Association for Public Policy Analysis & Management

Conservative estimates value the retail market for illicit drugs in the United States as a $100 billion industry, with roughly 40% of that revenue coming from marijuana consumption (RAND 2014).  As states consider removing restrictions on the sale of medicinal marijuana in the U.S., billions of dollars in revenue, along with a correspondingly large number of upstream and downstream jobs, could become legitimized.  Given the magnitude of this market, any potential public policy changes regarding the production, distribution, and final sale of a previously classified illicit drug could have large behavioral consequences.  In this research, I examine the labor supply effects of recent changes in Medical Marijuana Laws (MML) across the U.S.  Extending the recent work by Pacula, Powell, Heaton, and Sevigny (JPAM 2015), I consider how the state-level variation in policies legalizing the use of marijuana for medicinal purposes – which include patient registries, the allowance for home cultivation, and the opening of legal dispensaries – have affected the labor force participation (LFP) rates of various types of workers.

Theoretically, medical marijuana legalization could either positively or negatively impact labor supply.  Behavioral responses will depend upon the nature of access to marijuana in the state, the number of potential jobs created, and the characteristics of the individuals seeking access to the drug.  While estimated economic impacts vary widely, legalization could create thousands of jobs and new sources of taxable revenue in states allowing the mass production and distribution of marijuana (e.g., California, Colorado, or Washington).  Other states without legal dispensaries but other means of legalization, such as public registries or home cultivation allowances, could also experience increases in labor supply – albeit smaller – as consumption of marijuana becomes less stigmatized in the workplace.  Conversely, access to medical marijuana may increase recreational use in states with more lenient policies (see Pacula et al. 2015).  In turn, increased availability of the drug may further exacerbate declining LFP trends in select groups of workers (such as young, low-skilled males) who further withdraw from the broader society, choosing instead to couple greater access to marijuana with more leisure time.

To identify the impacts of medical marijuana legislation on labor supply from 1992 to 2014, I will exploit the laws of 24 states which have approved medical marijuana in a quasi-experimental, difference-in-differences research design.  The nature of the access – e.g., patient registration, home cultivation, and dispensaries allowed – will be used to disentangle any potential labor supply effects.  Estimating equations by groups of workers (e.g., young, less-educated males; older, less-educated women, etc.), I will identify the impact of marijuana legalization on labor supply by comparing the pre and post LFP trends of a particular group of workers in the states which have expanded access to marijuana to a similar set of individuals residing in non-expansion states.  To test the sensitivity of my findings and minimize any potential confounding factors, I will perform an events analysis within short windows around legalization (e.g., five years before and after).