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Objective: The objective of this study is to understand the effect of obesity on wages. Although other studies have linked obesity to wages, the validity of their estimation results remains questionable due to potential weaknesses in the strategies employed to control for the endogeneity of obesity. I identified the effect of obesity on wages with exogenous state-level variation in multiple variables. The over-identification of obesity with exogenous instruments will provide valid parameter estimates if the identification is supported.

Methodology: This study employed an amplified dataset based on the National Longitudinal Survey of Youth 1979 (NLSY79). NLSY79 provides ongoing panel information with a nationally representative sample of 12,686 young men and women who were 14 to 22 years old when first surveyed in 1979. I have augmented the publicly available data by obtaining confidential geographic information for individuals.

Body-mass index (BMI) was used to measure the extent of obesity. Wages were assessed separately by gender as a function of BMI splines and interactions of BMI splines with two race dummies (non-Hispanic Black and Hispanic).

This study used two-stage estimation techniques to identify the effect of obesity on wages in conjunction with individual fixed effects model. I specified an overidentified first-stage equation using exogenous state-level variation to instrument individual obesity. Instruments for obesity included the following state-level variables: cigarette prices, per capita number of restaurants, per capita number of food stores, fast-food price, cost of alcoholic drinks (inclusive of beer, wine, liquor), and cost of food.

A Heckman selection model was used to control for the selection into the labor force with the following state-level identifying instruments: unemployment rate, number of business establishments, and number of Social Security Program beneficiaries.

Results: Specification tests support the exclusion of the instruments from the main equation and the strength of the instruments in the first-stage equation. Preliminary study results indicate that an increase in BMI after being overweight has a negative effect on wage earnings for both males and females, even after adjusting for selection into the labor force.

Conclusion: The results will support the understanding of the economic cost of obesity to an individual that arise from sources other than adverse health effects. This spillover effect will increase the total cost of obesity to both individuals and society as a whole. The negative effect of obesity on labor market outcomes could raise further attention to the epidemic of obesity.

Study Design: We present an empirical model that predicts wages as a function of BMI (the direct effect), education and occupation choice (indirect effects of BMI), and other factors. The effect of a unit change in late teen BMI on the logarithm of wages in the early career stage is the full derivative of the logarithm of wages in the early career with respect to late teen BMI, taking into account the indirect effect of late teen BMI through education and occupation choice in the early career. To calculate the indirect effects, we estimate the effect of late teen BMI on the stock of education accumulated by the time an individual reaches their early 30s using OLS. We specify education in the early thirties as a function of late teen BMI and other factors in the early thirties. We then estimate reduced form models of the effect of late teen BMI on occupation choice among white-collar, service, sales, managerial or professional specialty jobs, and blue-collar jobs (based on Census occupational codes), and choice of jobs requiring social interactions with colleagues or customers (based on the Dictionary of Occupation Titles).