What is the effect of veteran status on civilian earnings?

Responsible researcher: Viviane Pires Ribeiro

Paper Title: Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records

Authors: Joshua D. Angrist

Intervention Location: Vietnam

Sample Size: Not specified

Big topic: Job Market

Variable of Main Interest: Earnings in military services

Type of Intervention: Analysis of the long-term consequences of military service on the labor market

Methodology: Empirical analysis

Angrist (1990) argues that certain types of men are more likely than others to serve in the military, thus the author analyzes the long-term consequences of military service on the labor market during the Vietnam era. Social Security administrative records indicate that in the early 1980s, after completing service in Vietnam, the earnings of white veterans were approximately 15% lower than the earnings of non-veterans.

Assessment Context

 A central question in the debate over military manpower policy is whether veterans are adequately compensated for their service. The political process clearly reflects the desire to compensate veterans: since World War II, millions of veterans have enjoyed benefits for health care, education and training, housing, insurance, and job placement. Recent legislation provides additional benefits for Vietnam-era veterans. However, academic research has not conclusively shown that Vietnam (or other) veterans are worse off economically than non-veterans. Many studies have found that Vietnam veterans earn less than non-veterans, but others have found positive effects, or effects that vary with age and education.

Intervention Details

The study carried out by Angrist (1990) sought to measure the long-term consequences of military service on the labor market during the Vietnam era. To this end, randomly assigned and randomly generated induction risk was used to construct estimates of the effect of veteran status on civilian earnings. These estimates, according to the author, are not biased by the fact that certain types of men are more likely than others to serve in the military.

There were five draft lotteries during the Vietnam War period. The 1970 lottery covered men aged 19 to 26 born in 1944-50, although most men drafted in 1970 were born in 1950. Other lotteries were restricted to 19- and 20-year-olds. The 1971 lottery covered men born in 1951, the 1972 lottery covered men born in 1952, and so on, until 1975. However, no one was drafted after 1972, and Congress' draft authority expired in July 1973.

The year 1970 was the last time men over 20 were called up. In principle, non-veterans born between 1944 and 1949 remained at risk of induction in the 1970 lottery, but most of the men who ended up serving in these cohorts had already entered the military by the time of the 1970 lottery drawing. Veterans born between 1944 -49 who managed to avoid service until 1970 may not constitute a representative sample. Therefore, the analysis carried out by Angrist (1990) is restricted to men who turned 19 during the period in which they were at risk of induction. This sample includes men who were born between 1950 and 1953.

In each lottery, priority for induction was determined by a Random Sequence Number (RSN) of 1-365 that was assigned to birth dates in the cohort being drawn. Men were drafted by the RSN up to a ceiling determined by the Department of Defense, and only men with lottery numbers below the ceiling could have been drafted. Therefore, men with lottery numbers below the ceiling are referred to as "enlistment eligible."

Earnings data used in the study were drawn from the Social Security Administration's (SSA) Continuous Work History Sample (CWHS).

Methodology Details

In the empirical analysis, estimates of the effect of conscription eligibility on income are made. If military service eligibility is correlated with veteran status but uncorrelated with other earnings-related variables, wage differences by military service eligibility status can be attributed to military service.  

Information on the proportions of draft-eligible and ineligible men who actually served in the military is used to convert estimates of the effect of draft eligibility into estimates of the effect of military service. The assumptions underlying this procedure are those that justify the estimation of instrumental variables; In principle, any Random Sequence Number function provides a legitimate instrument for veteran status. Furthermore, the author develops an instrumental variables estimation strategy that is more efficient than one based solely on draft eligibility status.

Results

Estimates based on the draft lottery indicate that up to ten years after discharge from service, white veterans who served at the end of the Vietnam era received substantially less than non-veterans. The annual earnings loss for white veterans is on the order of $3,500, or about 15% of the annual salary in the early 1980s. In contrast, the estimated effects for nonwhite veterans are not statistically significant.

The study also proposes a simple explanation for white veterans' earnings loss: Veterans earn less because their military experience is only a partial substitute for the civilian labor market experience lost in the military. Goodness-of-fit tests suggest that, for whites, the time series coefficients on veteran status are consistent with this hypothesis. Experience gains profiles estimated using Social Security data indicate that white veterans suffered a reduction in earnings equivalent to the loss of two years of experience in the civilian job market.

Public Policy Lessons

Angrist (1990) argues that previous research comparing civilian earnings by veteran status may be biased by the fact that certain types of men are more likely to serve in the military than others. For example, men with relatively few civilian opportunities are probably more likely to enlist. Estimation strategies that do not control for differences in potential civilian earnings will incorrectly attribute veterans' lower civilian earnings to military service. Thus, the research conducted by the author overcomes these statistical problems by using Vietnam-era lotteries to create a natural experiment that randomly influences who served in the military.

Analysis of Social Security administrative records indicates that in the early 1980s, after completing service in Vietnam, the earnings of white veterans were approximately 15% lower than the earnings of non-veterans. This analysis naturally leads to more research on various topics. One of them is the question of alternatives to the loss of experience explanation for the reduction in earnings of white veterans. Veteran status may be a screening device, or there may be cohort size effects. Another question for future research is whether eligibility for military service affected educational and career plans independently of its effect on military service. The lottery can provide a useful tool for research into the change in educational performance in the 1960s and 1970s.

Furthermore, it is also relevant to reconcile the loss of earnings of Vietnam-era veterans with the apparent benefits of military service for veterans of World War II and other eras. Although OLS regressions generally show the effect of World War II veteran status to be large, positive, and significant, these results may actually be a consequence of selection bias.

References

ANGRIST, Joshua D. Lifetime earnings and the Vietnam era draft lottery: evidence from social security administrative records. The American Economic Review , p. 313-336, 1990.