A recent study published in the IZA Journal of Labor Economics, “The Effects of Recreational Cannabis Access on Labor Markets: Evidence from Colorado,” found that the presence of adult-use cannabis dispensaries in a county will raise the employment rate for that county. We sat down with study co-author Sarah Stith from UNM’s Department of Economics to discuss the positive economic impact that a commercial cannabis market can have for communities.
The Paper.: Can you tell us about this study? Why did you feel it was an important area of research?
Stith: We wanted to look at the labor market effects of recreational cannabis. Recreational cannabis affects a huge portion of the population. There’s been a few studies on the labor market effects for medical cannabis. It seems to generally have some positive effects—some increased productivity among older workers, things like that—but no one had really looked at recreational cannabis. And recreational does affect a much larger population. You have this recreational use that could potentially decrease productivity among workers or make people want to work less.
There has been one study on medical cannabis’s effect on the labor market, that had found some reduction in wages among young males, I think. But that was basically all there was when we started this study. So we decided we were just going to look at what happens when dispensaries open in counties in Colorado and see what happens to their labor markets. And so that’s what we did. We looked at counties where dispensaries opened, and we compared the before-and-after with other counties that didn’t get a dispensary or that banned dispensaries for whatever reason, and we looked at whether there were differences in the employment outcomes. We found that there was an overall 4.5 percent increase in employment in counties with adult-use dispensaries, but we did not find a lot of movement on labor force participation. That suggests that the demand side wasn’t getting affected all that much.
We also found no effect on wages. There was no reduction in productivity being reflected in wages. But what we did find is a lot of new jobs—primarily new job openings from employers reporting through the tax system. And we looked across different industry sectors.
We actually saw the biggest effects in manufacturing and I suspect this has to do with processing. Here in New Mexico, a grower can’t package their own product. They have to follow good manufacturing practices, and send the product to a manufacturing facility that packages it for the grower. We suspect that that’s where this is coming from: a lot of this [job growth is in] processing.
Where did you source your data?
There was all this great Colorado data on the dispensaries. And then you also have your employment outcomes: We have to thank the federal government for collecting data on those things. They keep pretty up-to-date on the unemployment rate so that was nice to have recent data for those sorts of things. We also drew from two datasets. One is self-reported employment—a survey of households. That’s what the unemployment rate variable is based on. But then we also looked at a quarterly census of employment and wages, which is information submitted by businesses for tax reasons. That tracks all the job openings.
What about unemployment—was that affected?
The 4.5 percent increase in employment is related to the unemployment rate. We found a decline in the unemployment rate. It was trending down in those counties before the dispensaries entered, but we did extra tests to make sure that was not what was driving our results. Our study suggests that not only do we see this decline in unemployment, but there’s also a shift of people moving from self-employment into more formal jobs with employers.
I think the thing to think about is just the differences between the legal market and the previous illegal market—the sophistication of the types of products that are offered. That’s why we think we see all this manufacturing participation change. It’s not just that you’ve got some industry that used to be illegal that is moving into a legal market, you really have a different industry developing—one that’s much more sophisticated and has a lot more innovation, r&d and manufacturing needs as well.
Clearly the demand for workers greatly outweighs changes in the supply of workers. But we don’t know for sure that there weren’t any detrimental effects to supply. We just know that the demand side effects are much larger. And by demand side with labor markets, we mean the firms that demand the workers. The laborers sell their labor and firms demand it.
Counties in Colorado are allowed to ban retail cannabis sales. That seems like a special opportunity for this sort of study.
In Colorado it was surprising how separate the markets were. We found very little evidence of spill-overs to counties that didn’t adopt dispensaries. Maybe they don’t want any sort of cannabis-related industry in their county—that might be part of why that was the case.
The main takeaway from this is that recreational cannabis creates jobs. But I think that the key thing from a regulatory perspective is this idea that you do need to have the dispensaries located in your county to reap the benefits.
It was one of our more simple studies. All the methods were very complicated, but the ultimate takeaway is pretty straightforward. And in some ways—I think for those of us who’ve been working in this sector for a while—the findings aren’t terribly surprising. If you open a new developing industry, then there will be a high of demand for workers.