The Drinker’s Premium: Alcohol as Social Currency

Social drinking is integral to American heritage, yet too often we fail to recognize it as such.

How is that possible?

From the Founding Fathers on through the Prohibition years and into the present day, the majority of Americans continue to drink. And apart from the very recent rise in binge drinking, the tradition of social drinking is so enmeshed in the fabric of American society, it predates the popular notion of an American dream by several hundred years.

Given that context, we really should be unsurprised to find — as at least two major studies have — that social drinking correlates positively with wealth.

The Drinkers’ Premium

Two major studies have resulted in the same conclusion about the socioeconomics of drinking. It turns out that the more money you make, the more likely you are to spend it on drinks; and conversely, the more you drink, the more money you’re likely to make.

Sociologists call this correlation the drinkers’ premium.

The drinkers’ premium contradicts widely-held stigmas about drinking — that drinking is a frivolous waste of time, for example, or that drinking indicates serious failure (as by moral weakness).

On the contrary, if alcohol consumption has some intrinsic effect on net worth, then drinking transforms from a chimera to a powerful social tool. And if, on the other hand, wealthy people drink more simply because they can afford to — well, that’s a small tradeoff for such widespread success.

In the sections to follow, we’ll first show the facts behind the drinkers’ premium. We’ll then examine the arguments as to the cause of the drinkers’ premium. Next we’ll consider how the drinkers’ premium goes against commonly held perceptions. And ultimately, we’ll find that the correlation between drinking and wealth leads us to an astounding insight: today’s elite rely on alcohol as a kind of social currency.

The Facts Behind The Drinkers’ Premium

In a 2006 study — let’s call it “Study A” — two economists found that:

[Drinking] leads to higher earnings by increasing social capital. If drinkers have larger social networks, their earnings should increase. Examining the General Social Survey, we find that self-reported drinkers earn 10–14 percent more than abstainers, which replicates results from other data sets.

According to this line of thought, the petri dish of social drinking gives rise to a complex dynamic. More specifically, the more people network over drinks, the more this group’s “social capital” increases. The study in question uses the term “social capital” as a catch-all for varying traits including peoples’ charisma, the sizes of their social networks, etc. And the economists performed the study before we popularized social networking sites like Facebook and LinkedIn, perhaps suggesting that the network effect has ballooned since then.

Another more recent study — “Study B” — confirms the widespread value of social drinking. A 2014 Gallup poll found that:

• About 78% of Americans with an annual household income of $75,000 or more drink.
• Less than 50% of Americans from households making less than $30,000 drink with any regularity.
• About 47% of wealthy Americans had had a drink within the past 24 hours.
• Only 18% of relatively impoverished Americans had a drink within the past 24 hours.

Why Does The Drinkers’ Premium Exist?

Each of the studies cited above acknowledges that Americans in the top tax brackets command greater salaries with which to buy alcohol. They differ, though, in their explanations as to why the wealthy tend to drink more.

“Study A” posits that wealthy Americans spend more time on social activities we tend to associate with drinking. Beyond bars, these gatherings run the proverbial gamut from eating at local restaurants to honeymooning up in the Alps. “Study A” suggests that it’s these types of events that make social drinkers more upwardly mobile.

In direct contrast to “Study A”, most interpretations of “Study B” cite access as the key factor to the drinkers’ premium. In other words, wealthier people tend to live in cities with high concentrations of places that serve alcohol. Such an interpretation leaves out the fact that alcohol in cities costs more, though (where the extra cost for a drink in a city like New York nullifies the convenience of bars there).

Why Is The Drinkers’ Premium Surprising?

It’s fitting that the idea of the American Dream first gained traction towards the end of the Prohibition era. The idea that anyone can prosper in America leans heavily on individual freedoms protected by the Amendments. With the repeal of the prohibitive 18th Amendment, alcohol as an industry exploded in America. Bootleggers changed places from the margins of society to the middle of the party, and it happened almost literally overnight.

Just as the alcohol industry grew in America, its number of antagonists also increased. In fact, it took the better part of a hundred years for anti-alcohol groups to decouple the way we think about social drinking from our notion of the American Dream. In place of a national Prohibition, we see mini-prohibitions at the state level. And ironically, the rise of overzealous impositions (such as dry counties and legal drinking ages) coincides neatly with the rise of binge drinking culture.

Rather than acknowledge social drinking’s fruitful effects in American culture, fear-mongering groups have doubled down by conflating binge drinking culture with responsible social drinking.

Social Currency For Social Capital

Contrary to binge drinking, social drinking stands alone as an effective way to increase your social capital — an effect made possible by alcohol as a social currency.

It’s an insight that goes against the grain of both convention and public policy. Shortly after “Study A” was published, economist Edward Stringham (one of the authors of the study) explained the rationale behind the paper:

“The legal blood alcohol level is dropping everywhere, and we’re barraged with overhyped warnings about binge and underage drinking,” he said. “Instead of fear mongering we should step back and acknowledge the proven health and economic benefits that come with the responsible use of alcohol.”

While alcohol alarmists are unlikely to go away any time soon, the numbers pertaining to the drinkers’ premium suggest there is hope. If we agree that alcohol indeed counts as its own social currency, then responsible and social drinkers should take heart. From airport bars to ancient pubs, opportunity abounds; when done right, social drinking can grow your social capital in ways more profound than likes or shares.