What are the economic effects of illicit drug use in England and Wales?
The first and most obvious affect that the illicit use of drugs must have on the economy is the affect that non-subscription drugs have on the health of the labour force. There have been various studies on the psychological and physical affects of illicit drug use and any absenteeism caused by the effects will have an adverse affect on productivity. This absenteeism can also cause lower wages, as lower productivity will naturally lead to a fall in the wage rate for the labour force. Having said this it seems logical that illicit drug use among the employed would be low. This assumption is upheld by the British Crime Survey which showed that drug use was much less prevalent among the employed that among the unemployed. This would seem to make rational sense, however as shown by Bretteville (1999) the illicit taking of certain drugs is not rational. He stated that, that there are two types of approaches to ‘addictive behaviour’. The first is the myopic addictive approach this means that consumers will ignore the effect on future utility. This means of course that irrational decisions are likely to be taken. Then there is the rational addiction approach.
This states that those taking the drugs take account of the future effects of current consumption when determining the optimal amount of the good to take in the present. Having said this it becomes obvious that the consumption of drugs such as heroin and crack cocaine cannot be rational. Why then are seemingly rational consumers behaving in an economically irrational way? Becker and Murphy offer a possible solution: They stated that consumers time preference rates have a great deal to do with illicit drug taking. People with high time preferences for the present are more likely to have sub-optimal consumption levels. That is, those who want to satisfy their utility now are more likely to show myopic addictive behaviour. Strong addictive behaviour, such as that shown by drug addicts, requires a large effect of previous consumption of the good on present consumption. The time preference rate is usually expressed as the marginal rate of substitution between present and future utility, that is, the amount of the good that is the amount of units of the good that the consumer is prepared to give up in the future to have one more unit now. Thus the higher the value for the time preference rate then the higher the consumers desire for satisfaction in the present and the more likely they are a to display addictive behaviour. To arrive at this model Becker and Murphy have made three assumptions the first is that all time preferences are stable. This means that if consumers have higher preferences for the present then they will stay that way and then it is assumed that there is a large interpersonal variation in the size of time preference rate. Finally it is assumed that people with a high time preference rate are more likely to become addicted to drug taking. Becker and Murphy state that as with most goods the consumption of drugs are based on consumers utility function current and expected prices, income, initial stock of consumption capital, depreciation rate of consumption capital and consumers time preference rate. Having said this Becker and Murphy emphasized that there may be multiple points of equilibrium on the same utility function reflecting how the consumer may have different levels of consumption of the addictive good at different times as this reflects how many drug addicts tend to go on ‘binges’ or may go ‘cold turkey’ to try and get off a certain drug.
The first major insight into drug use in the UK came with the British crime survey that was first conducted in 1992. However the original survey was considered fairly unsuitable for analysis compared to more updated surveys conducted in ’94 and ’96. The British Crime Survey (BCS) was a household survey given to 13,300 people across England and Wales. In this survey there were three questions pertaining to use of 13 of the most used illicit drugs that fall into the three classes as defined by the 1971 Misuse of Drugs Act. That is hard or classes A drugs such as crack ecstasy and heroin, and soft or class b and c drugs such as cannabis, amphetamines and unprescribed tranquillisers.
The three questions asked about each drug in the survey were as follows:
- Have you ever taken [DRUG] even if it was a long time ago?
- In the last 12 months have you ever taken [DRUG]
- In the last three months have you taken [DRUG]?
These questions are intended to provide information on the lifetime use and any relationship between that and current or recent use. This survey was the most comprehensive of its kind with the largest study group. There had been other studies on the nature of drug use in England and Wales such as Parker and Measham (1994) and Leitner et al’s ‘four cities survey’ in 1992. However these had much smaller sample sizes and thus the BCS was the clearest indication so far into the illicit use of drugs in England and Wales. However there are some problems with the BCS in relation to answering the question of the economic affect of illicit drug taking, as we shall see.
The first and most obvious problem is that the BCS is a survey. The subject of drugs is still a very sensitive one and the propensity for inaccurate or dishonest answers is very real. The other main problem is perhaps less obvious. It occurs in the order of the survey’s questions. The survey is aimed at discovering two types of drug use: past use, and recent use (within a year of the survey). With this in mind the order of the questions makes it impossible to separate past and recent drug use. In fact it is only possible to observe three rather than four possible usage scenarios. That is that the interviewee has never used the drug (i.e. they answered no to the ‘ever’ question) or that they have only used the drug in the past (i.e. yes to the ‘ever’ question and no to the ‘past year’ question). The third possibility is that the response to both questions was yes which would indicate ongoing drug use. The simple answer to this problem would be to re-order the questions in the survey. If the ‘ever’ question was asked after the ‘past year’ question more information would instantly become available. Instead of the three possibilities we can observe four. The same three previous observational possibilities, plus a fourth, which would be ascertained if the answer to both questions was yes. This would indicate that there was past and current drug use and could greatly affect any policies that could be installed from this information. Without these observations it becomes virtually impossible to assess any ongoing or escalating drug use problem and thus makes it very difficult to ascertain the economic impact of any change in drug taking behaviour. This is a particular problem, as any economic affect of illicit drug taking will need to be separated into occasional recreational drug use and chronic constant abuse.
Having said outlined the problems with the British crime Survey we must now discuss what can be learned form its results. The first major finding of the survey was the extent of illicit drug taking in this country. The results show that over a quarter of the observed sample have tried at least one drug at some point in their life*. Furthermore this can be presumed to be a ‘conservative’ result as there is bound to be a certain amount of underreporting in the survey due to its sensitive subject nature.
To assess what effects economic illicit drug taking has we must also consider how economic circumstances affect illicit drug taking. The British Crime Survey cannot take into account emotional circumstances and other situations such as other studies did (e.g. Stenbacka et al). However it does indicate that low income unemployed males that are frequent drinkers are the most likely to consume illicit drugs. With this in mind it seems that the economics is affecting the taking of illicit drugs. However if unemployment is positively related to drug consumption this will adversely affect the economy as a whole. Peck and Plant argued that drug use fostered unemployment. The unemployed involved in frequent drug taking are naturally going to find it harder to find a job and earn higher income thus the government will not only be losing out on tax revenue but also on benefit payments. It is also widely reported that drug addiction is linked to crime; many addicts will steal to ‘feed their addiction’. It is estimated that the crime as a result of illicit drug taking has cost the UK £1.5 billion pounds a year. In the US the regulation of cocaine alone has cost the government $20billion dollars in one year. The most major problem that arises from drug abuse would be the one of health. Thus it makes sense to observe the statistics that link drug abuse to missed workdays. It was estimated in 1999 that alcohol abuse and drug abuse combined to cause a total of 14 million missed workdays a year. It makes sense to assume that if frequent drug users are constantly taking days off work then, ‘assuming workers receive the value of their marginal product as pay, this reduced productivity will manifest itself through lower wages’. Therefore if there is a relationship between drug abuse and days off then it should follow that groups with lower wages are more likely to take illicit drugs. There is a flaw in this argument. That is that there are innumerable factors that could cause low wages and having drug abuse, as the only independent variable could be misleading. The main problem would be the simultaneous causation between drug use and low wages. In other words low wages could be causing the drug use or the drug use could be causing the low wages. With this in mind we must examine the evidence of the impact of drugs on the labour force. Kenkel and Ribar (NLSY) found that there was a negative association between use of marijuana and the amount of labour hours supplied by young men in America in 1994. However the US national household survey on drug abuse found ‘no significant relationship between past month labour supply and the use of cigarettes, alcohol or cocaine’. Indeed the conclusion of the report was that there is little evidence of a relationship between labour supply and drug use. These conflicting results may well be due to the fact that Kenkel and Ribar allowed for the endogeneity of the two variables however the US national survey conducted extensive tests for the exogeneity of the two variables. In fact there are many studies that show that once endogeneity has been taken into account wages and drug use are actually positively related. Gill and Michaels (1992), Register and Williams (1992) and Kaestner (1991) all found that drug use and high wages were positively correlated. Having said this in 1994 Kaestner conducted another study using the same data as the NLSY study. This time the longitudinal results suggest that any correlation between drug use and wage level varies greatly. The variations follow the differences between the individual and the type of drug in question. For example it was found that there was a positive relationship between cocaine use and wage level for females and a negative relationship between marijuana use and wages for males. It is now becoming obvious that this is a very difficult subject to quantify. Is it possible therefore to learn more from accident rates or productivity? Once again we find that any immediate discoveries will be very hard to come by. Many studies have been aimed at finding out lost productivity caused by drug use (Rice et al 1990, Normand et al 1994) but these studies were found to be too broad in there assumptions. Thus national level data can be hard to use, however smaller more individual samples have overturned some interesting facts. Dawson (1994) found that the use of illicit drugs is consistent with a higher risk of workplace accidents while Kandel and Yamaguchi (1987) found that drug abuse lead to a greater number of absences and a greater risk of being fired or resigning from a job. It seems on the whole that drug use has a positive relationship with the increased number of accidents in the workplace. Workers who have tested positive for marijuana, cocaine and other drugs were five times more likely to suffer reportable accident s at work than those who tested negative according to Crouch et al. (1989). The occurrence of accidents is not only a nuisance but also an expensive proposition to businesses in this country. Even workers who are not involved in drug taking can be affected by accidents caused by drug users and this will result in time lost and thus revenue lost to the firm and the economy as a whole.
There can be no denial that the taking of illicit drugs in England and Wales is having a negative effect on the economy. Whether it is through costs to the NHS, social security, police force or business productivity the cost of drugs is enormous. It is estimated in a study conducted in 1999 by the IPD that the use of illicit drugs costs the UK a total of £800 million each year. The answer to this problem may lie in legalisation rather than prohibition. The campaign for legalisation has been a very high profile one over the past few years.
While it is inconceivable that all drugs will be legalised in the near future it seems that economically at least this may be a sound policy. To use the United Sates as an example, Jeffrey Mirron (Boston University) has suggested that the legislation of drugs could save the federal budget up to $24 billion through tax revenue from a controlled dugs market. Obviously the social and ethical issues surrounding legalisation will have enormous effect but from an economic viewpoint it seems like a possible solution to a very difficult problem.