Unemployment and Drinking

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The age old question about the consumption of alcohol when people lose their jobs bring up several good analogies.  As stated in the article “Out of Work and in the Bar?” Business Week, November 12, 2001, p.36. It was noted that Overall consumption of alcohol does not increase during recessions.  I researched further and found that in an article here , states the following, “research, which has used a wide variety of data, generally has concluded that increases in the prices of alcoholic beverages lead to reductions in drinking and heavy drinking as well as in the consequences of alcohol use and abuse. This conclusion concurs with a fundamental law of economics called the downward sloping demand curve, which states that as the price of a product rises, the quantity demanded of that product falls.”

In my opinion I believe that the only possible way to calculate this scenario is to replace the unemployment rate with the price of alcohol.   In the state scenario if you take 3% / 1% you get a price elasticity of demand of 3, which makes it elastic. The calculation of the national level is 4% / 1% you get a price elasticity of demand of 4, which also makes it elastic.

I do however believe that the questions can be taken even further with the fact of income, or lack thereof.  If the price of alcohol goes up then the quantity demanded will change. If before unemployment alcohol took up a very small percentage of income and now during unemployment it takes up a larger portion of income it could result in the same result.  In the previously cited article it indicates that if you raise the taxes or costs of alcohol, the quantity demanded decreases.   This research shows that if we want to reduce the use of alcohol in our youth and or those that abuse it, then we need to raise the price by the use of taxes.  The only problem that this has is that it also penalizes those that are of age and do not abuse alcohol. 

If the article “Out of Work and in the Bar?” is true then with the double digit unemployment rates we are due to see in this recession alcohol consumption should only decrease and therefore not have any cause for concern at the government level to intervene.

I find that the fact our income will reduce dramatically if we find ourselves unemployed will play a huge role on alcohol consumption.  In my opinion alcohol is a luxury item and is not a necessity.  If however, I am an alcoholic it changes alcohol from a luxury item into a necessity and I would pay the price or look for other substitutes, etc.

The perception of our society is that anytime something bad happens we must “have a drink to overcome the situation” it is idolized in our movies and in society.  This, in my opinion, affects the way it is perceived in our economy and will affect the outcome on how the government will address the situation during the recession.