evidence from Germany

In this paper, we use data from the German Socio-Economic Panel to investigate the effect of macro-economic conditions (in the form of local unemployment rates) on smoking behavior. The results from our panel data models, several of which control for selection bias, indicate that the propensity to become a smoker increases significantly during an economic downturn, with an approximately 0.7 percentage point increase for each percentage point rise in the unemployment rate. Conversely, conditional on the individual being a smoker, cigarette consumption decreases with rising unemployment rates, with a one percentage point increase in the regional unemployment rate leading to a decrease in consumption up to 0.8 percent.