Earlier this week, Scioto Analysis released a cost-benefit analysis on legalization of the sale and purchase of marijuana for recreational use. As part of this, principal analyst Rob Moore and I had the opportunity to speak with the League of Women Voters of Metropolitan Columbus about our findings.
Because we specialize in cost-benefit analysis, we decided to frame our discussion as using that context. Rob talked about the benefits of legalization (you can find his blog post about the topic here) and I got to talk about the costs.
Here is what we found about the economic costs of legalizing recreational marijuana:
Productivity
One major concern for opponents of recreational marijuana legalization is the effect the policy change will have on people’s ability to do their jobs. If legalization makes marijuana easier to access and enables more people to become users, there may be an increase in the number of people who fail to perform at their jobs because of marijuana use.
One paper used a difference-in-differences model and found that across four industries (mining; construction; arts, entertainment, and recreation; and accommodations and food Service), the legalization of marjuana led to a roughly 1% decrease in productivity.
Although a 1% decrease in productivity seems small, these are extremely productive and important industries to our society. We estimate that this decrease in productivity would lead to a net loss of roughly $760 million across the state.
From an economic perspective, this is actually a very surprising result. This is because productivity is not likely to fall by 1% for every employee in these industries. Instead, it’s much more likely that a very small percentage of employees become extremely unproductive.
Because of this, we might expect the labor market to correct for this loss by letting go of less productive employees in favor of more productive ones. While this might be true in the long run, there is a lot of friction in the labor market that makes adaptations like this quite slow.
For example, it can be very expensive for employers to fire old employees or hire new employees. If those costs are greater than the private cost of having less productive workers then employers won’t be incentivized to make a change.
Car Crashes
Another important downside of legalized recreational marijuana is the impact it has on car crashes. Similar to the productivity decrease, it follows that if we increase the number of people using recreational marijuana the number of people who end up driving while under the influence is going to increase.
Our models project that in Ohio, the increased number of people driving under the influence will lead to just over $120 million of costs for the state. This comes from a combination of increases in property damage, injury, and fatalities.
There are other potential negative effects of recreational marijuana that we chose not to monetize for our report. One significant one that gets a lot of attention in the media is the health effects of marijuana.
We chose to not include direct health effects in our models for one main reason: the interaction between marijuana use and alcohol use. There is some evidence to suggest that marijuana use may be a substitute for alcohol use, meaning that legalized marijuana could decrease alcohol use rates.
If this is true, then depending on how much alcohol use decreased, we could see positive health effects from legalizing recreational marijuana. However, more research is needed to understand exactly what the health outcomes for society will be.
At Scioto Analysis, we believe that good policy decisions happen when the policy makers are well informed about the subjects they are deciding on. This year, the public gets to help make some policy decisions. Hopefully this helps inform your vote when you head to the polls in two weeks.