Quitting can pay.

Photographer: John Moore/Getty Images

Smoking's Growing Income Gap

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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The income gap between smokers and nonsmokers has grown. And it's something companies may need to address directly in their efforts to help employees kick the habit.

Over the past several decades, smoking rates have fallen sharply among high-income, highly educated Americans and not as much for less educated, low-income people. The result is that, in 2013, the smoking rate exceeded 20 percent for people with a high school degree or less while among those with a graduate degree it was just 5.6 percent. Among people living in poverty, smoking was almost twice as common (29 percent) as among those at or above the poverty line (16 percent).

The good news is that the financial incentives many companies are considering, and some are now using, to help people quit smoking can work, as a new study in the New England Journal of Medicine shows. The researchers randomly assigned employees of CVS Caremark and their relatives and friends to different groups, which were given various financial incentives to stop smoking. This study did two fabulous things that are unfortunately quite unusual in the corporate wellness field: It used a randomized controlled trial (to boost confidence in the causality of its results), and it paid careful attention to the teachings of behavioral economics -- testing, for example, whether carrots or sticks were more effective.

The results were encouraging. People who were told they would receive an individual bonus of $800 for quitting stopped at almost three times the rate of those not offered any direct financial inventive. Behavioral theory generally suggests, though, that loss aversion would work even better. In other words, if subjects made an initial deposit that they would stand to lose if they failed to quit, that would provide an even stronger incentive. And that was indeed the case, the researchers found, but people had to be willing to make the deposit in the first place. And because many were not willing to do that, the bonus approach was more effective overall. So unless a company finds a way to force its employees to follow the stick approach, the bonus works better.

These findings were widely reported in the news, but one thing went largely if not entirely unnoticed: A table in the appendix to the study showed that, for each of the four kinds of interventions studied, the share of high-income smokers who quit -- those earning $60,000 or more -- was larger than that of lower-income smokers. The reason, according to the study's lead author, is that lower-income smokers were less willing to participate under any of the incentive programs offered. That was true despite the bonus or deposit being the same dollar amount for everyone, and therefore a higher share of income for lower-paid workers.

Reducing smoking among any group of employees is a good thing, and companies should act on this new research. At the same time, it is reasonable to be concerned about the gap in smoking rates by socioeconomic status, which is one of the forces widening the gaps in life expectancy by education and income. To reverse this trend, disproportionately larger dollar bonuses may be needed to get lower earners to quit.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Peter R. Orszag at porszag3@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net