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This chapter estimates the negative effect of smoking on earnings in the context of a developing country. Using data from the 2005 Albania Living Standards Measurement Survey, models are estimated by parametric and semi-parametric methods to account for the effect of observable and unobservable characteristics that could affect individual smoking decisions and earnings. Information on the smoking behaviour of parents is used to address the endogeneity of the smoking decision. The results show that, after controlling for observed individual characteristics and parental education and taking into account unobserved heterogeneity in personal characteristics, smoking is found to have a substantial negative impact on earnings. The main results are robust to a range of alternative specifications. On average, smokers’ earnings are 19–23 percent lower than the earnings of similar non-smokers.

How individuals allocate their time between work and leisure has important implications regarding worker well-being. For example, more time at work means a greater return to human capital and a greater proclivity to seek more training opportunities. At the same time, hours spent at work decrease leisure and depend on one's home environment (including parental background), health, past migration, and government policies. In short, worker well-being depends on trade-offs and is influenced by public policy. These decisions entail time allocation, effort, human capital investment, health, and migration, among other choices. This volume considers worker well-being from the vantage of each of these alternatives. It contains ten chapters. The first three are on time allocation and work behavior, the next three on aspects of risk in the earnings process, the next two on aspects of migration, the next one on the impact of tax policies on poverty, and finally the last chapter on the role of labor market institutions on sectoral shifts in employment.